By Greg Priddy

It might seem premature to address how the world oil market and other regional powers will accommodate rising Iraq oil production capacity -- considering that the outcome of Iraq's recent election remains unresolved, and the process of putting together a governing coalition has barely begun. But some of the broad dilemmas that more Iraqi oil will create are structural in nature, and not terribly dependent on the new government's makeup. One thing's for sure: Both Saudi Arabia and Iran will face major challenges to their interests if this scenario plays out.

The Saudi-Iraq axis is simpler than the Iran-Iraq one. If Iraq's production capacity rises to even half of the clearly unrealistic 12 million bpd by 2020, which was a goal cited by Oil Minister Hussein al Shahristani, it will likely serve to maintain some of the current overhang of spare capacity for longer than would have otherwise been the case. This would prevent a retightening of the world oil market that may have put upward pressure on prices. Saudi policy will have to confront how to deal with this situation -- both in terms of whether to delay investment in their own capacity, and how to accommodate what has the potential to be a much stronger second-place producer within OPEC. At some point, Saudi Arabia may approach the new Iraqi government for a discussion about how to renegotiate the system of OPEC quotas in order to accommodate Iraq's increasing oil production with both countries' interests in mind. But depending on how the bilateral relationship evolves, achieving this sort of cooperation may be problematic. Iraq has already added written provisions into its service contracts with foreign oil companies dealing with government-mandated output cuts. This demonstrates that the Iraqi side is beginning to grapple with the idea that it may at some point be adding capacity to an oversupplied market and need to exercise restraint.

The implications of increasing Iraqi oil are even more complicated when it comes to Iran. US secondary sanctions under the Iran Sanctions Act (ISA) have been reasonably successful at hindering development of additional Iranian oil and gas production capacity. While they haven't stopped activity altogether, they've kept it at a level where the volume of oil available for export is likely to continue its gradual slide over the next decade as production declines and domestic demand continues to grow. In this scenario, an eventual retightening of the world oil market with attendant higher prices would clearly be in Iran's national interest, helping it to maintain revenues even while volumes fall a bit during the next several years. The increase in Iraqi capacity, however, could prevent this from happening -- taking a toll on Iran's government finances, and potentially creating tension between the two Gulf neighbors. Given the substantial amount of Iranian influence within Iraq, and the still-latent disputes about the border and control over the Shatt al Arab waterway, this market-driven tension could potentially spill over into the geopolitical realm.

All of this, of course, is dependent on whether Iraq's internal stability permits large-scale oil development to move at a rapid pace, which remains a big "if" at this point. Still, it's not just a matter for the oil market. This situation has the potential to substantially redraw the map of state finances and national power in the Gulf.

Greg Priddy is an analyst in the Global Energy and Natural Resources practice at Eurasia Group.

To the long list of Israel's vulnerabilities, add the risk that the country won't be able to attract as much foreign investment in coming years and that the most talented Israelis will leave the country.

A generation ago, Western companies looked at the rest of the Middle East as an oil play. Israel's world-class education standards, its durable political institutions, its capable bureaucrats, and its strong rule of law earned the confidence of those looking to set up shop in other sectors.

Today, other countries in the region offer attractive opportunities for retail, tourism, health care, light-medium manufacture, and a host of other investments, and Israel's small size and political isolation are becoming real weaknesses. Persian Gulf and other Middle Eastern governments are letting would-be investors know that companies with a large-scale presence in Israel aren't going to fare as well inside their borders. Over time, this subtle (in some cases, not-so-subtle) pressure could have an impact.

Israel has outlasted many such threats in the past. The country's comparative excellence in advanced technology -- an area requiring limited long-term capital exposure and where the Israelis have little competition in the region -- will offer lasting advantages. Second, Iran's nuclear program provides a seriously destabilizing element to the politics of the region, but it doesn't pose much direct threat to Israel's economic development. Israel's military capabilities, including its own nuclear weapons program, make direct conflict with Iran highly unlikely.

