1 46* 2 Long Covid 3 Climate: net zero meets G-Zero
4 US-China tensions broaden 5 Global data reckoning
6 Cyber tipping point 7 (Out in the) cold Turkey
8 Middle East: low oil takes a toll 9 Europe after Merkel
10 Latin America disappoints * Red herrings
Ian Bremmer, President
Cliff Kupchan, Chairman

Overview
Ian Bremmer, President
Cliff Kupchan, Chairman

At the start of 2021, the United States is the most powerful, politically divided, and economicallyunequal of the world’s industrial democracies. China is America’s strongest competitor, a state
capitalist, authoritarian, and techno-surveillance regime that is increasingly mistrusted by mostG20 countries. Germany and Japan are much more stable, but the most powerful leaders both have
had in decades are out (former prime minister Abe Shinzo) or on their way out (Chancellor Angela
Merkel). Russia is in decline and blames the US and the West for its woes. And the world is in theteeth of the worst crisis it has experienced in generations.
Happy New Year.
You’d hope a global pandemic would prove an opportunity for the world’s leaders to work together.
That was at least mostly true after 9/11 and the 2008 global financial crisis. Both were smaller inscale but set against a broadly aligned geopolitical order … and politically functional United States.
Not so today.
That matters because just as 2020 was overwhelmingly about healthcare responses to Covid-19 (andhow much many governments got wrong), 2021 will overwhelmingly be about economic responses
to Covid-19’s lingering symptoms and scar tissue (debt burdens and misaligned politics), even as
vaccines roll out and the healthcare emergency fades. As economic issues come to the fore, there is
no global leadership on political models, trade standards, and international architecture to follow.
In decades past, the world would look to the US to restore predictability in times of crisis. But theworld’s preeminent superpower faces big challenges of its own, from unemployment and lack of
economic opportunity to questions about President-elect Joe Biden’s political effectiveness andlongevity, the future of the Republican Party, and the very legitimacy of the US political model. The
credibility of US foreign policy and the sustainability of US domestic policy will be tested this year
as they’ve not been in the postwar era.
A superpower torn down the middle cannot return to business as usual. And when the most powerfulcountry is so divided, everybody has a problem. Despite an economic recovery, the geopoliticalrecession—and the factors driving our G-Zero world—will intensify as a result.
And so, we go to our Top Risk #1, 46*.

eurasia group TO P R I S KS 20212

46*
Biden won the 2020 presidential election. On 20 January he will
be inaugurated as the 46th president of the US. He received 306
electoral votes and more than 80 million popular votes, the mostof any presidential candidate in American history. But President
Donald Trump’s refusal to accept the outcome of an election hedeclares was stolen is unique in American history, underscoring
how divided the country has become—and will remain.
Trump himself won the second-largest number of popular votes in American
history (74 million), and Republicans won enough votes down ballot to makeinroads in the House of Representatives as well as critical gains in statehouses andlegislatures. Add Trump’s success in creating a decisively conservative Supreme
Court, most recently with Justice Amy Coney Barrett replacing the late Ruth Bader
Ginsburg, and Biden will emerge with the weakest mandate since Jimmy Carter in
1976. Few observers believe he will run for reelection in 2024.
A challenge for Democrats—increasingly a coalition of college-educated urbanites—is that Trump’s popularity extends well beyond his most vocal supporters. He
received 11 million more votes than he did in 2016 and, in so doing, constructed abroader electoral coalition that includes more Hispanics and Black Americans. A
significant segment of that coalition sees Trump’s refusal to concede as a display of
courage, not an assault on democratic norms. While many Republican Party elders
don’t like Trump, public opinion is the reserve currency of politics, and he will

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leave office as (by far) the most popular and influential figure in the GOP. The lastminute push by members of Congress to delay or derail the election certification
serves as a foreboding sign of what’s to come. As long as a significant portion of
Trump’s voters remains loyal, he will cast a long shadow, compelling Republican
leaders to support him to avoid alienating his backers. For them, Biden will be#NotMyPresident and considered illegitimate.
Facing an aggrieved opposition loyal to the Trump brand, Biden will find it moredifficult to govern than under the “normal” conditions of split government. There
will be neither a badly needed large stimulus package nor long necessary changes
to the US healthcare system. Progressive priorities like a higher national minimum
wage, a new voting rights act, and filibuster reform are non-starters. Markets
typically welcome divided government, because it creates hurdles to tax increases
and new regulations, but gridlock will be worse than in the past as Republicans
block Biden’s judicial appointments and challenge left-of-center executive branchappointments, hampering agencies that have critical functions.
Biden’s supporters will criticize congressional inaction caused by an obstinate
Trumpist coalition and encourage the president to take unilateral executive actionsof questionable legality. Biden’s detractors will accuse him of overriding the
opposition and exercising excessive power when he governs by executive order. In
truth, rule by partisan decree has become the norm under former president Barack
Obama and then Trump, and major challenges—among them enacting entitlement
reforms, increasing access to health insurance, reducing income inequality, andsimplifying the tax code—will only grow harder to tackle as time passes. The morepolarized the country becomes, the less likely its eroding democratic institutions
will enable the compromises necessary to resolve fundamental problems.
If the vaccine rollout proceeds as hoped, the pandemic subsides, and the economy
rebounds strongly from the recession, Biden may win some political capital with
Republicans, but there are massive challenges ahead for the most ambitious
vaccination campaign in US history (see Top Risk #2). If it flops, and the country’s
health and economic emergency extends deep into 2021, Republican opposition
will intensify and grow more rigid.

The new occupantof the Oval Officewill be seen as
illegitimate byroughly half thecountry

The major risks of 46* are domestic, but the consequences of no-holds-barred
party warfare extend beyond America’s borders. Aside from the shared desire of
Republicans and Democrats to punish China (their complicity notwithstanding) for
decades of technological and economic advancement at the expense of America’s
intellectual property and manufacturing workforce, they disagree sharply—witheach other and among themselves—over the objectives of US foreign policy.
Washington’s mismanagement of the pandemic, meanwhile, is compelling its
friends to ask why they should entrust it with the far bigger task of revitalizing the
global order. Biden will try to reassert American leadership in global affairs, butpolarization and an inability to manage crises at home means the US won’t inspireas much new confidence as Biden hopes. Europe decided preemptively to buck
Biden’s goals by agreeing to a comprehensive agreement on investment with China.
In addition, the size of Trump’s base and the demographic broadening of his politicalcoalition will force allies to reckon with the possibility of another “America First”
president taking office four years from now and overturning commitments madeby the Biden administration. That’s why Biden, a man with decades of experiencein the Senate, must try to secure the kind of bipartisan buy-in on foreign policy that
Obama, his Democratic predecessor and former boss, could not.

