Commencing this month, Weekly Research and Analysis Report customers will be seeing our annual regional predictions for 2007. Perhaps more than any year since this organization was founded (1996), we approached our annual forecasting with a touch of both exhilaration and dread.

Overall, we believe there are more diverse challenges, more emotion, more risk, more growth, and more opportunity in the international system in 2007 than at any time since the end of the Vietnam War.

Through the month of January, you will see several regional predictions for this year from TRC?s analytic enterprise. These regional forecasts will spell out geopolitical, economic, and social developments and risks for the coming 12 months.

All of the regional forecasts occur within the context of an international structure experiencing significant turbulence.

Political Developments

We will see no new wars in 2007, and current regions of instability?particularly Kashmir and North Korea ?will remain tense but quiet. We believe tensions between Israel and Iran (Country Profile; see this WAR Report) will rise in 2007, creating a potential new flashpoint that will require constant diplomatic attention. Fidel Castro will die by mid-2007, and his brother Raul will slowly, clumsily begin opening the island .

Longstanding conflicts, disputes, and war will continue to have the most impact on the international system in 2007.

? The US will begin withdrawing troops from Iraq in late 2007, setting the stage for discussions with the Shia majority and likely increased ethnic fighting inside Iraq. This ethnic fighting will inflame religious sentiments in the region; Saudi Arabia , Kuwait , Bahrain , and other Gulf States will be monitoring Shia communities in their borders for signs of growing restlessness.

? States bordering Iraq, and elsewhere in the region, will face the risk of refugee crises and returning foreign fighters who will seek to spark revolution in their home countries.

We are most concerned about the prospect of significant Sunni-Shia conflict in Iraq that spills over into neighboring countries.

Apart from Iraq, many foreign conflicts are ethno-nationalist and emerge at the end of the Cold War when the restraints that prevented small conflicts dissolved.

? We will see continued ethnic violence in Sri Lanka , the Occupied Territories, West Africa, East Africa, and in South Asia.

? We will see new and increased ethnic violence in Sudan , Chad , Spain , India , Thailand , Nigeria , Turkey , and the Philippines .

Overall, ethnic conflicts will grow worse before they improve. We will see few, if any, improvements in 2007.

Economics

We were most fascinated in 2006 by the continued emergence of both free-market and ?market-influenced? economies overseas. Despite what appears to be the collapse of the Doha round of trade talks in 2006, free trade will expand and increase global prosperity.

Of most interest to us is the emergence of ?market-influenced? (vice free-market) economies in otherwise authoritarian countries.

? In 2007, China will accrue massive reserves as it tweaks its currency arrangements to maintain a favorable balance of trade and economic growth. Chinese investment, and influence, will increase in Asia and large portions of Africa as the Chinese look for additional raw materials and resources.

? India will experience significant growth, but its economic potential will be blunted by unresolved social issues including caste protest and one of the largest Muslim minorities in the world.

? Energy-autocrats such as Russia , Iran, and Venezuela will command regional influence due to their energy reserves and current account balances. We believe, however, that this influence will slowly wane as energy prices remain high, but flat, and the prospects for alternative fuels come into greater focus in 2007.

Overall, however, the gap between richer and poorest nations will increase, and more nations will become members of either the richest or poorest camps.

Environmental Issues

The biggest wild card we see in 2007 is environmental crisis. We are on alert for two specific challenges:

? Initial forecasts indicate 2007 will be warm in the Americas due to ongoing climate change and an active El Nino year. Severe hurricanes in Central and North America almost certainly will occur after a year-long hiatus.

? The world is overdue for pandemic influenza. While avian-related flu has commanded the most attention, we believe it is only one of several possible pandemic sources.

Summary

The coming year should be free of some of the crisis issues we saw in 2006, such as North Korea. But, we expect more, smaller disturbances such as the near-miss spectacular terrorist attack in London and aftershocks from a fundamental change in Iraq.

Again, look for our more detailed regional analyses all month.