Other threats are more serious. One day soon, Hezbollah will have access to missiles with the range and accuracy to effectively target Tel Aviv from anywhere inside Lebanon. That will be a game-changer for Israel's security, its economy, and its politics. More than half of Israel's population and the heart of its economy are centered in and around Tel Aviv. As the city becomes more vulnerable to the threat of precision-guided missile attacks, those Israelis most directly involved in the country's economic and financial life will be the most vulnerable to attack -- and some may well leave the country.

Tel Aviv's vulnerabilities to ballistic missile attack will strike at the heart of Israel's technology and pharmaceutical industries. Consider the recent history of Armenia. Once the best educated of Soviet republics, a steadily deteriorating security environment, better opportunities elsewhere, and a strong Armenian diaspora presence in Russia, France, the United States and other countries made it easy and attractive for the best educated Armenians to leave. And leave they did -- about a third of the population emigrated within 15 years of the Soviet collapse. The exodus hollowed Armenia out, and the country has yet to recover its economic dynamism. With an almost certain-to-deteriorate security environment, Israel's greatest long-term risk may be a serious brain drain, just as its Arab neighbors are opening for business in so many non-energy-related sectors.

That's a lot more dangerous for Israel's future than a surprise attack from Tehran.

Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, May 2010)

By Allyson Benton

The drive-by murders of a U.S. consulate employee, her husband, and the Mexican husband of another employee in the Mexican border town of Ciudad Juarez this weekend have pushed Mexico's drug violence back into the American media spotlight. Even before these shootings, a spike in deadly violence linked to the Mexican government's campaign against drug cartels has provoked charges that President Felipe Calderon has started a war his government can't win.

The problem is a serious one for Mexico's security, its politics, and its people. But it's important to put this violence in perspective.

Rates of violent crime are on the rise in Mexico, but they remain lower than in the not-so-distant past -- and lower than today's violence in other Latin American countries of comparable size and wealth.

First, Mexico's murder rate has fallen sharply from a decade ago. The National Public Security System reports that in 2008, the most recent year with available data, 12 people per 100,000 were the victims of murder. In 1997, the number was 17. In the late 1980s, the murder rate hovered near 20, according to the National Statistics and Geographic Institute.

Second, drug-related murders are focused almost entirely in the northern and western states where cartel activity is concentrated. Murder rates among citizens not involved in the drug trade continue to decline.

Finally, here's a bit of regional perspective. Mexico's 2008 murder rate of 12 per 100,000 is less than half the most recent (2006) reported rates for Brazil (25). Colombia's murder rate has fallen dramatically thanks to President Alvaro Uribe's investment in security, but in 2009 the rate was still at 35. In Venezuela in 2008, the murder rate reached 58, a number that appears to be rising. Only Argentina, with 5.3 murders per 100,000 people in 2007, suffers from less deadly violence among the wealthier Latin American countries. The FBI puts the US murder rate at 5.4.

Foreign investors and business people also fear the risk of kidnapping in Mexico. Here again, the numbers put the problem in context. Kidnappings in Mexico have fallen from 1.1 per 100,000 people in 1997 to 0.8 in 2008 -- though the number may be increasing again. As for the regional comparison, though reliable data is hard to come by given that some victims choose not to report it, kidnapping rates in Venezuela have increased dramatically in recent years to an estimated 2.4 per 100,000 people. Colombia's rate has declined dramatically in recent years, from a high of 8.9 in 2000 to just 0.5 in 2009.

Violent crime, particularly involving the drug trade, is a serious problem for Mexico and the country's people. But context is crucial for issues so easily sensationalized.

Allyson Benton is a Latin America analyst at Eurasia Group.

Last week, I wrote about a wave of good news for political and market stability in several Latin American countries.

Then there's Argentina.