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Biden presidency faces both structural and legitimacy challenges
US adults were asked “how much confidence you, yourself have in thepresidency?” The results below are the combined percentage of thoseanswering a “great deal” or “quite a lot.”

Is Joe Biden the legitimate
winner of the 2020
presidential election?

100%

registered voters

Trump voters
75

18%

72%

Yes

50

39%

No dataavailable

82%

25

No

0
1975 1991(8-11 December) margin of error +/-2.3 points

1995

2000

2005

2010

2015

2020

Source: Gallup Organization. CBS News

Calcified political polarization and declining global alignment make for a soberingbasecase. Both phenomena will be more pronounced, though, if the office of thepresidency is permanently delegitimized. It’s not just Trump and his top surrogates,
after all, who claim 2020's contest was rigged: 70% of Republicans polled afterward
said the election was not “free and fair.” An opposition that believes Biden stole
the election will be far more aggressively rejectionist than one that merely wishes
Trump had prevailed.
In short, following a Trump presidency that many Democrats believe Russian
agents won for him, Biden’s term opens the era of the asterisk presidency, a time
when the occupant of the Oval Office is seen as illegitimate by roughly half thecountry … and by the lawmakers these election skeptics send to Congress. Such apolitical reality has never occurred in another G7 country, but it’s the reality of theworld’s most powerful democracy today.

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Long Covid
This year begins with more promising news on Covid-19 vaccine
candidates than experts dared hope for. Citizens around theworld are more optimistic that life will begin to return to normal
in the first half of the year.
But neither the coronavirus nor its wide-ranging impacts will disappear once
widespread vaccination begins. Countries will struggle to meet vaccination
timelines, and the pandemic will leave a legacy of high public debt, displaced
workers, and lost trust. Evolution of the virus could meaningfully change thegoalposts on population immunity and vaccine effectiveness over time. Sharply
different rates of recovery, both within and among countries, will stoke antiincumbent anger and public unrest. In addition, emerging markets could face afinancial crisis.
Inside developed and emerging markets. A K-shaped recovery, in which some groups
thrive and others increasingly suffer, will plague all countries. Those who haveborne the brunt of the virus—low-income and minority communities, women, andespecially those people who work in the service sector—will also experience themost protracted drag on their earnings potential and the most uncertain path backto stable employment. This is primarily because stimulus plans and budgets will
fall short, while the ability of central banks to underpin demand with price stability
will be in doubt. In the US, any further stimulus that gets through Congress will
be insufficient to lift up the most vulnerable. Europe’s recovery fund will provide
meaningful support only from late 2021; until then, cash-strapped peripheryeurasia group TO P R I S KS 2021

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Neither the coronavirus nor its wide-ranging impacts will
disappear once widespread vaccination begins
Changes in US employment
5%0high income +1%-5

middle income -4%
all employment -6%

-10
-15
-20

low income -20%

-25
-30
-35
-40
Jan Mar
2020

May

Jul

Sep

Nov

Source: tracktherecovery.org

countries will need to find other sources of finance andrisk triggering a spike in bond yields if they move to takeon more debt to stimulate their economies. In emerging
markets, low capacity to provide stimulus and safety nets
means these effects will bite harder. The problem will
be more acute in Latin America, the Middle East, andSoutheast Asia than in eastern and southern Europe andNortheast Asia, where safety nets are stronger.
Among developed and emerging markets. Recovery paths
will also vary greatly among countries—vaccine access,rollout performance, and debt being the main drivers—and emerging markets will suffer most. Many countries
without their own vaccine manufacturing capacity will notreceive supplies until later in 2021 or even 2022, because
their inability to afford pre-purchases of vaccines leaves
them at the back of the line. Vaccination programs inemerging markets will be slowed by poor infrastructure—for “cold chain” distribution, in particular—and leaveout the most effective vaccines, which require it. Covax,
the multilateral vaccination initiative, will help, butdeveloping countries won’t receive large numbers ofdoses until wealthier countries get their share. As aresult, people in poorer countries will face tough travel
restrictions, slowing growth. Even countries in Southeast

eurasia group TO P R I S KS 2021

Asia, where there have been fewer Covid-19 cases anddeaths, will experience a prolonged trade and tourism dip,slowing economic recovery and exacerbating underlying
class, ethnic, and religious divisions.
The wallop this year. With few exceptions, the pandemic
did not destabilize governments in 2020 or create
existential economic crises. Instead, it generated a rallyaround-the-flag effect that compelled central banks
to inject massive liquidity. But 2021 will expose theunderlying vulnerabilities of many markets. Governments
will grapple with the impact of the 2020 recession, massive
debt increases, and thinner social safety nets.
Instability and anti-incumbent anger will grow aroundthe world, leading to more protests and new opportunities
for populist candidates. In the US, the K-shaped recovery
will deepen the polarization discussed in Top Risk #1,
sustaining Trump’s following and decreasing the qualityof governance. Across developing markets, the stratified
recovery will make already difficult governance harderfor similar reasons.
And then there’s the debt crunch—an emerging markets
problem for 2021. Facing rising fiscal pressures andmore discriminating lenders, emerging markets will
have limited space to cushion the economic blow from
Covid-19. The canaries in the coal mine for EM distresswill be Brazil, South Africa, and Turkey—major economies
with weak fundamentals that rely heavily on international
capital. A number of smaller, poorer countries (such as
Costa Rica, El Salvador, and Zambia) already face thesestresses and are either receiving or considering seeking
extraordinary financial support from the IMF and othercreditors; some will have to restructure their debts. In a
G-Zero world, the rules governing these decisions are lessclear and China’s role not so transparent, compounding
the uncertainty.
Emerging market economic crises could undercut
nascent recoveries in advanced markets and significantly
decrease global growth; the inequitable recovery will drive
political instability. This year will reveal that the lingering
symptoms of Covid-19 threaten not just our health but also
the global economy.

