A Year of Rising Risks for 2018
As each year passes, we seem to become more accustomed to rising levels of risk, because risk professionals devise better ways of managing it. That said, in this era of perpetual disruption, some risks become increasingly difficult to manage, and others simply cannot be managed. When the majority of risks fit either category, the world of risk reaches a tipping point. It appears that 2018 may be that year.
Disruption can of course be a good thing, but too much of it, too quickly, is often not. Consider the plethora of emerging risks in the political and economic arena. Political risk may rightly be described as ‘on steroids’ since the election of Donald Trump as president, the ongoing Brexit saga, and the realization that war could actually break out with North Korea. Economic risk continues to rise as it is increasingly evident that the lessons of the past have once again failed to prevent actors from behaving foolishly and greedily. What follows is my list of the top 10 risks for 2018.
1. Saudi Arabia’s Experiment: Saudi Crown Prince Mohammed bin Salman’s bold (and brash) drive to reform the country’s politics and economy should be cautiously applauded – for it is long overdue – but it can certainly argued that he has bitten off too much too quickly, and that Vision 2030 and NEOM are too ambitious. 2018 will undoubtedly help determine whether his ‘vision’ for Saudi Arabia’s future is merely a mirage.
2. The Cryptocurrency Explosion: The frenzy over Bitcoin and other cryptocurrencies has gotten totally out of control, with valuations that are excessive by degrees, wild price gyrations, and far more questions than answers about the basis of their value. We have seen speculative bubbles before, and they rarely end well. There is a better than even chance that this bubble will crash and burn, particularly since cryptocurrencies are mostly used by cyber criminals, and on the Dark Web.
3. Cyber Warfare: The wars of the future will be fought in space and cyber space, and with China, Russia and the US all having declared that space is now a domain of specific interest for warfare (where previously it had been declared off limits), next year should see even greater resources devoted by these governments toward establishing comparative advantages in the heavens and online.
4. Continued US Congressional Stagnation: The current US Congress (and recent incarnations) has already established a dubious reputation for getting next to nothing done. That will not change in any meaningful way next year. There is too much sclerosis, partisanship, and rancor in the entire governing system to permit that. This does not mean that the Congress will shift to the Democrats in the mid-terms, because they are equally guilty of contributing to the problem. The longer this persists the higher the price to be paid for everyone involved.
5. China’s Rise: There is no question that this is China’s century. The re-nomination of Xi to the presidency, in conjunction with his firm consolidation of power, imply a period of stability, but also of muscle flexing in the year to come. Given the relative weakness of the US in Asia, and an unwillingness of any of China’s neighbors to challenge it politically or economically, China is poised to extend the solid growth in its military and political power, along with its economic and soft power in Asia and around the globe.
6. North Korea: Given the steady march of Kim Jong Un’s intercontinental ballistic missile and nuclear capabilities, 2018 should see North Korea achieve its long-sought goal of being able to prove that it has added a nuclear payload to its long-range missiles. Given that the US and West have previously chosen to engage new nuclear powers rather than combat them militarily, a major diplomatic initiative should commence next year, particularly given the stakes involved in a military confrontation with the Hermit Kingdom.
7. The Price of Oil: Oil should continue to see a long-term price rise next year and beyond. Market dynamics are consistent with such an outlook, particularly following the sustained depression in global oil prices. Oil producer collaboration should mostly continue. The outbreak of a major war will only exacerbate that orientation. Prices into the 70s or even 80s could easily occur next year.
8. The Continued Run of the Bulls: Irrational exuberance is very much back in fashion, with global markets seeming to forget that what goes up will eventually come down. Being well over due for a recession in the US (and elsewhere), the unbridled optimism of global investors will eventually end, once they consider the plethora of rising risks. Given the rising degree of risk more broadly, it is not hard to imagine a single trigger (such as a war with North Korea or an outbreak of war between Saudi Arabia and Iran) that could cause entire house of cards to come tumbling down in 2018.
9. Socioeconomic Fractionalization: The continued rise of socioeconomic fractionalization (the rising gap between those with a tremendous amount of money and those with very little) will create ever more polarization in societies around the world. 2018 may not be the year when this reaches a boiling point, but it will be a year when the gap between the ‘haves’ and ‘have nots’ becomes one of the widest in modern history. At some point, those with few financial resources will rebel against those with an abundance of them.
10. The Popularization of Political Disruption: The US will see a rise in political activism from those who have never before been involved in politics, which could have a significant impact on the mid-term elections in the US and elections elsewhere. The political status quo is becoming increasingly unacceptable to more and more people. 2018 should be a year when ‘the people’ continue to take their political systems back.
Taken together, it seems clear that next year will be a year of risk unprecedented in recent history. The danger is that one or more them graduate to crisis level at the same time, prompting an inappropriate reaction by governments, business, and international agencies – or alternatively, a failure to act effectively in the face of a crisis. One thing is certain – 2018 is sure to another year where the world lurches into new areas of unforeseen and unprecedented forms of risk.
This article was originally posted in HuffPost.