Category Archives: United Kingdom

Political Risk to Investment in Iran: Sanctions, Inflation, Protectionism, War, Bonyads, and the IRGC

Journal of Political Risk, Vol. 1, No. 7, November 2013.

Figure 1: Foreign Investment in Iran and its Neighboring Countries, March 19, 2012-March 19, 2013. Data Source: The Government of the Islamic Republic of Iran News.

Figure 1: Foreign Investment in Iran and its Neighboring Countries, March 19, 2012-March 19, 2013. Data Source: The Government of the Islamic Republic of Iran News.

By Reza Yeganehshakib

Despite a tumultuous recent political history that includes revolution, war and sanctions, relations between Iran and the West are improving and Western investors are increasingly interested. But, Iran’s politics cause sanctions, and the economy suffers from inflation. Protectionist laws are on the books, and in some cases economic crimes are punishable by death. Regardless of warming relations with the West, Iran has in the past reneged on its agreements, and war is still a risk with non-Western bordering countries and regional powers. The Iranian Revolutionary Guard Corps (IRGC) has nationalized foreign investments in the recent past, and the politically powerful revolutionary foundations known as Bonyads control large segments of the most lucrative investment sectors.

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Physical Vulnerability of the Internet

Sources: Greg’s Cable Map; Submarine Telecoms Forum, Submarine Cable Almanac (Issue 7, August 2013).

Sources: Greg’s Cable Map; Submarine Telecoms Forum, Submarine Cable Almanac (Issue 7, August 2013).

Journal of Political Risk, Vol. 1, No. 7, November 2013.

By Tom Elliott, Ph.D.

On March 27, 2013, while the technology world preoccupied itself with a sophisticated cyberattack on a spam prevention service, a low-tech assault on the Internet was taking place in shallow waters off Alexandria, Egypt. Three men with scuba gear and a fishing boat were arrested while allegedly trying to cut one of the main communications cables that links Europe to the Middle East and Africa.[1] This incident of hacking – in the most literal sense of the word – should remind us that the Internet we all rely upon depends upon physical infrastructure, much of which is easily located and relatively unprotected. Continue reading

Political Risk in Europe: A Quantitative Index Based on Measures of Corruption, Market Distortion, and the Shadow Economy

Journal of Political Risk, Vol. 1, No. 5, September 2013.

Figure 1: Political Risk in Europe 2012

Figure 1: Political Risk in Europe 2012. The index arranges the countries relative to one another. The separate values would change if more cases are added to the sample.

By Stoycho P. Stoychev, Ph.D.

This paper proposes a quantitative index of political risk in Europe, based for the first time on corruption, market distortion, and the shadow economy. It is constructed upon the idea that within a continuum between rule of law and corruption, the levels of political risk vary greatly. Institutional statistical data are used to allow for reliability in time and cross-country comparison. As a proof of reliability, the resulting scores are highly correlated with other applied indices of political risk. A major advantage of the proposed index, however, is that it differentiates between developed countries, which is not possible with existing risk indices. Continue reading

Russian weapons delivery in Syria likely met with cooling of East-West relations

Russian naval vessel in Sevastopol. May 2009. Credit: Pavel Parmenov.

Russian naval vessel in Sevastopol. May 2009. Credit: Pavel Parmenov.

Journal of Political Risk, Vol. 1, No. 1, May 2013.

By Anders Corr, Ph.D.

Russia has deployed at least a dozen warships near the coast of Syria in the past few months, the largest Russian naval deployment since the end of the Cold War. Yesterday, Russia delivered sophisticated radar-guided Yakhont anti-ship cruise missiles to Assad’s Syrian forces. The Russian actions are strategically offensive to the United States, as well its European and Israeli allies. They are meant to dissuade Israel, the US, and Europe from increased involvement. The anti-ship weapons, in particular, are offensive weapons that could be used by Assad’s Syrian forces to attack NATO naval platforms necessary for intervention in Syria  (WSJNYT).

Russian actions with respect to Syria complicate the war from a primarily internal issue, to one over international influence between aspirant global and regional hegemons. Because the weapons delivery could be seen to counter Western military actions in the region, they have already increased US congressional criticism of Russia. Such criticism will likely increase in future, especially if the weapons are used against Western assets. This strategic offense to Western military commanders will lead them to more strongly support military options. Ironically, the Russian action increases pressure on Western political leaders to order intervention. Continue reading

GDP Per Capita and Democracy Explain 87% of the Social Progress Index

Model 1: Effect of GDP Per Capita on the Social Progress Index

Figure 1. Effect of GDP Per Capita on the Social Progress Index (Model 1)

Journal of Political Risk, Vol. 1, No. 1, April 2013.

By Anders Corr, Ph.D.

Social Progress Imperative, a global group that produces well-being data for 50 countries, released their Social Progress Index (SPI) today. The index compares countries not on GDP, but rather on a single quality of life metric as a function of housing, health, education, and environmental sustainability. The index is backed by Harvard Business School professors and the Skoll Foundation (WSJ).

Sweden, Britain, and Switzerland have the best Social Progress Index scores, because these countries have some of the highest GDPs per capita of the fifty countries in the index. It is no coincidence that the three lowest SPI scores – Ethiopia, Nigeria, and Uganda, have very low GDPs per capita. The best way to understand SPI is therefore to control for GDP per capita. Corr Analytics did simple regression analysis on SPI. Approximately 84% of the index is explained by gross domestic product (GDP) per capita (see technical details below). Countries with large economies relative to their populations will have more wealth that can be channeled to the basic necessities measured by SPI. Therefore the simpler standard used by economists for decades — GDP per capita — works quite acceptably for well-being. Continue reading

Risk of NATO overstretch in Syria

By Anders Corr, Ph.D.