7Climate: net zero
meets G-Zero
Last year was planet Earth’s hottest on record, and governments
and companies have announced new policies to address thegrowing crisis.
China, the European Union, the United Kingdom, Japan, South Korea, and Canada
all committed to meeting economy-wide net-zero emissions targets by mid-century,
while global firms and financial institutions set their own similarly ambitious goals.
Most importantly, the United States is now in the game. Biden has said he’s ready torejoin the Paris Agreement on day one and to commit the world’s largest economy
to net-zero emissions by mid-century or sooner. That’s not just a reversal of
Trump’s climate neglect, but a step toward a new era of global cooperation, thetriumph of net zero over G-Zero. Or so the story goes. In reality, there will be costs
for companies and investors from greater climate ambition and risks from overestimating how coordinated new climate plans will be.
The White House will indeed launch significant climate actions. These will haveexperienced personnel at the helm, with John Kerry leading the international climate
effort and Gina McCarthy and Brian Deese—climate policy veterans from the Obama
years—quarterbacking the domestic plan. That policy will have to come throughexecutive action, given resolute Republican opposition in Congress, but there iseurasia group TO P R I S KS 2021

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Beyond the headlines, the energy transition will bedominated by competition and a lack of coordination
carbon intensive assets from international pressure andcompetition. Europeans will remain the biggest climate
investors at home and abroad, and they will also prepare to
start taxing imports from high(er) carbon countries suchas China, Russia, and the United States. China will launcha massive domestic decarbonization program as part ofits 14th five-year plan while using its state capitalist model
to dominate global supply chains for new technologies.
And as the US scrambles to catchup to China in what will quickly
For people and politics, net zero presents challenging trade-offs
become a global clean energy
Consumption-based carbon dioxide (CO2) emissions per capita vs GDP per capita, 2017arms race, it will make climate
and the energy transition a
20 tons
CO2 emissions
matter of industrial and national
are too highsecurity policy.

Per capita consumption-based CO2 emissions

still much the administration can do, from new methane
pollution rules to fuel efficiency standards and the integrationof climate considerations into financial regulation. States
will also participate in the climate charge this year as Biden
allows policy leaders such as California free rein to marchahead with ambitious agendas, including new bans on the
future sale of internal combustion vehicles, new carbon
pricing schemes, and low-carbon fuel initiatives.

US

15

The bottom line: In 2021, climate
will go from a playground of
global cooperation to an arenaJapanof global competition. Across
10
Russiaa range of clean technologies—
Italy
UK
China
but especially batteries, power
South Africa
Francecontrol systems, and other
5 Energy
Spaincommanding heights of thepoverty
India
Zone of energy access21st century energy economy—
and wealthy economy
China’s longstanding industrial
Brazilwith net zero emissions
Indonesia0
policy approach will be met by$2,000$5,000$10,000$20,000$50,000$100,000
its new US counterpart across theGDP per capita
Pacific. Some parts of the clean
Source: Our World in Data, Max Roserenergy supply chain will comeunder bifurcation pressures notunlike those seen in 5G, particularly where the security
Lawsuits adjudicated by conservative-leaning courts willof ever-more complex grids is involved, such as withloom large, as will the possibility of a Republican winningtransformer equipment.
the White House in 2024, with the associated threat ofregulatory rollback. But in the meantime, new executive
Make no mistake, the push for net zero will create
action will press ahead, bringing new costs and constraints
enormous opportunities for private capital, especially thefor the private sector, while setting into motion market
growing pool of environmental, social, and governancerealities—including an accelerated downward trajectorydollars and euros. But politics will be decisive, andin clean energy costs—that will be difficult to reverse.
winners and losers will be determined by factors otherthan market forces.
The Biden administration’s approach will lead to a newwave of long-term climate commitments and targets,
The result will be an already fractured world drifting
many of which will be aimed at achieving net-zero
further apart. Of course, there will be plenty of triumphantemissions by mid-century. The UN climate conference athandshakes and the appearance of climate progress withthe end of the year in Glasgow will provide a focal point
new net-zero announcements. Ironically, the prospects
for these announcements and overtures. In short, climate
for limiting temperature increases to 2 degrees Celsius
commitments will matter in 2021 like never before.
above pre-industrial levels have never been more robust
than in 2021. But businesses risk big losses if they focus
But beyond the headlines, the energy transition will be
only on net zero and not on G-Zero.
dominated by competition and a lack of coordination.
India, Australia, and Brazil will fiercely protect theireurasia group TO P R I S KS 2021

Australia

9

US-China tensions
broaden
Following Trump’s exit, the US-China relationship will not be
as overtly confrontational. Both sides will seek some breathing
space. But the desire for stability will be offset by three new andunderappreciated factors: a spillover of tensions from the UnitedStates to its allies, a competition to heal the world, and anotherto green it. On balance, this year will see a bilateral rivalry as
intense as that of last year, and that’s dangerous.
Unlike the Trump administration, which pursued a tougher China policy
unilaterally, Biden will enlist and coordinate with allies in this area, seeking a
multilateral front against specific Chinese economic and security policies. The
European Union, Japan, and India will be key targets of the US outreach. Despite
a setback on the China-EU investment agreement, the new administration will
have some successes—suspicion of China is broadly growing. In turn, that will
create deeper fissures between Beijing and these US allies. But creating a broad
united front on China will not happen easily. Beijing will lash out at countries
closely coordinating with Washington, as it did against Australia last year. In othercases, Beijing will offer its own economic incentives to push back against efforts at
encirclement. That will create a battle of diplomacy that will serve as an additional
irritant to US-China relations.

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The US and China will both try to increase their influence by providing
vaccines to other countries. China is poised to outperform the US.
Having largely contained the pandemic within the country’s borders,
China’s powerful state apparatus will be able to export vaccines moreeasily. And unlike the best vaccines available in the US, current Chinese
vaccines can be safely moved at a relatively warm temperature (3546 degrees Fahrenheit), making them attractive to low-and-middle
income countries that lack cold chain infrastructure.
These advantages will enable China to make good on the big bet it
placed on vaccine diplomacy. Beijing has signed export deals for its
vaccines and agreements to produce them in key emerging markets,allowing it to deepen friendships in Southeast Asia, Latin America,and sub-Saharan Africa. And these efforts come at a time when “wolfwarriors,” or hardliners, are ascendant in making Chinese foreign
policy. The result will be hubris on Beijing’s part, albeit with rewards
for those in the Global South eager to be vaccinated.
Biden, on the other hand, will have to focus on domestic policies,
including jumpstarting the economic recovery, leaving less time and fewer
resources for competition with China. The US also faces a challenging
vaccine rollout at home that could further dent its image internationally,and leave it with fewer bargaining chips to deal with countries such as thePhilippines that seek to make vaccine access a precondition for greater
foreign policy cooperation with Washington. The result will be a US eliteand public increasingly resentful of Chinese gains during the vaccine
phase, and that will add strain to bilateral relations generally.
The second new source of tension will be rivalry in green technologies.
Having pledged to reach peak carbon emissions before 2030 andto become carbon neutral before 2060, China seeks to score public
diplomacy points and put the US on the back foot before Biden takes
office. Beijing already enjoys a big lead in many of the key clean energy
supply chains of the 21st century, from batteries and electric vehicles
to solar, wind, and beyond. Here, too, the US will be eager to catchup, employing industrial policy tools that mark a departure from theneoliberalism of the postwar period. It will make major investments
to re-shore portions of these clean energy supply chains back to theUS, seek to shame Chinese coal investment abroad, and rally allies
to pressure China on climate and clean energy issues. China, for its
part, has grown accustomed to its climate soft power boom during the
Trump years and will not take this offensive lightly.