Faced with an increasingly uphill struggle in financing a highly expansionary fiscal policy and with no desire to reduce government spending, Cristina Fernandez de Kirchner's government has refused to back down. They've now doubled down on a bid to reassert political control by claiming ownership of central bank funds with no clear room for compromise. The ruling Peronist party has already lost control of congress, and now it has drawn the judiciary into the fight over funds.

Argentina's opposition doesn't agree on much, but there is consensus that the Kirchners have now forced a fight worth having. A government battling for its survival won't have much time or political capital to spend on anything else. The current political crisis might even delay Argentina's plans to restructure the $20 billion debt in default.  As early as next week, both houses will probably reject a presidential decree establishing a "Deleveraging Fund" that the government hopes to use to tap $4.3 billion in central bank reserves to meet the debt obligations.

This is the most serious political crisis in Latin America. Fernandez de Kirchner's term will end in December 2011. She's determined to prove she's no lame duck, but her aggressive style may prevent her from even reaching the finish line.

Ian Bremmer is president of Eurasia Group.

By Hani Sabra

As President Hosni Mubarak recovers from gallbladder removal surgery in Germany, he's probably spending some time thinking about former IAEA director Mohamed ElBaradei. A day before his operation, Mubarak commented on ElBaradei's potential presidential candidacy and said that Egypt does "not need a new national hero." That's a significant statement considering that the 81-year-old president usually lets his subordinates respond to issues like this one. Mubarak's sharp comments indicate that ElBaradei's recent rhetoric has clearly unsettled him. And looking ahead, the political temperature in Egypt will get increasingly hotter between now and 2011, when presidential elections are scheduled to take place.

First, some context: As things stand now, ElBaradei actually can't run for president. He must be one of the leaders of a "recognized" political party in order to participate. When Mubarak engineered constitutional amendments in 2007, they were designed to ensure that members of "unrecognized" parties like the Muslim Brotherhood would be unable to field independent candidates in elections -- as it did with great success in the 2005 parliamentary elections. ElBaradei prefers to run as an independent, and he is wary of the baggage attached to being identified with one of the ineffectual "legal" parties. Given this, and the fact that the Egyptian authorities will almost certainly not heed ElBaradei's call for constitutional amendments that would make it easier for him to run, ElBaradei is unlikely to enter the presidential race in 2011. Even if he does join a party and somehow manages to participate, an opposition candidate stands virtually no chance of victory. Mubarak will likely run and will certainly win if he does. Meanwhile, his son Gamal will continue to raise his profile and likely take the reins when his father dies. (The longer that Mubarak lives, the less chance that aging security establishment figures like Omar Suleiman have to become president.)

Still, ElBaradei isn't just a passing fad. Mubarak can't simply imprison him a la Ayman Nour. He's a Nobel Peace Prize winner, and his mistreatment would put Egypt under a great deal of unwanted pressure and scrutiny. At the very least, ElBaradei will continue to be a thorn in the government's side. And since returning to Egypt for vacation last week, he has gone on the offensive. Despite almost certainly receiving calls from friendly ruling National Democratic Party members telling him to cool it, ElBaradei has refused to temper his statements about Egypt's calcified political system. He has met with his supporters and heavyweights like Arab League Secretary General Amr Moussa (who was previously Egypt's popular foreign minister) and continues to talk about what he perceives as Egypt's failings because of its authoritarian political system. ElBaradei will continue to be a popular force in Egyptian politics. But several thousand Facebook fans do not make him a viable presidential candidate.

Hani Sabra is a Middle East analyst at Eurasia Group.

On February 23, representatives of 32 nations in the Western hemisphere gathered in Playa del Carmen on Mexico's Yucatan Peninsula to discuss formation of a new political forum. The new organization doesn't yet have a name, but for simplicity, let's call it the Council of Latin American and Caribbean states (CLAC?). Some covering the event seized on the fact that the new forum will exclude the United States and Canada. Is this bad news for North Americans hoping for regional stability and a market-friendly Latin America? Not really.

