Three Key Geopolitical Developments

The past few days have seen three key geopolitical developments.

Iran and the 'Great Powers': Iran and the so-called P5+1 powers clinched a landmark interim deal on the Islamic Republic's nuclear programme on November 24, paving the way for a partial easing of sanctions. However, we caution that progress towards a more permanent agreement will face substantial difficulties. For now, though, the atmosphere has certainly improved, and an Israeli air strike on Iran has become far less likely. Nevertheless, Israel and Saudi Arabia in particular are unhappy with the deal, and fear that Washington has gone soft on Tehran.

China-Japan-US: China on November 23 unilaterally declared a new air defence identification zone (ADIZ) covering the disputed Diaoyu/Senkaku islands, for which we recently published a conflict scenarios feature. The US responded by flying two unarmed B-52 bombers through the zone. We interpret the American move as designed to a) reassure Japan that the US stands by its top Asian ally; b) reduce the risk that a Japanese military response triggers a skirmish with China; c) demonstrate to Beijing that Washington will not accept moves by China to change the status quo in the Asia-Pacific region; and d) make a show of force demonstrating that the US has not gone 'soft' at a time when some see its failure to strike Syria in September and its conciliatory attitude towards Iran as signs of weakness. The territorial dispute in the East China Sea remains a major flashpoint, and conflict risks should not be underestimated.

Ukraine: Less headline-grabbing but still significant has been Ukrainian President Viktor Yanukovych's decision to back away from signing a trade agreement with the EU, which had been expected to take place at the EU summit in Vilnius, Lithuania, on November 28-29. The president cited the need to first resolve issues with Russia, which opposes any moves by Ukraine to align itself more closely with the Western world. The delay prompted mass protests by Ukrainians that favour their country joining the European fold. Going forward, although Yanukovych still hopes to sign an accord with the EU before his term ends in 2015, he may inadvertently have postponed this by several years. This suggests that Ukraine will continue to swing between east and west for the foreseeable future.

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