Wildcards
Ten contrarian scenarios for 2024.
It’s that time of year, again: forecast season.
Banks, think tanks, newspapers and consultants are all publishing their “top risks” for 2024. As we’ve previously written, most forecasts are either cast so vaguely they couldn’t possibly not come true, or end up being wide off the mark. In fairness, predicting the future accurately is hard – if not impossible over a 12-month horizon (we’ll deal with optimum timeframes in a future piece).
Indeed, the general consensus for 2024 is much like a gloomy weather forecast.
Storms ahead during the US presidential election... Dark skies with a chance of thunder in Ukraine and Gaza… Sunny days with scattered showers (or perhaps rain with occasional breaks for sun) in the US-China bilateral relationship… Fifty countries going to the polls have a fifty-fifty chance of fine or wet weather… And high-pressure systems are developing over the Middle East and East Asia: nothing for now but bring a brolly.
It’s hard to disagree, but allow us to offer a contrarian view. We have selected ten risks that few are anticipating that are plausible, albeit unlikely, and would have significant impacts for business, markets, and the world at large. And, unlike a list of obvious risks, these are neither well-understood by companies nor priced-in.
1 - A coup d’état in Venezuela
Venezuela is one of many countries to go to the polls in 2024. And its election (while perhaps a little less free and fair) looks just as complex as America’s.
Incumbent Nicolas Maduro will likely run again. But opposition leader Maria Corina Machado remains disqualified from holding public office over alleged corruption and supporting sanctions. And while she has filed an appeal, she is unlikely to win over a pliant Supreme Court. Machado has a greater chance of being barred from office than Donald Trump.
Maduro’s first election, in 2018, was not recognised by scores of countries and met with sanctions. But the real wildcard in 2024 is whether it is recognised internally – by the people but especially by the military (some of whom attempted a coup in 2019).
Venezuela has had seven coups (four successful, three failed) since 1908. And the country continues to face many of the conditions that make coups more likely. The economy is in the doldrums, inflation and inequality are high, and rents from oil have all but dried up (hence the distractions in Guyana). Equally important, there could easily be a constitutional crisis if the election is not seen as legitimate – and if the military, sans Maduro and his Chavista United Socialist Party, wants to save the day.
2 - A major war between Ethiopia and Somalia
Somalia and Ethiopia could end up in a large-scale proxy war. Both countries have been battlegrounds for influence between Turkey and the UAE in recent years. But Ethiopian president Abiy Ahmed has ramped up tensions in recent months by regularly asserting his landlocked country’s “right” to sea access – a threat thought aimed at Eritrea – and just this month signing a deal with Somaliland, an unrecognised breakaway province of Somalia, that would give Ethiopia access to its Gulf of Aden coast.
The Somali government perceives the Somaliland deal as an act of aggression against its sovereignty and territorial integrity. As do several neighbours, international organisations and groups unafraid of conflict, including al-Shabaab, which has expressed opposition to any Ethiopian presence in Somaliland. There is no love lost between Somalia and Ethiopia. And the two nations are no strangers to war – or civil wars, for that matter.
War between Ethiopia and Somalia would be disastrous. It would almost certainly be a humanitarian catastrophe with millions affected. Ethiopia is much more powerful than Somalia (its population is six times larger, and its military much more capable, with Somalia’s drained by its 17-year fight with al-Shabaab). Geopolitically, a conflict over Somaliland could resemble a scaled-up Yemen proxy war with Eritrea, Kenya, Sudan, Egypt, Turkey and the UAE stoking the flames (not to mention Russia, Saudi Arabia and anyone else you’d care to mention). And war would create yet more risks for maritime trade as the Bab El-Mandeb strait – a global shipping chokepoint leading to the Red Sea and the Suez Canal – could once again become too unsafe for passage.
3 - A third-party candidate “spoils” or even wins the US election
Most of the risks discussed about the US presidential election concern Donald Trump being elected, the nation becoming even more divided, and a victory not being recognised by the winner’s opponents.
