It's becoming unavoidably obvious that the current global order is unraveling. Add investor fears that we've ignored warning signs of slower growth, particularly in Europe, and that the easy-money days of quantitative easing may finally be coming to an end, and it didn't take much to send equity markets plunging last month. ... A distracted, war-weary America is no longer willing and able to provide global leadership, and no other country is stepping up to take its place. The U.S.'s international disengagement and seemingly improvised foreign policy are leaving allies, distracted by their own problems, looking to hedge their bets. Meanwhile, developing countries have become powerful enough to block U.S.-led plans but are not yet coordinated, motivated or influential enough to offer alternatives. Fast-changing China, revisionist Russia and a host of emerging markets with competing priorities and different political and economic systems leave us with too many major powers with too many divergent interests. The result is a global power vacuum - and markets are afraid of what might come next. ... We've now reached a crossroads where the outcomes of four combustible geopolitical crises could begin to reshape the global economy. Two of these crises are already reaching a critical point. The conflict between Russia and the west will rage in and around Ukraine, on Russia's borders with other neighbors, in energy markets, in financial markets, in the defense budgets of countries on both sides, in cyberspace - and anywhere else Moscow may try to undermine what remains of American global leadership. ... In the Middle East the battle with ISIS has just begun. ... Two other crises, not yet dominating headlines, are very much in play. Chinese leader Xi Jinping has his hands full with transformational economic reforms that will reshape the Chinese market and his country's global standing. But as its economic agenda comes under pressure, Beijing will look to deflect frustration and attention onto foreign companies, neighborhood adversaries or Washington. ... Second, new fissures in the U.S.-Europe alliance are taking shape. Divisions among European countries as well as global challenges that disproportionately threaten Europe are widening a structural divide between Europe and America.

An ancient religious divide is helping fuel a resurgence of conflicts in the Middle East and Muslim countries. Struggles between Sunni and Shia forces have fed a Syrian civil war that threatens to transform the map of the Middle East, spurred violence that is fracturing Iraq, and widened fissures in a number of tense Gulf countries. Growing sectarian clashes have also sparked a revival of transnational jihadi networks that poses a threat beyond the region. ... Islam’s schism, simmering for fourteen centuries, doesn’t explain all the political, economic, and geostrategic factors involved in these conflicts, but it has become one prism through which to understand the underlying tensions. Two countries that compete for the leadership of Islam, Sunni Saudi Arabia and Shia Iran, have used the sectarian divide to further their ambitions. How their rivalry is settled will likely shape the political balance between Sunnis and Shias and the future of the region, especially in Syria, Iraq, Lebanon, Bahrain, and Yemen. ... Shia identity is rooted in victimhood over the killing of Husayn, the Prophet Mohammed’s grandson, in the seventh century, and a long history of marginalization by the Sunni majority.

It’s been six years since we first wrote about the coming G-Zero world—a world with no global leader. The underlying shifts in the geopolitical environment have been clear: a US with less interest in assuming leadership responsibilities; US allies, particularly in Europe, that are weaker and looking to hedge bets on US intentions; and two frenemies, Russia and China, seeking to assert themselves as (limited) alternatives to the US—Russia primarily on the security front in its extended backyard, and China primarily on the economic front regionally, and, increasingly, globally. ... These trends have accelerated with the populist revolt against “globalism”—first in the Middle East, then in Europe, and now in the US. Through 2016, you could see the G-Zero picking up speed ... with the shock election of Donald Trump as president of the US, the G-Zero world is now fully upon us.
1.   Independent America: Trump rejects the comparative weakness of the presidency, and he wants to more directly project American power in service of US national interests
2.   China overreacts: Xi will be extremely sensitive to external challenges to his country’s interests at a time when all eyes are on his leadership
3.   A weaker Merkel: Could the Europeans have resolved their financial crises without the Germans forcing a solution?
4.   No reform: The reform needle won’t move in 2017. Save for a few bright spots, money won’t know where to flow
5.   Technology and the Middle East: Technology, a force for economic growth and efficiency, also exacerbates political instability
6.   Central banks get political: In the US, there’s risk of an open conflict between the Federal Reserve and the White House
7.   The White House versus Silicon Valley: Technology leaders from California, the major state that voted in largest numbers against Trump in the election, have a bone to pick with the new president
8.   Turkey: Ever-fewer checks on executive power will leave the private sector vulnerable to political whims
9.   North Korea: It’s making consistent progress on an intercontinental ballistic missile capability that would allow it to hit the West Coast of the US with a nuclear weapon
10.   South Africa: South Africa’s political infighting will undermine the country’s traditional role as a force for regional security
Red Herrings: US domestic policy, India versus Pakistan, Brazil