The Obama administration is currently under pressure by certain US lawmakers, as well as Britain, France, and Israel, to take limited military action in Syria. These actions could include securing a humanitarian corridor into the country, providing military equipment to the non-Al Qaeda affiliated Free Syrian Army (FSA) and Syrian Opposition Coalition (SOC), and destroying the Syrian Air Force (WSJ).

Such measures might remove a bit of pressure from rebels and provide a public opinion boost to current participating governments in the US, France, and Britain, in that voting publics in those countries would feel that their governments were doing something positive to end the Syrian crisis. However, due to the limited nature of the proposed military measures, they would not alter the balance of forces on any side of the complex conflict and could lead to notable negative consequences. Continue reading

Public support for action against Syrian regime

On March 15, 2011, popular protests erupted in Syria as part of the Arab Spring. The Syrian regime brutally suppressed the protests, which grew into armed opposition and civil war. President Bashar Hafez al-Assad’s Ba’athist government fought against a splintered but militant opposition. The United Nations tracked atrocities committed on both sides, including more than 70,000 killed (CNN).

Assad obtains most of his political support from the authoritarian regimes in China, Russia, and Iran. The Arab League previously supported him, but as the atrocities mounted, now supports the opposition. There is substantial public support for action against the Syrian regime in the United States, France and Britain. The types of action palatable to the voting public in the United States and Britain, weary of wars in Iraq and Afghanistan, do not include intervention. The public in newly-interventionist France does support deploying United Nations troops to Syria. All three countries support economic sanctions, and there is increasing support for supplying opposition groups with military materiel  (Council on Foreign Relations). Political leadership in the United States, France and Britain are responding with proxy war proposals consistent with this public opinion.

Expect limited military materiel support to Syrian rebels from the US, Britain and France in the near future. Due to insufficient public support, this will not include deployment of troops, and will only be sufficient to prolong — not win — the war. Over time, limited and therefore ineffectual military support may lead to increasing public support for deployment. If deployment occurs, expect a quick apparent win by the opposition, which turns into a long (5-15 years) and expensive period of nation-building and civil war as in Iraq and Afghanistan. Increased western military expenditures will improve yields in the defense sector, but increase government debt and taxes. Expect lower economic performance overall as defense expenditures aimed at Syria increase.

Opposition groups that will immediately benefit from western intervention in Syria will solicit such intervention in the short term. However, public opinion in Islamic countries find western intervention highly disagreeable, as do China, Russia and Iran. Expect increased global tensions and Islamic terrorism from western intervention in Syria. Expect Syrian opposition groups to quickly spurn their western benefactors as soon as military and other aid ends.

Effect of European political disunity on the Euro and global economy

Today, France joined the UK in publicly threatening to rupture a common approach to European Union (EU) foreign policy by sending arms to Syrian rebels (Bloomberg). This, on the heels of the January 11 unilateral French intervention in Northern Mali. Since the May 2012 election of French President François Hollande, France has increased its political independence with respect to the EU. This distresses Germany, which wants closer political union. Without seeing gains in political unity, Germany could decrease its financial support to the European project (Council on Foreign Relations). This augurs poorly for European monetary union, the value of the Euro, and global economic stability.

Lack of German financial support to Europe would increase the probability that Portugal, Italy, Ireland, Greece, or Spain would be forced out of the Euro. Were this to happen without prior agreement from the rest of the eurozone, the cost to the dropout would be catastrophic in terms of trust and with it, access to money markets. The cost to the remaining eurozone countries would be an increase in eurozone per capita money supply and resulting inflation of the Euro. Confidence in the Euro would fall, and the chance of further dropouts would be reflected in the foreign exchange market. Decreasing confidence and loss of value increases incentives for other EU countries to be the next to leave the Euro, with spiraling downward effects on its value. The massive investment in the Euro — and the amount that could be lost given failure — explains why Germany is willing to prop up the currency through stabilization of economically ailing eurozone members. Ailing eurozone countries milk their wealthier neighbors with the threat of Euro collapse.

Euro collapse is not just a European problem. It would have a disastrous effect on the global economy, including major European trading partners such as the United States and China. Thus, all trading partners with Europe have — at least for economic reasons — a stake in the success of a European common foreign policy. This should be considered when jockeying for short-term diplomatic goals such as arming the opposition in Syria.

Increasing European political integration and unity should give the investor increased confidence in the Euro; decreased integration and unity will have downward effects.  In part because of understandable historical differences based on the subjective experience of World War II, Germany is profoundly leery of military intervention. France and Britain frequently see intervention as an obligation to stop massacre, genocide, and civil war, especially when such intervention involves ancillary benefits such as removing a rogue or terrorist threat. Increased institutional power to overcome foreign policy differences in Europe would assist common foreign policymaking, and thereby improve market confidence in the Euro. Public pronouncements of Britain and France asserting foreign policy independence from the EU are geared towards influencing Germany and other recalcitrant EU states to take the UK-France-Italy approach on Syria. They show that for the moment at least, short-term foreign policy goals are trumping aspirations of a common EU foreign policy, stability of the Euro, and mitigation of risk to the international economy.

Watch for any hedge by the German government against the Euro, which will precede rapid loss of confidence in the Euro and a decrease in German monetary support to the currency union.