Well, it's time again for my yearly predictions. First, let's see how my 2006 predictions panned out: I predicted no major Bird Flu outbreak was likely and--pretty safe prediction--none occurred. I'll stick with that for 2007--no major outbreak is likely, but it's certainly possible. It's really just a matter of probabilities at this point, with a pandemic in any given year very likely, but with occurrence at some point in the next 20 pretty probable. I similarly predicted no major terroist attack in '06, and was on the money--but again, this was a pretty safe prediction. I still don't think that it really serves the interests of most islamic extremist groups to waste effort with attacks in the US when that effort can be so much more effectively applied within the Islamic world at this point--though "Islamic Extremism" is by no means a monolithic movement, so the possibilitiy of a "lone-wolf-group" attack is always present. I was pretty close on target with oil prices--I said that they would oscillate around $60/barrel ending the year around $70. As I write this they're just over $62, but there is certainly correlative data that suggests price manipulation around the election (though we must be careful to distinguish correlation and causation). Finally, I was pretty far off the mark with Iraq. I accurately predicted that the Iraqis would realize that the election and "democracy" will not solve their problems, and that those problems would get worse. However, I was not able to accurately forecast the degree of incompetence on the part of the Bush administration, so my prediction that troop levels would be effectively drawn down (re-deployed in theater to provide a theater strike force) never materialized.
So what will this year bring? I've titled this year's predictions "Trending" after what I see as the overarching theme in the coming months: the continuation of existing trends that will create a "trend line" so clear as to increasingly become obvious. It will no longer be possible to hide the facts or to explain them away as some kind of "blip."
Iraq, Iran, and the Great Game: With Niyazov's death, Turkmenistan enters the "toss-up" category and we will see the geopolitical chess match for control in the Middle East acclerate. However, while violence in Iraq will continue to escalate, and the too-late attempts to force a "Battle of Baghdad" by the current administration will fail, we will see the clear emergence of the trend that has already begun to surface: the de-facto division of Iraq into secular enclaves. US forces will finally begin a draw down, though confusion and disagreement is so rife within US policy circles on this topic that we will even fail to effectively chart this course of action in the coming year. Iran will continue to play pragmatist, balancing their own internal politics with nuclear development, bi-lateral energy deals with China, and a careful tightrope dance with the UN Security Council. No war on Iran this year.
Oil Prices: Here's where the trend becomes clear. I'll resist the temptation to "play it safe" and predict an $80 close at the end of '07. Instead, I'll tell you what I think will really happen. "Peak oil" will become a word that is frequently heard on newscasts as it becomes clear that Saudi Production is dropping (no longer hidden behind a veil of "OPEC cuts"). Russian production will also fall, as will Norway, UK, Venezuela, US, Iran, and Mexico (more on that later). As this trend becomes clear, oil prices will quickly reach $90, and may even flirt with $100 before the year is out. It will be impossible to cover these stories as the media blitz surrounding the '08 elections begins to pick up steam, and the media listens to the various politicians who need to emphasize the problem before they can win points with their "solution." Even though the suggested solutions of Ethanol or Hydrogen or drilling of the Pacific Coast don't hold water, they all have the common theme of being more valuable to their respective candidates the worse that the current oil supply situation seems to be. As a result, "peak oil" will officially "tip."
Economy: Housing prices will level off and stagnate in most areas. But it will be with the "fictional economy" of derivatives that we will continue to see growth. The economy will sustain itself as a whole--driven largely by accelerating gains in the energy sector and among the "super rich" that offset the decline in just about everything else. However the most remarkable phenomenon will be the clear trend towards a division between rich an poor. A new, de-facto aristocracy will begin to make its presence felt as the super rich get richer, and the Median American wage gets lower. The dollar will slowly continue to slide, but I don't see a cliff in '07--we'll probably close out the year around $1.42 per Euro.
Mexico: Here's what I'll say is the most sigificant development in '07--the Mexican economy will collapse. Inflation will go on a tear. Cantarell will drop off a cliff (no real surprise here) and Calderon will leverage what little credit Mexico has left investing billions in new development in the Gulf that will never come to fruition--but that will create the same kind of debt crisis in the coming years that we have seen in other South American countries. With oil revenues essentially 0 (when you factor in the increased exploratory spending and borrowing to "develop"), the federal revenues will fall through the floor. When you account for higher airfare due to fuel costs, tourism dollars will dry up as well. As a result, Mexico will go into a tailspin. The full impact of this will not be felt in '07, but the trend towards this fate will become clear. This will also set in motion forces that will begin to tear (further) apart the illusory fabric of the American nation-state: decentralization in Mexico will lead to increasing cross-border "illicit" activity, from human smuggling to drug smuggling to organized crime to black market activites focused around the death of "intellectual property." Not a good year for Mexico, but it will increasinly become clear that this is also a very bad sign for the US, and for the Nation-State as a concept.
2007 - Year of the Trend. Next up, Breakout.