US efforts to enlist allies,
vaccine diplomacy, andclimate tech competition
will further complicate
US-China relations
US vs China

eurasia group TO P R I S KS 2021

China

Seven-day rolling average of
new Covid-19 cases1 (as of 31 Dec)1

250,000

200,000
150,000
100,000
50,000
0
Jan
2020

Dec

Seven-day rolling average of
new Covid-19 deaths1 (as of 31 Dec)

3,000
2,500
2,000
1,500
1,000
500
0
Jan
2020

Dec

2021 Covid-19 vaccine capacity (as of 29 Dec)
Potential total
vaccine doses

US efforts to enlist allies, vaccine diplomacy, and climate tech competition
will interact with longstanding tensions to further complicate USChina relations. Disagreements over bilateral trade and technology, thetreatment of the Uighurs, Hong Kong, Taiwan, and the South China Sea
will fully carry over into this year ... all of which will sustain a significant
chance of miscalculation and escalation during a crisis.
So, yes, the two countries will seek some breathing room after the 20
January inauguration, Biden to focus on domestic affairs and Chinese
President Xi Jinping to further consolidate his power in advance of the2022 Party Congress. But a detente is not to be. Overall, this year will
experience an expansion of a high level of US-China tensions.

US

Vaccines perperson3

2.6 billion2

China

1.0 billion
purchased

USA

3.16 billion
option to purchase

0.90
1.52
4.76
0

1

2

3

4

5

China’s cases and deaths data is likely an undercount but
still well below the US
China will likely be exporting some of its supply, further
reducing domestic access3
Assumes two doses per person
12

Source: Johns Hopkins, Duke Global Health Innovation Center,
Worldometer, Bloomberg, UNICEF, Eurasia Group11

Global data reckoning
China used to be an outlier in trying to control the flow of digital
information. Now its approach is the norm. In 2021, a slowdown
or halt to the flow of sensitive data across borders will disrupt
business models that rely on free flows.
Data will be a major battleground in the US-China tech cold war, which willcontinue under Biden. Beijing will accelerate its push for “data sovereignty” as it
reduces its reliance on US technology and resists opening its markets to US firms
in areas such as cloud computing and social media. The United States will try toensure that Americans’ personal information and the data produced by billions
of internet sensors connected to power plants, transportation systems, and othercritical infrastructure do not pass through equipment that could be controlled bycompanies under Beijing’s influence.
The global data reckoning starts with strategic competition between the US andChina but doesn’t end there. Just as the data-driven 5G and artificial intelligence (AI)revolutions are gaining steam, other governments concerned about who is accessing
their citizens’ data—and how—are disrupting the foundations of an open global
internet. The outgoing US administration’s attempts to ban the popular Chinese
smartphone apps TikTok and WeChat, coupled with India’s moves to blacklist
dozens of Chinese apps after border clashes last year, risk exacerbating a damaging
trend. Authorities around the world have become increasingly preoccupied that
their citizens’ personal data could fall into the hands of adversaries who could use
it to improve their AI algorithms, influence public opinion, or commit blackmail.

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Countries with the most cross-border data
million Mbps, 2019

111

China

60

US

51.22

UK

32.97

India
Singapore

8.11

Brazil8.03

Vietnam

7.99

Russia7.57

Germany

7.27

France

5.53

Japan

5.11

Source: Nikkei Inc.

When the world’s biggest economy and its most populous
democracy try to ban apps over these concerns, it
encourages other countries to do the same.

digital currency to pioneer alternatives for use in China andin Belt and Road countries. This, too, will challenge the US
government’s financial data control, creating pushback.

Then there’s Europe, where data has become a matter ofpolitical “sovereignty.” Washington and Brussels havestruggled for years to resolve tensions over government
access to personal data, and the dispute is now getting
serious. Last year, the EU’s top court shredded “Privacy
Shield,” the main legal mechanism underpinning thetransfer of personal data from the EU to the US, because ofpervasive government surveillance. In 2021, Europe’s data
regulators will come under pressure to enforce the court’s
verdict. Legal uncertainty surrounding the data flows that
support billions of dollars of transatlantic trade will raisecosts for businesses. In the worst-case scenario, activists
will force the issue and courts will bring data flows to a
halt. A short-term fix is possible, but it would sink under
the weight of political posturing and legislative obstacles onboth sides of the Atlantic.

The Biden administration will explore an alliance of likeminded countries to keep data flowing. It could start small,with the countries of the G7 or the D10 (which includes G7
members plus fellow democracies India, Australia, andSouth Korea). But even if the United States and Europe
could bridge differences over privacy, a tall order, othertech-related issues ranging from digital tax to internet
platform regulations will complicate the transatlantic techrelationship. And India, whose 1.4 billion consumers makeit a critical swing country on global data issues, would haveto be willing to roll back protectionist policies that require
firms to store sensitive Indian user data domestically.

Growing data protectionism and sovereignty will spill over
into fintech and digital currencies this year as well. This
will be fed by concerns in Brussels, Washington, and withininternational financial watchdogs such as the IMF that
innovation is getting ahead of regulation, and governments
will react strongly to avoid losing control of their monopoly
over financial sector data. Protectionist instincts will also
be inflamed by China’s prioritization of these domains tocircumvent the US-dominated legacy financial network,
using firms such as Ant Group as well as its central bank

Interruptions to data flows will force companies to invest
in building new data centers and hire more lawyers tonavigate a fragmented regulatory landscape. Businessmodels for AI and other innovative tech sectors will be
subject to new constraints. Drug and vaccine research
will slow as researchers face new barriers to acquiring
large data sets and sharing medical or other personal
information. And as professional counterparts grapple
with app bans and other barriers, they will hamper
the world’s capacity to coordinate responses to global
challenges such as climate change.
To those who say that data is the new oil: Here comes the
new Great Game.