We've learned some important things about Latin America in recent weeks. We learned that one of the most market-friendly countries in the region, Chile, is a resilient place. Despite an earthquake 500 times stronger than the one that devastated Haiti on January 12, there will be a peaceful transfer of executive power on March 11 from a president of one party to the president-elect of another. And despite the kind of breakdown in public order you'll find in any country following a catastrophe of this scale, Chile has the economic and political resources it will need to rebuild.

Profits from copper sales, which are unlikely to be affected much by the quake, provide Chile with about $16 billion in savings. Its government can also tap financial markets to finance an increase in state spending on disaster relief. The country is also blessed with some of the most efficiently run governing institutions in Latin America.

This is the definition of stability: the capacity to withstand a serious shock to the system with its institutional integrity intact. New president Sebastian Pinera faces a tremendous challenge in months to come, but he'll have the advantages that political legitimacy can provide.  

We've also seen a show of institutional strength in Colombia, where a constitutional court has finally rejected a bid by President Alvaro Uribe to alter the constitution and do away with presidential term limits. The vote was seven to two. Uribe can claim much credit for seven years of growth fueled by a surge in foreign direct investment and a dramatically improved security environment within the country. But his exit will help restore faith in Colombia's democracy and rule of law, and it opens the way for a talented field of candidates who agree on the need to encourage foreign investment.

There are hopeful signs for foreign investment even in Venezuela, where President Hugo Chavez recently wooed multinational oil companies with a bid round, the first real test of foreign investor interest in Venezuela's oil industry since Chavez became president in 1999. His government's willingness to lower the tax burden on foreign oil companies (and the obvious attraction of the Orinoco Belt's huge reserves) drew offers from both multinationals and state-owned oil companies.

In fact, separating words from deeds helps explain why Americans and Canadians shouldn't worry too much about the work of that new regional forum. It can't replace the Washington-based Organization of American States, whatever Chavez says to the contrary, because while Brazil and Mexico can use the new club to bring their regional political clout into line with the market power of their emerging economies, the region will depend for growth on access to North American consumers for years to come.

Latin American governments are growing stronger, and that's good news for North America.

Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, May 2010)

By Sebastian Spio-Garbrah and Willis Sparks

For a country with a history of sectarian violence and military rule, is it more dangerous to have two presidents or no president? Nigeria may be about to find out.

For more than a decade, Nigerians have embraced democracy. With the end of dictatorship in 1999, political heavyweights in Nigeria's mainly Muslim northern provinces struck a deal with their counterparts in the Christian south on a regional rotation of Nigeria's presidency. Olusegun Obasanjo, a southerner and Christian, became president. As his second four-year term drew to a close in 2007, Obasanjo tried to persuade allies in parliament to help him rewrite Nigeria's constitution and win a third term. Northern governors warned that it was their turn to choose a president. Some southerners countered that the north had controlled the country through more than three decades of dictatorship and that the south deserved more time. The country appeared headed for a showdown.

Once it became clear that Obasanjo didn't have broad enough support within the political elite to extend his presidency, he endorsed a trusted successor -- a little-known northern governor and devout Muslim named Umaru Yar'Adua. In April 2007, Yar'Adua won a landslide victory. Election monitors, both Western and African, charged that Yar'Adua had benefitted from widespread vote rigging, but relief inside and outside the country that conflict had been averted limited the volume of complaint.

Yar'Adua's early promises to aggressively tackle corruption and to seek a long-overdue agreement with militia groups in the country's oil-rich, violence-plagued Niger Delta region won him praise, both at home and abroad. Thanks largely to the Niger Delta's plentiful crude oil reserves, Nigeria is Africa's largest (and the world's eighth-largest) oil exporter. The Delta provides Nigeria's federal government with more than 80 percent of its export revenue. To negotiate with the Delta's many armed groups, Yar'Adua relied heavily on Vice President Goodluck Jonathan, a southern Christian and a native of the region.  

