Biggest geopolitical risks for 2024 identified

A number of factors have combined to make this year an annus horribilis, research firm Eurasia group says.

Major research firm Eurasia Group has identified the top 10 risks to global stability in its latest Top Risks report. The Russia-Ukraine and Israel-Hamas conflicts, alongside the upcoming US presidential election, are identified as leading issues that threaten stability and exacerbate risk.

The United States v itself

It looks increasingly likely that Donald Trump will secure the Republican nomination, in which case political divisions will intensify, disinformation will be used to challenge the legitimacy of the election, and the electoral process will be disrupted, the report says. The consequences of a Trump victory are predicted to weaken America’s global position, particularly in relation to issues like support for Ukraine and Middle East policy.

“The US presidential election will worsen the country’s political division, testing American democracy to a degree the nation hasn’t experienced in 150 years and undermining US credibility on the global stage.”

Eurasia Group

In the event of a loss, Trump may not accept defeat, contest the results, and undermine the legitimacy of the election through various means, possibly leading to a deepening political crisis. The potential for violence and social unrest is considered significant, especially if Trump supporters perceive the election as illegitimate.

Graphic: Gallup and Eurasia Group

A second Trump administration would consolidate executive power, weaken checks and balances, and potentially lead to a breakdown of the rule of law. The consequences of such an administration include challenges to democratic principles, potential abuse of federal institutions, and increased polarization between red and blue states. This will have a negative impact on the US as an investment destination, its global role, and its democratic foundations.

Middle East on the brink

In September 2023, National Security Advisor Jake Sullivan claimed that the Middle East was quieter than it had been in two decades. But eight days later, Hamas’s attacks disrupted the region, highlighting ongoing tensions. Despite positive developments such as improved relations between Iran and Gulf states, a ceasefire in Yemen, and the Abraham Accords, the Palestinian issue had been neglected.

The region is no longer calm, with a network of deterrence relationships – Israel and the US on the one hand, Iran and its proxies on the other, and the Gulf states in between – containing the conflict to Gaza.

The expanded conflict will trigger increased extremism, potential geopolitical shifts, and negative consequences for peace efforts in the Israeli-Palestinian conflict.

There’s a risk of escalation, especially if Israel decides to strike Hezbollah, potentially expanding the conflict in 2024. The situation poses economic risks, with disruptions to global trade and potential oil flow issues. The conflict may deepen global divisions and affect US politics.

Partitioned Ukraine

Ukraine is at risk of de facto partition in 2024, with Russia likely to maintain control over Crimea and several oblasts. Ukraine faces challenges in terms of manpower, weapons production, and military strategy, and diminishing Western support adds to its difficulties.

Russia has a material advantage and could gain more territory. The situation is an inflection point, and if Ukraine doesn’t address its challenges soon, it could lose the war, say the report’s authors. The geopolitical consequences are – risks in the Black Sea, potential naval warfare, and Ukraine resorting to asymmetric warfare. Tapering US support may strain the transatlantic alliance, undermine US credibility globally, and embolden rogue states. A partitioned Ukraine could affect the US election and further divide the EU and NATO.

Graphic: Eurasia Group

Ukraine must make progress on mobilization, training, defense production, strategizing, and political infighting. But while Ukraine is at risk of losing, Russia has no way to “win” in the conventional sense.

Ungoverned AI

Speaking at the World Economic Forum meeting in Davos, UN Secretary General, António Guterres said: “Every breakthrough in generative AI increased the threat of unintended consequences.”

In 2024, gaps in AI governance are expected to emerge as regulatory efforts falter, leaving tech companies largely unconstrained and more powerful AI models spreading beyond government control. Despite previous ambitious AI initiatives and policy announcements, breakthroughs in AI are outpacing governance efforts. The governance gap is attributed to political disagreements, inertia as attention shifts to other priorities, potential defection from non-binding agreements, and the rapid technological advancement of AI models.