To those who say that data is the new oil:
Here comes the new Great Gameeurasia group TO P R I S KS 2021

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Cyber tipping point
More vulnerable devices, an absence of effective diplomacy, andgreater emphasis on cyber responses mean the unstable status
quo in cyberspace will be tough to maintain in 2021.
There’s no one factor that raises the risk of a cyber tipping point. The digital realm,
where any computer or smartphone can be an entry point for malicious hackers
and nation states and criminals act with near impunity, is too unpredictable forthat. Instead, a combination of low-probability, high-impact risks and inexorable
technology trends make 2021 the year that cyber conflict will create unprecedented
technological and geopolitical risk.
First, the technology side. Hundreds of millions of people will continue to work,shop, receive an education, and socialize from home in 2021 as the world waits on
vaccines to change the public health outlook. The merger of home, school, andworkplace isn’t just a nightmare for parents, it’s a nightmare for IT departments,
since much of this activity uses less secure home computers and connections,giving bad actors more vulnerabilities to exploit.
This year will also see an explosion of new end devices added to the internet, as 5G
networks expand coverage, and as Internet of Things sensors, cameras, and otherdevices proliferate. There is no broadly accepted industry standard for ensuringlow-cost, commodity devices are secure and regularly updated to protect againsthacking. This expanded “surface area” of vulnerability, created by more connected
devices and online activity, is a playground for bad actors. In 2017, a cyberattack

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coordination on cyber responses. But a downturn in USRussia relations will be a key factor in making 2021 ripe
for cyber trouble.

launched by suspected Russian state-backed hackers using
stolen US hacking tools tore through corporate computer
networks, inflicting more than $10 billion of damage. The
next “NotPetya” will be worse.

Under Biden, the United States will pursue a tougher policy
toward Russia, flowing from Biden’s lesser tolerance forauthoritarian leaders and anger over the massive hacklast year—believed to be by Russia—of US companies
and government agencies. Tough US sanctions against
the perpetrators are likely. Also, the United States will
retaliate against Russia in cyberspace, and more generally
Biden will continue the more forward-leaning posture
on cyber adopted during the Trump administration,seeking to deter Russia. In this atmosphere, the risk of
miscalculation or unintended cyber-escalation between
the US and Russia will increase.

Geopolitically, governments and the private sector havemade no headway in developing global rules for statebehavior in cyberspace. Instead, they’ve fallen back on
unproven strategies such as targeted economic sanctionsand “naming and shaming.” Geopolitical rivalries among
cyber capable states have also grown more acute. Suspected
Iranian attacks on Saudi oilfields in 2018, which combined
kinetic strikes with cyber operations, are a prime example.
Iran and Israel are already fighting a shadow cyber war
that targets each side’s critical infrastructure, threatening
the eruption of broader conflict.

Non-state rogue actors will also try to take advantage of theincreased “surface area” to disrupt digital business as usual.

“Usual suspects” Russia, China, and even North Korea
are capable and difficult to deter. During the Trumpadministration, the US granted its own cyber warriors
more leeway to go on the offensive against malicious
hackers. But despite claims of victory, there has been an
increase in cyber efforts to steal vaccine research and gain
access to government and critical infrastructure networks.
The lack of a global effort to shore up systems and impose
penalties beyond symbolic gestures such as sanctions andtravel bans will continue to embolden bad actors this year.

Finally, China’s demonstration late last year that its
photonic quantum computer has achieved “supremacy”
over supercomputers marks a milestone with far-reaching
implications. The Chinese technology exceeds thequantum advantage over classical computing that Google
demonstrated in late-2019 and will increase concerns thatquantum computing could render modern cryptography—
the bedrock of today’s cyber defenses—obsolete. This year
won’t be the one that quantum computing cracks the world’s
secrets, but it will crystallize this risk for many governments.

2018: Unknown hackers disrupt the opening
ceremony of the 2018 Pyeongchang Winter Olympics

2010: Chinese hackers penetrate the source code
repositories of dozens of major technology companies
and defense contractors (Operation Aurora)
2014: Chinese hackers penetrate the US Office of
Personnel Management, obtaining personal data on
millions of US government employees, including
workers with top secret security clearances

Espionage

2014: North Korean hackers penetrate Sony
Pictures’s email network and release data inretaliation for a movie making fun of Kim Jong-un

2017: Russian hackers unleash
NotPetya malware that uses
stolen National Security Agency(NSA) tools, causing billions indamage worldwide

2016: Likely Russian hacker group
the Shadow Brokers publishes stolen
NSA hacking tools
2016: Russian cyber actors hackinto the email accounts of the
Democratic National Committee andHillary Clinton campaigns as part of
US election interference operation

2018

2020: Iran-Israel
cyber conflicttargeting water andlogistics infrastructure

2017

2015

2014

2013

2015: Russian cyber actors
launch sophisticated attack
against Ukraine power grid

2012

2011

2010

2010: US-Israel operation
targets the industrial control
systems supporting Iran’s
nuclear program using
Stuxnet malware

2017: North Korean hackers unleash
Wannacry malware, affecting several
hundred thousand computers

2016

2012: Iranian hackers disable large
numbers of computers at Saudi Aramco,
the world’s largest oil company

2019: US Cyber Command
attacks Iranian intelligence andparamilitary networks inresponse to attacks on Persian
Gulf shipping traffic

2020

No end in sight for cyber disruption
Destructive attacks

2019

The Biden administration will attempt to stabilize thesituation, mainly by trying to improve US government

2020: SolarWinds supply chain hackexposes up to 18,000 organizations,
including US government agencies andmajor companies
2017: Chinese hackers revealed tohave infiltrated dozens of companies
via compromised managed service
providers (Operation Cloudhopper)

Source: Eurasia Groupeurasia group TO P R I S KS 202115

(Out in the) cold Turkey
Turkey narrowly averted a financial crisis at the end of last year.
But Ankara’s fix was a Band-Aid and won’t last through 2021.
President Recep Tayyip Erdogan approved a shift to more orthodox monetary
policy in late 2020 with the appointment of a credible team and pro-market
measures. Markets have given Turkey the benefit of the doubt, but Erdogan’s
return to transparent policies and inflation-targeting real rates will prove shortlived. Erdogan’s political base will be among the worst affected by higher rates,with financial constraints hurting his party’s patronage network and the small- andmedium-sized enterprises that form the backbone of his support. As pressures
grow at home and abroad in the second quarter, Erdogan will once again seek tospur expansion.
The first step will be premature monetary easing. Political pressures driven by the
fallout from the coronavirus, a lack of cheap credit, rising unemployment, andplummeting household incomes will increase the risk of a rapid succession of interest
rate cuts. This time, though, they will not only prove ineffective, they will also raise
the likelihood of economic crisis. Coupled with Turkey’s poor Covid-19 response,
Erdogan will struggle to win back voters disillusioned with his two-decade rule.
These dynamics will not only stoke social tensions and prompt a crackdown
against the opposition, but they will also lead to more foreign-policy adventures
to stoke nationalist sentiment and distract Erdogan’s supporters. And this year,
the president won’t have friends to shield him from the consequences. Trump has

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Erdogan’s geopolitical gambits & headwinds

EASTERN MEDITERRANEANMARITIME CLAIMSSYRIAEU SANCTIONSUS SANCTIONSTWO-STATECYPRUS SOLUTIONRUSSIAN
S-400 MISSILESMIGRATIONLIBYAHALKBANK TRIAL FOR ALLEGED
IRAN SANCTIONS BUSTING