A less-noticed risk is a third party influencing the outcome. No third-party candidate has ever won a presidential election. But they have split the vote before. Theodore Roosevelt, after serving as president, ran as an independent and split the Republican vote, leading to the election of Woodrow Wilson. And Ross Perot’s 1992 bid garnered almost 20%, even though he didn’t pick up any electoral college votes.
Today, voting patterns and electoral college arithmetic mean that a third party would only need to pull 1 or 2% of the national vote to flip the election from one candidate to another.
Conditions are ripe for a third party. There is widespread voter dissatisfaction with the two major parties, the political system in general, and the two most likely nominees, Donald Trump and Joe Biden. Several contenders, including Robert F Kennedy Jr and Cornel West, have already thrown their hat in the ring – while the more centre-appealing Joe Manchin has all but said he would run. And a super PAC managed by a former advisor to Arnold Schwarzenegger and Mitt Romney has been formed, ready to fund what its backers consider to be a “moderate” candidate.
Running is one thing. Winning is another. But there’s another way a third party could run – and even win. And that is if Trump is denied the Republican nomination and decides to run as an independent. In America, the land of opportunity, anything is possible.
Geopolitical Strategy is the advisory firm behind Geopolitical Dispatch. Our partners are former diplomats with vast experience in international affairs, risk management, and public affairs. We help businesses and investors to understand geopolitical developments and their impacts with clarity and concision.
4 - The AI bubble bursts
Most pundits say the greatest risks from artificial intelligence for 2024 relate to robots outpacing humans. On this conventional view, technological breakthroughs will continue at lightning speed, politicians will not be able to regulate fast enough, AI will be used to ramp up misinformation, and its proliferation will only further divide already polarised and atomised societies. Never mind impending robot wars, creeping AI sentience, or Chat GPT getting hold of the nuclear codes…
Another risk is more prosaic: we may have hit peak AI. Technological progress may advance linearly, not exponentially. Large language models may barely advance at all, having run out of data to mine, having already trawled the internet for several years. And markets, which have been in classic speculation mode wowed by new technologies and entrepreneurial wunderkinds, may re-assess their expensive valuations and quickly course correct.
Just as the dot-com bubble drove the Nasdaq up five-fold between 1995 and 2000 before dropping 77%, the US economy may well be in an AI bubble. The dot-com bubble burst not long after the film The Matrix was released, and the Y2K bug failed to cause the apocalypse feared at the time. Perhaps the Nasdaq (which jumped 43% in 2023, boosted by the buzz around generative AI) will face a similar fate this year.
5 - The end of theocracy in Iran
National ideologies and governance models are not set in stone. Few predicted the collapse of the Soviet Union and Russia’s transition to capitalism in the 1990s. And theocracies do not last forever: the Holy Roman Empire shifted to secular governance in the 16th century; the Papal States morphed into the newly formed Kingdom of Italy during the 1850s with the risorgimento.
Iran, too, could lose its religious garb. Theocracy in Iran is a historical anomaly, with Islamic rule only since 1979: a long time for readers but a blink of history’s eye.
Recent protests, sparked by issues like the enforcement of the hijab, have led to domestic debates about potential changes in the country. There is widespread discontent and disrespect for the ruling mullahs, both among young people disconnected from the revolution’s ideals and increasingly among older conservatives. Iranians are generally nonplussed with their government’s costly expenditure on distant and sanctions-causing conflicts, causes and proxies. And some of these, like Hamas, aren’t even Shiite. Without a clear successor, the eventual death of 84-year-old Supreme Leader Ayatollah Khamenei may well spell the demise of the Islamic aspect of the Islamic Republic, even if factions like the Islamic Revolutionary Guard Corps retain the levers of power.
But the end of theocracy would not necessarily mean the start of democracy. Nor would it mean an immediate rapprochement with Israel and the West, with whom Iran had good relations prior to 1979. Iranian foreign policy will still be driven by its national interests, though it may stop perceiving those through the millennialist, theocratic and anti-Western lens of the revolution.