Two major risks for 2024 are identified as disinformation, where generative AI may influence electoral campaigns and exacerbate geopolitical conflicts, and proliferation, as new geopolitical actors gain breakthrough AI capabilities

The core challenge lies in understanding and constraining the business models driving AI expansion, with the looming risk of an AI Wild West resembling the largely ungoverned social media landscape but with greater potential for harm. Two major risks for 2024 are identified as disinformation, where generative AI may influence electoral campaigns and exacerbate geopolitical conflicts, and proliferation, as new geopolitical actors gain breakthrough AI capabilities, heightening the risk of accidents and enabling economic opportunities.

The longer AI remains ungoverned, the higher the risk of a systemic crisis. And the harder it will be for governments to catch up.

Graphic: Eurasia Group

Axis of rogues

Russia, North Korea, and Iran, are characterized as powerful rogue states cooperating with each other. They share objectives such as undermining existing institutions and governments they perceive as serving Western interests. The study points to their collaboration in military and economic aspects, including North Korea supplying weapons to Russia in exchange for food, energy, and technological assistance.

The alignment of these rogue states is seen as a growing threat to global stability, with potential risks including asymmetric warfare and disruption through cyberattacks and disinformation campaigns. China is not considered a member of this alignment but tends to maintain a de facto policy of pro-axis neutrality, indirectly supporting their anti-Western operations.

Volodymyr Zelensky, Benjamin Netanyahu, and William Lai are all described as “dangerous friends”, all of whom could drag the US into extended conflicts.

No China recovery

The Chinese economy faces challenges and constraints in 2024, and any positive signs of recovery will likely be short lived due to deep-seated issues. The consolidation of power at the top in China has stifled policy debate and economic dynamism, exacerbating concerns about the country’s growth model, financial fragilities, and insufficient demand.

Key factors impeding a recovery include unfavorable demographics, eroding labor cost advantages, high indebtedness (particularly at the local level), and continued reliance on state investment for growth. Despite Beijing’s attempts to restore confidence by investing in infrastructure, the lack of bold reform measures is expected to limit the impact of these efforts.

Graphic: Eurasia Group

The fading effects of the zero-Covid rebound, weakness in the real estate sector, low external demand for Chinese exports, and the government’s reactive rather than preemptive approach to financial stress are other concerns.

Political factors, specifically President Xi Jinping’s concentration of power and focus on security over growth, are expected to further weigh on confidence and slow the regime’s response to economic vulnerabilities. While an imminent crisis is not predicted, the study suggests that these conditions may entrench China’s economic malaise and reveal vulnerabilities in the Communist Party’s competence and legitimacy. The longer-term risk is highlighted, suggesting that a slow response to financial contagion and social unrest could potentially lead to a loss of control by the government.

The fight for critical minerals

Governments worldwide are expected to implement protectionist measures on global critical mineral supply chains in 2024, disrupting the flow of essential minerals crucial for various industries, including clean energy, advanced computing, biotechnology, transportation, and defense. The extraction of these minerals is concentrated in specific countries, while processing and refining are predominantly done in China.

As critical mineral importers and exporters intensify their use of industrial policies and trade restrictions, producer nations, especially developing countries, are imposing export restrictions to leverage their position in global supply chains.

Critical mineral supply chains are vulnerable due to their highly concentrated nature, making them susceptible to bottlenecks and chokepoints. The surge in demand for these minerals, coupled with geopolitical concerns, has prompted the US and EU to subsidize domestic manufacturing and reduce dependence on Chinese-controlled minerals. However, their efforts are hampered by long lead times for new mining and refining projects.

Import restrictions by the US and EU to reduce dependence on China, focused on national security and clean supply chains, contribute to supply challenges and price volatility.

As critical mineral importers and exporters intensify their use of industrial policies and trade restrictions, producer nations, especially developing countries, are imposing export restrictions to leverage their position in global supply chains. China, in particular, is fine-tuning an export control regime to weaponize its mineral dominance in tech competition with the US. This could lead to competing pressures between importers and exporters, with new EV gigafactories subject to strict sourcing requirements and exporter nations enforcing licensing requirements and export bans.

The potential impact of these measures includes market inefficiencies, increased price volatility, and risks to private investment and production. The text provides examples of specific export restrictions expected from various countries, emphasizing the potential disruption to critical mineral supply chains, especially in the event of a Chinese graphite export ban.