NAGORNO-KARABAKH
Source: Eurasia Group

Erdogan’s misadventures will boomerang
painfully against the economy
restrained the US foreign policy establishment’s impulse
to end longstanding cooperation with Turkey, while
Germany’s Merkel has taken an even-keeled approach
toward Erdogan. But Trump is leaving, and Merkel willsoon follow. Even Erdogan’s on-and-off supporter Russian
President Vladimir Putin has grown more frustrated with
the Turkish leader. And Turkey’s financial backer, Qatar,
will have more flexibility to distance itself from Erdogan
as the pressures it faces within the Gulf Cooperation
Council ease.
Cornered, Erdogan will take tougher action in the Eastern
Mediterranean and across the region, especially onenergy, selectively escalating tensions with the European
Union—particularly France, Greece, and Cyprus—as wellas with Middle Eastern rivals led by the UAE. Diplomaticefforts managed to stave off crisis in 2020 in the form ofa costly proxy war in Libya or direct conflict with Greeceand France in the Aegean. But they face higher hurdles
this year, as does the United Nations process for mediatinga reunification of Cyprus. While open war involving
Turkey and Cyprus or Greece is unlikely, the possibility of
military confrontation is increasing.
With Merkel on her way out, France’s Emmanuel Macron
will be Europe’s most powerful leader. Macron’s disdain
for Erdogan is no secret—they have clashed openly about

eurasia group TO P R I S KS 2021

Turkey’s policies in the Mediterranean, Libya, and Syria,
and more recently over the role of Islam in Europe. The
French president will likely push successfully for new EU
sanctions this year, souring relations further.
In Washington, Biden’s effort to reset relations withAnkara will quickly run into trouble. Trump’s move toimpose sanctions on Turkey over its Russian S-400 missiles
relieves Biden of a decision that could pose an obstacle tomore positive engagement. But the new US president will
nonetheless struggle to tout the importance of ties witha NATO ally while Erdogan refuses to give up the S-400s
or settle the Iran sanctions-busting case in the US against
Turkish state lender Halkbank. That means more US
sanctions later this year.
Erdogan’s misadventures will boomerang painfully
against the economy, because Turkey needs international
goodwill to revitalize growth. It will remain dependent
on predominantly Western financing, despite Ankara’s
best efforts to find alternative funding sources—including
China. As geopolitical pressures drive Turkey’s financial
risk premium higher, the odds of a balance-of-payments
crisis will rise, making Ankara look more like theeconomic basket case that it was in the 1990s than theemerging-market darling Erdogan led until the 2010s.

17Middle East: low oiltakes a toll
The Middle East and North Africa’s energy-producing countries
faced a tough 2020. This year will be worse.
The collapse in global energy demand left governments from Algeria to Iran with lesscash flowing into their coffers as the pandemic sickened their citizens and weakened
their economies. Energy prices will remain low, even as vaccine distribution ramps
up, keeping the pressure on governments that already faced instability before
Covid-19 struck. Many will cut spending, damaging nascent private sectors andfueling unemployment. Protests will intensify and reforms will slow.
Iraq faces the greatest challenges. Oil accounts for 90% of government revenue.
Low prices mean not enough money to cover basic state spending, making currency
depreciation unavoidable. Along with pervasive corruption and the government’s
disastrous handling of the pandemic, worsening economic conditions will trigger
new, more violent protests. Fragile political institutions will come under greaterpressure, eroding Baghdad’s ability to control the Iran-backed Shia militias that
operate as a parallel security service. The result will be more instability andviolence in OPEC’s second-largest oil producer.
The risk of unrest is also high in Algeria, home to a fragile political transition after
protests forced the resignation of longtime leader Abdelaziz Bouteflika in 2019.

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8
18

Algeria will hold parliamentary elections later this year, and officials have drafted
a new constitution, which will cement modest governance reforms. Low energy
prices will exacerbate the country’s economic malaise and drive up the cost ofliving, making it harder for the government to pursue reform and sending moreangry citizens into the streets.
Low oil prices are a headache for Mohammad bin Salman. The Saudi crown prince
and king-in-waiting has been forced to slash spending on his signature Vision 2030
projects while lowering subsidies to the population. The long-term revenue outlook
is troubling, and recent hints that the UAE is reevaluating the utility of OPEC
compound the uncertainty. The crown prince’s popularity with young people will
decline unless he delivers more economic opportunity.
Nor will Mohammad bin Salman have a close friend in the White House. While
Biden will disappoint his progressive supporters by not severing ties with Saudi
Arabia, the crown prince will find American neglect jarring after four years of a
blank check (and sword dancing) under Trump. Biden support for a green energy
transition is a big hit to the kingdom’s global influence in the medium term, evenas the Saudis work to find areas for clean energy cooperation with the new US
administration. Softer commitments on defense cooperation with Saudi Arabia
will come with renewed US outreach to Iran, a worrisome mix from Riyadh’s
perspective. The risks to Mohammad bin Salman’s succession are low but real.

Energy prices
will remain low,
keeping thepressure on
governments that
already faced
instability

State finances will also weaken in Oman and Kuwait, which both have new leaders.
The new sultan of Oman is pursuing fiscal reforms with greater confidence, but thetransition will remain challenging, and he has little margin for error. Kuwait’s new
emir is inheriting a bloated public sector and will struggle to cut the salaries that
represent nearly half the state’s budget. Kuwaiti elites are openly discussing a plan
to repeg the currency, which could trigger a chain reaction across the Gulf.
Finally, low oil prices mean that Saudi Arabia, the United Arab Emirates, and Qatar
will have fewer resources to spend on their regional clients and proxies. Consider
Lebanon, whose traditional Gulf friends have been unwilling and unable to bankroll
a government amid an existential crisis. Tunisia, Egypt, and Jordan will also be left
without a security blanket.