Five more wildcards - in brief
6 - Maritime trade routes could suddenly be redrawn
The Northern Sea Route could become significantly more operational in 2024. Most experts have said it will take years for the ice to melt sufficiently for shippers to justify the conditions (or the icebreaker fees), but Vladimir Putin is more optimistic. With carriers increasingly avoiding the Red Sea on geopolitical grounds, passing through the Bering Strait between Russia and Alaska may seem a better alternative than rounding South Africa. A shared Russo-American maritime chokepoint may not, however, be smooth sailing. This week, Putin visited the Bering-facing Chukotka Peninsula for the first time, a signal, if any, that he’s eyeing a prize. Last month, in the days before Christmas, the US staked a little-reported 1 million square kilometre extension of the Arctic and Bering seafloors, which will be regarded as highly provocative by Russia.
7 - A China rebound
The consensus is that China is facing a gradual slowdown. But China might unexpectedly rebound, surpassing the 5% GDP growth rate. This resurgence could be driven by a combination of renewed foreign investment (after all, China’s growth and political stability could look more attractive to investors than the US this year), domestic consumption (which could grow if the government implements long-delayed reforms), and technological innovation (China’s tech-heavy STAR stock market index might see a boom similar to the Nasdaq, with its AI constituents, having more data to mine, surpassing their American peers). Such a development would alter global economic dynamics and challenge the current narrative of waning Chinese influence – something Washington’s policy and defence establishments would resent.
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8 - Tense civilian-military relations in Mexico
Mexicans go to the polls this year to select a successor to President Andres Manuel Lopez Obrador (AMLO), who has been in power since 2018. The lead candidate, Claudia Sheinbaum, was mayor of Mexico City and is known for her progressive politics and close association with AMLO. Surveys suggest she will romp it in. But a wildcard is the role of the military, whose influence has significantly increased under AMLO with mission creep well beyond its traditional duties. Today, the generals are involved in infrastructure, the administration of land and seaports, and law enforcement amid rising violence. Armed forces tend not to relinquish power easily. Sheinbaum supports the continued use of the military in public security tasks for now but says these should eventually be taken over by the National Guard. The military may not like this.
9 - Modi loses the Indian election
Narendra Modi looks set to win re-election in 2024. His approval ratings have consistently stayed above 60% throughout his second term. Opinion polls indicate a strong position for his Bharatiya Janata Party. But upsets happen. One way would be if the Indian National Congress (currently polling at around 20%) uses its new ‘INDIA’ alliance of opposition parties to consolidate the anti-BJP vote, replaces its dynast leader, Rahul Gandhi, with a charismatic alternative to Modi, and effectively campaigns on issues where the BJP is perceived to be weak: unemployment, the handling of the pandemic and farmer distress. A Congress-run India could lead to a cooling down of Hindu nationalism and a less muscular approach to regional policy. That said, we expect it would lead to little change in India’s macroeconomic settings or India’s commitment to the role of geopolitical swing state.
10 - Technology will have no bearing on politics
During the Arab Spring, social media was hailed as playing a pivotal role in the downfall of tyrants. “The revolution will be tweeted” was the modish phrase. Fast-forward fifteen years, and social media is now seen more as a divisive force, inherently undermining democracy and fuelling the rise of demagogues. Today, pessimists claim troll factories are no longer needed to maliciously influence elections as bad actors can leverage artificial intelligence. Trolls, like graphic designers and call centre workers, must be wondering if their profession will continue to exist beyond 2024. A banal but against-the-grain prediction is that deep fakes, social media, and artificial intelligence – like the troll factories before them – will have no actual impact on any elections.
Will these speculative scenarios come to fruition? Probably not. But if any of them do, they will certainly matter, and you read it here first. We hope you enjoyed these wildcards, and we would love to hear yours.
Happy 2024.