Geopolitical Gray Rhino Risks and Responses of 2024

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Though I haven’t seen any empirical sleep studies to prove it, anecdotal and survey evidence strongly suggest that geopolitical tensions are keeping more business leaders and policy awake at night in early 2024 than any time in recent memory.

This is the first year since the Council on Foreign Relations’ Preventive Priorities ?survey began (in 2008) in which participants have cited three highly likely conflicts with high impact on the United States. Namely: Election-related violence in the US, an escalation of the Israel-Hamas war, and an escalation of migration on the US Southwest border.

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In addition, nearly half of the world’s population will be going to the polls to choose new leaders.

The decisions and actions that voters and leaders take this year will have huge implications for trade policy, economic growth, cooperation and progress on a smooth energy transition and addressing the climate crisis, and whether guns or butter (ie, security or economic priorities, including humanitarian and climate aid) prevail in national budget and policy choices.

Above all, this year could dramatically increase the “uncertainty tax” that geopolitics and shifting monetary policy extract from businesses and from government revenues through the drag they exert on economic growth.

Or, if voters make good choices, this year’s elections could lower uncertainty around potentially sharp policy shifts and global conflict and disruptions, with the resulting boon for citizens, policy makers and businesses.

A crisis mentality could drive needed change by focusing attention on some of the world’s biggest geopolitical and economic issues and create room for new business strategies.

It all depends on the choices we make in the coming eleven months (and beyond).

A Quick Summary

As the year began, high-stake conflicts continued in Ukraine, with implications across Europe, even as the United States Congress squabbled over continued funding for Ukraine.

In the Middle East, Israel’s assault on Gaza, in retaliation for the October 7 terrorist attack, threatens to expand conflict across the Middle East. Attacks by Iran-backed Houthi rebels on crucial Red Sea shipping lanes have disrupted trade routes for commodities from oil to rice to manufacturing components, fueling inflation and supply chain delays.

And the US has approved retaliatory strikes against targets in Iraq and Syria after the deaths of three US servicemen in Jordan at the hands of Iranian-backed militias .

As if all that were not enough, North Korea’s missile tests and hostile posturing against South Korea including abandoning the possibility of reunification and reneging on a 2018 pact that used buffer areas and no-fly zones to limit military activity around the border and reduce tensions.

On the positive side, efforts by the US and China to cool tensions have made some progress despite even amidst Taiwan’s January general elections, which were largely in line with expectations and relatively balanced .

Though China skeptic Lai Ching-te of the incumbent Democratic Progressive Party won the top post in Taiwan’s January 13 elections , voters denied him a clear legislative mandate. Neither major party won a majority in the new 113-seat legislature, though Han Kuo-yu of the pro-China opposition party Kuomintang has just been named legislative speaker . Meanwhile, the young Taiwan People’s Party –formed only in 2019– won eight seats which will make it the swing vote.

America versus America

Even with all of the global issues, the biggest source of geopolitical uncertainty and tension is, ironically, domestic: the United States as it faces crucial elections in November. Because of the country’s outsized weight in global affairs, the implications of voters’ choices are enormous (to put it mildly).

The Economist magazine put it bluntly in an entire headline: “Donald Trump poses the biggest danger to the world in 2024 .” I agree, though I must add that it’s not just Trump himself but rather the reality of a world in which an astonishing number of people who would put their trust in a mentally unstable narcissist who is not remotely deserving of it. “The election will be decided by tens of thousands of voters in just a handful of states,” the magazine’s editors wrote. “In 2024 the fate of the world will depend on their ballots.”

Concurring with CFR’s worries about election-related violence, “The US versus itself ” sits atop Eurasia Group’s Top Risks 2024 list in this “Voldemort of years.” Michigan authorities recently arrested a man for making death threats against President Joe Biden, Vice President Kamala Harris, and other senior officials. Several politicians of both parties, as well as judges and prosecutors have been targeted by swatting attacks , a form of harassment using false reports of criminal acts in progress to send law enforcement (including highly-trained Special Weapons and Tactics, or SWAT, teams, the source of the term) to an individual’s home.

The surge in voter preferences for populist, isolationist, protectionist, divisive candidates –in the US and elsewhere—is especially dangerous at a time when inflammatory, beggar-thy-neighbor rhetoric is flying alongside active, AI-accelerated disinformation campaigns on social media (another widely cited top risk of 2024 ).?

Thus, 2024 will be a pivotal year for policies that could hurt the global economy by increasing protectionism and nationalist chest-thumping which in turn would deter the kind of global cooperation we urgently need in order to respond effectively to the climate crisis, adapt to the educational and other challenges that AI demands, and help developing countries recover from the Covid-19 pandemic, including restructuring their debts as potential defaults loom.

Not Inevitable

Does this all mean that we are “already in World War III” as you may have heard overexcitable pundits claim? No. The escalation to such a level is far from inevitable, and in fact is counterproductive and self-reinforcing.

Full-blown diversionary “wag the dog” wars are less likely than we might fear. But inflammatory rhetoric is extremely common.

And the longer politicians and citizens go on believing that inflammatory rhetoric is “just talk” and that leaders will always pull us back from the brink, the more likely policy errors become.

In other words, the less likely we think something is to happen or the more inured we become to it, the more likely we are to sleepwalk into utterly foreseeable and often avoidable crises. This quirk of human nature is at the heart of gray rhino theory and one of the many reasons that it is so important to regularly take fresh looks at obvious, probable, threats. But these dangers also present opportunities.

Where Are the Opportunities?

It’s becoming harder and harder to pretend not to notice the intertwined domestic and geopolitical conflicts that at times can feel not just serious but even existential.

If the alarm bells ringing so loudly this year work to add a sense of urgency and creating real momentum that drives needed changes, world leaders are more likely to pull us all back from the edge.

Supply chain shocks –from pandemic related to geopolitical to extreme weather to red-tape related– have reinforced the importance of diversification of sources of commodities and manufactured goods.

As China has become more active in financing developing countries, there competition for goodwill could take the form of Olympic-style (ie constructive) competition.

A search for areas of common interest could be a catalyst for increased climate cooperation.

Consumers’ unhappiness with tariffs feeding inflation and businesses’ displeasure with higher supply costs could create pressure toward new, smarter trade norms.

For example, if policy makers substituted some of the current tariffs, many of which have increased dramatically in recent years, with carbon border adjustments it could appeal to both protectionist minded and climate-minded constituencies. Temporary exemptions to subsidy and tariff rules for clean-tech and other “green” products could accelerate the net-zero energy transition while lowering costs for consumers and encouraging cross-border cooperation.

As I often say, good risk management is not only about identifying things that could go wrong. It’s also about being honest about how we are responding –whether we have the power to drive solutions or merely get out of the way—and do everything possible to change the direction of the giant beasts about to charge straight at us.

If 2024 is indeed the Voldemort of years, let’s be Harry Potter, Hermione Granger, Ron Weasley, and their friends.

Next week: Climate Gray Rhinos and Responses

Earlier in this series:

AI Gray Rhinos of 2024

Financial Fragility Gray Rhinos of 2024

Overview of Gray Rhino Risks and Responses of 2024