Fiscal breakeven oil price in 2021 (projection)$ per barrel
$0

Qatar
$38.1

$30

Estimated 2021 price $50
$60

Iraq

$90

Bahrain

KuwaitSaudi
Arabia

$65.7

UAE

$66.5

$67.9

$83.4

$120
$150

$64.0

Oman
Algeria$135.2

Libya$109.5$124.4

Sources: IMF, October 2020 (page 7 of the statistical appendix)

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Europe after Merkel
For all the horrors of Covid-19, it boosted Merkel’s political
fortunes. It saved the German chancellor from becoming alame duck and set the stage for the European Union to secure
its landmark €750 billion recovery fund, a game-changing
development that represented the best (and perhaps only) useof the pandemic as a political opportunity for strengthening
multilateralism.
Without Merkel’s deft political skills, the EU would have faced an unprecedented
internal split, between Poland and Hungary, on the one hand, and the remaining
25 member states on the other; also at risk was the unity of France and Germany,with their competing visions for Europe’s future. The continent’s economic
recovery would have hung in the balance, with far more pressure on the European
Central Bank.
In short, Merkel has been Europe’s most important leader. Her departure later in
2021 after 15 years as chancellor drives the continent’s top risk.
After finishing her EU presidency at the end of last year, Merkel and her
government will now turn their focus inward to ensure a strong result for the
Christian Democratic Union (CDU) in September’s elections. This will leave France’s
Macron, already weakened by the pandemic, alone at center stage of Europe. The
conclusion of German elections will do little to strengthen the bloc’s leadership, as

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920

Economic recovery in the EU and the impact of the recovery fund
Projected GDP levels as a share of pre-crisis output

Intended effect of the Recovery and Resilience Facility

FRANCEGERMANY

ITALY

SPAIN

2019 2020 2021 2022 2023

2019 2020 2021 2022 2023

2019 2020 2021 2022 2023

2019 2020 2021 2022 2023

105

100

95

90

85

Source: IMF, World Economic Outlook, European Commission, Eurasia Groupthe resulting German coalition of the CDU with the Christian Social Union and theGreens will take time to settle in. Macron will not view the new German chancellor
as his equal and will become preoccupied with domestic affairs of his own, withnext year’s French elections on the horizon and a difficult economic situation to
manage. The French president will be less capable of leading the EU ... and there
will be challenges aplenty.
Economically, Europe faces a hangover from intensified lockdown restrictions inseveral countries over the winter. The limited additional stimulus from EU member
states with fiscal space will not galvanize a strong recovery. A sharp economic
deterioration would trigger discussion about accelerating spending from therecovery fund, not scheduled to begin disbursements in earnest until later this year.
There will also be calls to make relief more generous for weaker EU member states.
But the dim growth outlook of wealthier EU countries recovering from the second
wave, combined with the leadership deficit, will prevent another fiscal deal. The
so-called frugal four coalition of Austria, Denmark, the Netherlands, and Sweden,or some other grouping, will not only prevent any recovery fund expansion, but
may chip away at the fund’s ability to spend in order to meet the demands of theirown domestic politics.
European populism will also wake from its (short) hibernation. The shock of thevirus strengthened pragmatic technocrats and moderates, but this will run its
course in 2021. Restriction fatigue and frustrations with vaccine rollout create
fertile ground for populism to once again gain traction. Missteps by parties in
power will create openings for populists in Italy and in the Netherlands this year,
and in France ahead of next year’s elections.

Merkel has been
Europe’s mostimportant leader,and her impending
departure drives
the continent’s
top risk

In foreign policy, as noted above, Turkey presents a serious challenge for a distracted
European Union. Without Merkel to serve as a strong negotiator, diplomaticefforts to resolve energy and territorial disputes in the Eastern Mediterranean will
struggle, as will the UN-led Cyprus peace process. The EU’s position will become
more hawkish as France enlists more member states in its quest to get tough withTurkey, pursuing more sanctions and raising the odds of diplomatic rupture. That,in turn, will provoke Ankara into threatening another refugee crisis to destabilize
Europe, as well as moves in the Eastern Mediterranean that could reignite a naval
standoff and the risk of direct conflict.

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Latin America
disappoints
As they emerge from the pandemic, countries in Latin
America will face sharper versions of the political,
social, and economic problems they were confronting
before the crisis.
There will be no widespread availability of vaccines until well into
the second half of this year, and Latin American countries are poorly
positioned to deal with another coronavirus wave before then. The
main political flashpoints are presented by the heavy electoral calendar
this year: legislative elections in Argentina and Mexico, as well aspresidential elections in Ecuador, Peru, and Chile. All five of thesecountries have experienced significant fiscal deterioration, the resultof increased spending to mitigate the pandemic’s economic impact.
Given rising poverty, growing inequality, and high unemployment,
weak incumbents will be unwilling to make politically costly decisions,such as cutting spending on social services; indeed, elections will
incentivize politicians, especially those in the legislative branches, topush policies that further strain their countries’ balance sheets.

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In Argentina, President Alberto Fernandez will emerge weakened from themidterm elections, given the economy’s dire state, further reducing his ability to
impose fiscal adjustments and inflation reduction measures. In Mexico, President
Andres Manuel Lopez Obrador’s popularity will remain high, and his ruling Morena
party will maintain a majority in the lower house, allowing him to keep control of apolicy agenda that will undermine the business environment.
High levels of social discontent will weaken incumbents and open the door for
populist candidates, especially in countries holding presidential elections. That risk
is highest in Ecuador, where moderate candidate Guillermo Lasso will face an uphillbattle, jeopardizing the country’s IMF program and economic stability. In Peru,
rising discontent opens the door to an outsider candidate and a policy reversal awayfrom the orthodox, investor-friendly policies that have been the norm for decades.
In Chile, the electoral cycle coincides with constitutional reform in an environmentof widespread discontent, with more violent protests likely. A leftist candidate who
threatens to reverse the current policy direction would be competitive.

The Middle Eastis the obvious big
coronavirus crisis
loser among theworld’s regions; but
Latin America is aclear second

The Middle East is the obvious big coronavirus crisis loser among the world’s
regions. But Latin America is a clear second.

Latin America elections
MexicoAndres Manuel Lopez Obrador 64%
6 June 2021 - Legislative and gubernatorial elections
El Salvador
Nayib Bukele 90%
28 February 2021 - Legislative and local elections

EcuadorLenin Moreno 7%
7 February 2021 - First-round presidential and legislative elections
11 April 2021 - Second-round presidential election

Key:

CountryCountry leader, % approval rating

Honduras
Juan Orlando Hernandez 38%
November 2021 - Presidential and legislative elections
Venezuela
Nicolas Maduro 15%
Colombia
Ivan Duque 31%
BrazilJair Bolsonaro 46%

Peru
Francisco Sagasti 44%
11 April 2021 - First-round presidential and legislative elections
6 June 2021 - Second-round presidential election

Chile
Sebastian Piñera 14%

Argentina
Alberto Fernandez 43%
24 October 2021 - Legislative elections

11 April 2021 - Members of the constituent convention and local elections
21 November 2021 - First-round presidential and legislative elections
19 December 2021 - Second-round presidential election
Sources: Cedatos, Ipsos, Cadem, Invamer Gallup, CID Gallup, Datanalisis, Poliarquia, El Financiero, CNI/Ibope