No room for error

Predictions for the global economic and political landscape in 2024 focus on the continued impact of the inflation shock that began in 2021. Stubborn inflation will lead to high interest rates worldwide, slowing global growth. The depletion of macroeconomic policy buffers leaves governments with limited capacity to stimulate growth or respond to shocks, raising the risks of financial stress, social unrest, and political instability.

Despite a significant deceleration in inflation and the end of the monetary tightening cycle in 2023, global interest rates remain restrictive. Central banks are expected to keep interest rates high in 2024 due to persistently above-target inflation. The Ukraine and Middle East conflicts, El Nino’s impact on food prices, and geopolitical considerations by major oil producers will hinder efforts to cool inflation.

Sticky inflation and tight financial conditions are predicted to weaken global demand, leading to economic insecurity. Household and firm retrenchment, coupled with reluctance by fiscal policymakers to increase public spending, is expected. Chinese growth, once a global safety net, is projected to remain too weak to fill the economic gap. As a result, many countries are predicted to experience subdued growth, with some entering into recession.

Graphic: Eurasia Group

Any additional negative supply shocks would prompt central banks to tighten monetary policy further, given the diminished policy space and increasing interest costs. Political divisions within countries and geopolitical tensions globally are expected to reduce the scope for crisis response and global policy coordination.

Economic headwinds are predicted to deepen voter discontent, particularly in democracies with scheduled elections in 2024, leading to challenges for incumbents and potential gains for populist challengers. The impact of negative economic perceptions is highlighted in the United States and the United Kingdom, with potential political consequences in South Africa. In countries without scheduled elections, fiercer fights over resource distribution may lead to social unrest and political instability, especially in regions with low growth rates, high debt levels, and divisive politics.

Countries like Zambia, Ghana, Sri Lanka, Pakistan, and Egypt are mentioned as potential candidates for debt defaults. The reluctance of major creditors, notably China, to provide significant multilateral debt relief is highlighted. Developed markets with high debt levels, such as Italy and Canada, may face fiscal and financial strain, with rising debt service costs crowding out spending on public goods. The overall assessment is that persistently high interest rates, tepid growth, and exhausted policy buffers increase the risk of financial market disruptions in 2024.

El Nino is back

The impact of a powerful El Nino climate pattern is expected to peak in the first half of the year, following a four-year absence. This will bring extreme weather events that will result in food insecurity, increased water stress, disrupted logistics, the spread of diseases, and potential migration and political instability.

El Nino, a predictable climate pattern, is known for increasing the frequency and magnitude of extreme weather events such as heat waves, droughts, storms, and floods. The last strong El Nino occurred in 2016, contributing to that year being the hottest on record. Given the baseline temperatures have increased further due to climate change, the upcoming El Nino is expected to set a new record in 2024.

el Nino storm
Photo: Getty Images

The impact of El Nino is likely to be felt globally, with countries in the Indo-Pacific, Latin America, and Southern Africa being hit the hardest. Regions such as South and Southeast Asia, Central America, northern South America, and Australia face prolonged dry periods and record high temperatures, increasing the risk of severe drought. In Brazil, dry conditions may accelerate deforestation and pose threats to water sources and hydroelectric power generation. The northern US and Canada may experience warm, dry weather, leading to an elevated risk of forest fires. Increased rainfall in California and the Southeastern US could cause flash flooding.

The combination of food insecurity, water stress, and natural disasters will particularly strain countries with limited adaptation capabilities, leading to internal migration in Africa, Asia, and the Middle East, as well as cross-border refugee flows in the Americas. The overall impact poses threats to lives and livelihoods, especially among vulnerable populations in fragile countries.

Risky business

The US culture wars will continue in corporate boardrooms, with both left and right-leaning groups influencing corporate decisions. State-level retaliations, growing political polarization, and the potential impact on businesses facing conflicting state regulations will all be issues of contention.

The projection is that the divide between red and blue states in the US will deepen, making it challenging for companies to adopt cohesive nationwide strategies, leading to a lose-lose situation for business leaders due to higher policy uncertainty and regulatory risks.

Graphic: Eurasia Group