China Response to Hacking Indictment Indicates Rash Leadership and Need to Expand NATO to Asia

Journal of Political Risk, Vol. 2, No. 5, May 2014.

Chinese and Russian joint naval exercise is photographed. One large ship is visible in the background with a smaller one in the foreground.

Chinese and Russian joint naval exercise. In 2013, Russia and China conducted similar exercises near Vladivostok. A Chinese fleet consisting of seven naval vessels participated in the “Joint Sea-2013” Sino-Russian joint naval drills scheduled for July 5 to 12. The eight-day maneuvers focus on joint maritime air defense, joint escorts and marine search and rescue operations. Source: Wikimedia Commons.

Anders Corr, Ph.D.
Publisher of the Journal of Political Risk

China is using a very blunt and escalatory instrument — threatening general deterioration in military relations — to respond to a limited issue of Chinese individuals stealing trade secrets. On May 20, the United States Justice Department indicted five People’s Liberation Army members for hacking United States commercial data.  The remarkable speed with which China responded the following day, and at the highest level, suggests that commercial hacking is an officially-approved state policy on the part of China. The Chinese threat of reduced military cooperation and thereby deteriorating military relations is clumsy in that the Chinese would look better had they simply launched an investigation of the individuals — an investigation that they could later claim shows the indictment as baseless. The broad Chinese threat of deteriorating military relations invites an increase in US military attention to Asia — exactly what the Chinese should be trying to avoid. The clumsiness of the Chinese response to the indictments indicates a rash Chinese leadership prone to irrational military strategies, with consequent market volatility and political instability. The US and its Asian allies should respond with a measured forward deployment of military forces, and redoubled diplomatic energy towards greater alliance cooperation, including between Asian allies and NATO.

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Shale Gas Race: Political Risk in China, Argentina and Mexico

Journal of Political Risk, Vol. 2, No. 1, January 2014.

A global map showing shale gas basins, top reserve holders.

Global shale gas basins, top reserve holders. Source: Reuters, Catherine Trevethan.

Igor Faynzilbert, CFA
Financial Analyst

As the world continues to embrace cleaner and more efficient sources of energy over the next 25 years, natural gas stands to gain a large market share at the expense of less efficient and more pollutant coal and wood. The United States is currently the biggest winner from hydraulic fracturing and horizontal drilling that allow significantly increased production of shale gas. However, China, Argentina and Mexico are also potential gainers from these new technologies if they manage to overcome political and infrastructure challenges that have considerably slowed development of new gas fields. Continue reading

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 is a bar graph titled "Foreign Investment in Iran and its Neighboring Countries, March 19, 2012-March 19, 2013" and follows a parabolic shape.

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.

Reza Yeganehshakib
University of California

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. Continue reading

Physical Vulnerability of the Internet

US East Coast Map of Submarine CablesJournal of Political Risk, Vol. 1, No. 7, November 2013.

Tom Elliott, Ph.D.
Managing Consultant and Vice President 

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.

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Constitutional Change Needed to Avoid Future US Shutdowns

United States Capitol Building photographed in black and white.

United States Capitol Building. Artwork by Damian Brandon.

Journal of Political Risk, Vol. 1, No. 6, October 2013

Anders Corr, Ph.D.
Publisher of the Journal of Political Risk

The United States is, and continues to be, a politically stable country. Despite a shutdown of non-essential federal government services that started at midnight on October 1, uniformed military personnel and most federal services, including the postal service, federal courts, and federal prisons, will remain open and functional. The “shut-down” is more accurately described as a temporary defunding of non-essential federal services. A spending bill will pass within the next few weeks, and non-essential government services will return to normal. Nevertheless, the appearance of a shutdown of the United States Government has huge reputation costs both domestically and internationally.

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