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23

Red
Herrings
Trump’s friends in trouble
You might expect that Trump’s fellow travelers among world
leaders—a group comprising Erdogan, Brazil’s Jair Bolsonaro, theUK’s Boris Johnson, Israel’s Binyamin Netanyahu, and others that welabeled the “Coalition of the Unwilling” in Top Risks for 2019—will be sidelined
as Biden moves into the White House. Or that these leaders might try to thwart
Biden foreign-policy plans. It’s true that Johnson won’t get his US trade deal any
time soon, Netanyahu won’t see the new US president moving mountains forhim as Trump has, and that Erdogan and Mohammad bin Salman will lose theirprotectors within a Washington establishment eager to call them to account forvarious transgressions.
But to view these leaders as doomed to four years of pain from Washington
underestimates both the Biden administration’s willingness to engage theirgovernments on matters of shared interest and the capacity of these leaders toadjust to new realities.
Johnson booted Brexit hardliner Dominic Cummings from 10 Downing Street soonafter the US election and then pivoted aggressively to a green agenda that will befurther boosted by the UK’s hosting of the UN climate conference in 2021.
These are bridges toward common ground with Biden’s White House. Erdogan
intends to pursue a reset of US-Turkey relations and made subtle moves late lastyear to clear the way for this strategy. Netanyahu has made a point of highlighting
Biden’s pro-Israel record and his personal history with the president-elect (plus,
there’s a good chance he doesn’t last long). Mohammad bin Salman will be readyto appease a Saudi-skeptic White House, possibly with a deal with Qatar to end
the Gulf Cooperation Council embargo, further steps toward normalization ofrelations with Israel, and clean energy cooperation with the US. Bolsonaro willbristle at US pressure on climate issues, but he can still find common cause with
Biden on China and Venezuela.

The incoming Biden
administration
will be willing toengage on mattersof shared interest

While these leaders enjoyed a personal affinity with Trump that they won’t sharewith Biden, they weren’t counting on another Trump term, and Biden’s White House
will look past personalities toward foreign-policy pragmatism. Not all attempts tocurry favor will be successful—we have particular doubts on Turkey, as describedin Top Risk #7—but a coordinated axis of troublemakers with shared grievances is
one thing Trump won’t be leaving behind.

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Big tech will be saved by the politicalcomplexities of the problems it poses

Techlash in the US
Silicon Valley companies and their shareholders have profited handsomely from anaccumulation of market power and political influence in the last decade. And as thecoronavirus hit with full force last year, the shares of the world’s biggest internetcompanies strongly outperformed, with lockdowns forcing millions of people towork, learn, entertain themselves, and shop from home, while gutting the brickand-mortar economy. Today, shares of the world’s biggest tech platforms—worth
about $6 trillion (twice the GDP of France)—trade at an eye-popping 35 times future
earnings. And that is to say nothing of the increasingly critical role these platforms
play in the political process.
All of this makes them enormous targets, and some expect 2021 to be the year thatthe global backlash against US big tech—the techlash—really bites.
Instead, big tech will be saved by the political complexities of the problems it poses.
Europe wants to impose new fees on US tech champions, but the US government
will fight to defend these firms and the tax base they represent. Within US borders,
there is plenty of animosity toward tech companies, but complaints differ acrossthe political spectrum. Republicans are upset over an alleged anti-conservative
bias in tech firms’ efforts to police content, while Democrats complain about theirmonopoly power and lack of content regulation. Meanwhile, both parties fear therising prominence of China’s own tech champions, and neither has a clear sense ofwhether backing US alternatives means abandoning their own regulatory impulses.
And with tech serving as an engine of post-Covid recovery, lawmakers will think
twice about strangling the golden goose, even if they could agree on how it should
be done. US big tech will have plenty of challenges to navigate this year (seeTop Risks #5 and #6), but a “meet your maker” moment will not materialize. On
balance, US big tech is positioned to reach the end of 2021 in a stronger position
than at the beginning.

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25

Iran-US confrontation
Ties between the two countries will be neither as productive nor as dangerous
as many observers expect. Rather than war or peace, US-Iran relations will
muddle through.
Bilateral diplomacy between the two governments won’t be straightforward. During
his election campaign, Biden pledged to return to the 2015 nuclear agreement as aplatform for broader negotiations to “strengthen and lengthen” the deal and address
Iran’s regional meddling, human rights violations, and missile program. For its part,Iran is eager for sanctions relief but has little interest in these broader conversations.
Both sides will be wary about moving quickly. For Biden, re-entering thenuclear agreement is legally easy but politically costly. Given the need to battle
the pandemic and restart the economy, foreign affairs will take a backseat earlyin the administration. Biden has to pick his battles—and Iran is a political loser.
The challenge is greater in Tehran. While President Hassan Rouhani wants a
deal immediately, he is politically weak and at the end of his final term. Supreme
Leader Ali Khamenei is wary that the US may be setting a trap that would requirenegotiations on Iran’s regional or missile policy—a red line for his regime. USIran talks could start early, and the two sides may reach some kind of interim
agreement to lower tensions. But Tehran will probably wait until after both the June
presidential election and the new president’s inauguration in August to consider
seriously returning to the nuclear deal.

Absent a clear dash
to a bomb, the riskof war is low

There is also growing concern that Iran’s nuclear advancements could trigger
conflict. Israel was blamed for an explosion at a sensitive nuclear site in July and theassassination of a top nuclear scientist in November. Iran has pledged to retaliate
for both. Meanwhile, Iran has ramped up its nuclear program, announcing it
intends to enrich to levels close to weapons grade. The country has already started
moving more key nuclear infrastructure underground, making it harder to attack.
As Iran advances and Biden considers negotiating, Israel will escalate its rhetoric
about the danger posed by Iran. But don’t expect a blowup. Israel is aggressive incovert operations; that’s not the same as being willing to start a war. Biden will holdback Israel by using the Obama playbook—a mixture of assistance and security
cooperation. Absent a clear dash to a bomb, the risk of war is low.

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26

As we start off this New Year, it’s impossible to close the door on thepain and suffering we all experienced, together and alone, in 2020.
Our world failed us in ways that were terribly plain to see, and that
failure stirred anger, hurt, and blame. We’ve never been so saddenedby the failings of our political leaders and institutions as we have been
this past year, but also never so aware of the hope in the possibilities
before us. And as we have sometimes learned from the worst of our
mistakes in history, keeping the pain of 2020 alive also offers promisefor the future.
Our thanks to you for your support. We’re all connected, some ofus more dysfunctionally than we’d like. But we care for each othernonetheless. We’d like to take this moment to express our appreciation;it’s one thing from this last year we think worth dwelling on.
With very best to you and yours,
Ian and Cliff

Brasília

London

New York

San Francisco

São Paulo

Singapore

Tokyo

Washington D.C.

This material was produced by Eurasia Group for use by the recipient. This is intended as general backgroundresearch and is not intended to constitute advice on any particular commercial investment, trade matter, or issue
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