In our 2018 Mid-Year Geopolitical Outlook we opened the report with an analysis of America’s evolving hegemony. We noted that America’s hegemonic narrative centered on containing communism. This factor united Americans to accept the burden of the superpower role. However, embedded in that commitment to contain communism was the “freezing” of three conflict zones.
In Part I of this report, we will identify and reiterate the need to stabilize these three areas in order to maintain global peace. We will focus on the Middle East and discuss the development of the Carter Doctrine and examine how the doctrine has been enforced since its inception. In Part II, we will discuss the reasons for the breakdown of the order prior to President Trump and follow this discussion with the impact of the current president. We will project the likely actions of the nations in the region and, as always, conclude with market ramifications.
The Frozen Zones
Since its founding in 1870, Germany, due to its location in the middle of the Great European Plain, was destined to become an economic powerhouse. Sadly, its central location also meant that it was vulnerable to invasion from both the east and west. To address its insecurity, Germany’s military doctrine was designed to avoid a two-front war by attacking either east or west to “knock out” one front or the other. After WWII, the U.S., through NATO, demilitarized Germany and prevented another German-led war. Essentially, the U.S. solved the “German problem” by taking over the defense of Europe. The rest of Europe no longer had to fear German military aggression and Germany no longer had to defend its eastern and western borders.
A similar situation existed in Asia. Japan had become the most industrialized nation in the region at the turn of the last century. Unfortunately, Japan lacks natural resources and is dependent upon open and secure sea lanes for nearly all its raw materials. Insecurity over resource flows led to Japan colonizing large parts of the Far East. A U.S. threat to embargo oil flows to Japan led Tokyo to launch a surprise attack on Pearl Harbor and brought the U.S. into WWII.
After the war, the U.S. installed a pacifist constitution in Japan, allowing its military to only engage in defensive actions. But, in a similar fashion to Europe, the U.S. effectively took over Japan’s defense. The critical sea lanes were now defended by the U.S. Navy. This action by the U.S. meant that Japan no longer had to fear a disruption in natural resource flows. Additionally, Japan’s neighbors no longer had to fear military action by the island nation to secure raw materials.