1.   Still brooding about his loss of the popular vote, Donald Trump vows to win over those who oppose him by 2020.  ...
2.   The combination of tax cuts on corporations and individuals, more constructive trade agreements, dismantling regulation of financial and energy companies, and infrastructure tax incentives pushes the 2017 real growth rate above 3% for the U.S. economy.  Productivity improves for the first time since 2014.
3.   The Standard & Poor’s 500 operating earnings are $130 in 2017 and the index rises to 2500 as investors become convinced the U.S. economy is back on a long-term growth path.  ...
4.   Macro investors make a killing on currency fluctuations.  ...
5.   Increased economic growth, inflation moving toward 3%, and renewed demand for capital push interest rates higher across the board.  The 10-year U.S. Treasury yield approaches 4%.
6.   Populism spreads over Europe affecting the elections in France and Germany.  ...
7.   Reducing regulations in the energy industry leads to a surge in production in the United States. Iran and Iraq also step up their output.  ...
8.   Donald Trump realizes he has been all wrong about China.  Its currency is overvalued, not undervalued, and depreciates to eight to the dollar.  Its economy flourishes on consumer spending on goods produced at home and greater exports.  Trump avoids punitive tariffs to prevent a trade war and develops a more cooperative relationship with the world’s second largest economy.
9.   Benefiting from stronger growth in China and the United States, real growth in Japan exceeds 2% for the first time in decades and its stock market leads other developed countries in appreciation for the year.
10. The Middle East cools down.  ...

For every flight departing Dubai, as cabin crew head to their airplanes, the last room they traverse is a hall with mirrors on one side and windows to the tarmac on the other. The space allows workers to inspect themselves for perfection against a backdrop of government-owned taxiways thick with Emirates jets. That’s the airline, in one image: glamour and ambition in a framework of absolute control. ... Out in the desert, a half-hour drive from the coast’s skyscrapers and malls, the government is building a $32 billion, five-runway megahub precisely to Emirates’ specifications. Its ambitions are consonant with its name: Dubai World Central. The project will have a capacity of 220 million passengers per year, four times the number that New York’s John F. Kennedy International Airport serves today. ... the airline is at risk if those emerging markets don’t, in fact, emerge. Emirates in May reported its first-ever annual revenue decline and is cutting some of its plans for growth amid slackening demand from sub-Saharan Africa, Turkey, and Brazil. The slump has industry analysts wondering how Emirates will fill the staggering number of planes it has on order. ... From a fuel and flight-time perspective, the Persian Gulf is the most efficient place on the planet to connect Europe with Southeast Asia and Australia, and the U.S. with India. Strikes and protests aren't an issue—unions are banned, and rights to free speech and assembly are severely limited.

The world is about to experience the greatest geopolitical transformation in at least the past three generations. The United States’ need for oil has greatly diminished, and its goals in the Middle East have changed. The United States now views the world wholly in relation to its other interests. Global and local demographics, new outsiders in the area, and a new contest shaping up between Iran and Saudi Arabia contribute to continuing instability in the Middle East. A global energy crisis could soon draw many countries into the Middle East, and a simultaneous political crisis could erode state authorities there, unleashing a new wave of violence and terrorism. ... The United States is transforming into a country with global reach but no global interests. For the 4 billion people on this planet who are utterly dependent on global trade for their well-being, this transformation is possibly the worst outcome imaginable. ... Even if the United States was convinced that its economic and physical security required international engagement, it is about to step out to lunch, and it is going to be a very, very long lunch. Just as the rest of the world needs the United States, it is leaving the building.

Of course, the challenges in the region remain very real, among them poverty, war, and the breakdown of political and economic institutions. Israel has a well-established technology sector, but in the Arab Middle East—outside the United Arab Emirates and its leading economic center, Dubai—the legal and regulatory system is at best cumbersome to navigate, and more often unpredictable and inconsistent. Historic political disputes and security concerns are issues as well. Educational infrastructure, despite relatively heavy spending, is not adequate for developing a 21st-century workforce. ... Yet something encouraging is happening. Everywhere in Dubai, young people gather, checking their smart devices. ... The vast majority of the city’s three million residents, including a new generation of young Arab entrepreneurs, were born elsewhere. And they are selling to a wired generation across the Middle East. In nearly every country in the region today, more than half of the population is under 30