Last summer, after a series of false starts and an escalation of violence, the Delta peace process appeared to be gathering momentum. On June 26, Yar'Adua announced that the government would provide Delta residents with 10 percent of the country's joint oil ventures and would create an amnesty program for militants willing to lay down their weapons. Those who chose to participate would receive a formal pardon, worker training, and employment assistance.

On July 12, the government signaled that it was serious about talks by releasing militia leader Henry Okah from prison. On July 15, the Movement for Emancipation of the Niger Delta (MEND), the region's largest armed group, announced a 60-day ceasefire. In August, the amnesty went into effect. In September, MEND dismissed the amnesty offer but extended its ceasefire for 30 days, pending further talks. Thousands of militants accepted the amnesty offer anyway. On October 25, MEND announced that its ceasefire would continue indefinitely. Hopes for a comprehensive peace agreement had never been higher.

Then President Yar'Adua got sick.

His health had been an issue from the first days of his presidency. In May 2008, he admitted during a television interview that he suffers from a kidney ailment while denying rumors that he was terminally ill. On November 23, 2009, just as talks with Niger Delta militants were beginning to show real progress, Yar'Adua was flown to Saudi Arabia for emergency medical care. Officials announced that the president suffered from serious heart problems and that it remained unclear when he might return to his country.

On December 19, MEND announced that delays in peace negotiations resulting from Yar'Adua's absence were not acceptable -- and that the group had carried out the first attack on a pipeline since the amnesty began.

On February 9, fears that a dangerous power vacuum had emerged led the parliament and national cabinet to name Goodluck Jonathan acting president, pending Yar'Adua's return. The arrangement allowed that once Yar'Adua informed both houses of parliament in writing that he had returned from his "medical vacation," he would again become president. Not all members of Yar'Adua's cabinet endorsed the temporary fix, and Jonathan, as acting president, quickly fired Justice Minister and Attorney General Michael Aondoakaa.

On February 17, Yar'Adua supporters within the cabinet blocked a bid by Jonathan's supporters to have Yar'Adua declared "unfit to govern" and announced that a delegation would visit Yar'Adua in Saudi Arabia to check on his health. In the wee hours of February 24, Yar'Adua returned unexpectedly to Nigeria. Reports from the country claim that no one, including the acting president, has been allowed to see him.

Jonathan faces considerable pressure from some within his government to have Yar'Adua declared medically unable to serve and formally removed from office. If he removes large numbers of Yar'Adua loyalists from senior posts within the government and military, he could provoke a confrontation. If he acts only as a caretaker president, he won't be able to tackle urgent problems like the return of violence to the Delta and chronic double-digit inflation. If he announces that he will not run for president in 2011, he will render himself instantly irrelevant, as a new race for power gets underway. If he announces that he will run, he will upset the delicate balance between north and south that appears to demand four more years of a northern presidency. There is also the risk that all this confusion will postpone the elections, creating a longer-term power vacuum that invites a military intervention.

Some northern governors warn that Jonathan has already taken decisions of greater consequence than an interim president should take, but it remains unclear if Yar'Adua is conscious. To ease fears of a constitutional crisis, US and British officials have offered Jonathan diplomatic support. As president, temporary or not, he will be ideally placed to negotiate with Niger Delta rebel groups -- but only if the militants believe he has the power to make a deal that Nigeria's military will honor.

In short, Goodluck Jonathan is in a very tough spot.

Sebastian Spio-Garbrah is an Africa analyst at Eurasia Group. Willis Sparks is an analyst in the firm's global macro practice.

Ah, Canada. A colleague at work suggested I remind them  that they're a loft apartment above a really great party. But I can't  help but think it feels more like the next day, we Americans have a raging hangover, while Canada's cooking up a particularly fine-smelling brunch. And wouldn't you know it, they've invited us up. 
 
So,  a few observations from my recent visit to Vancouver during the Olympics:

1) They're a very, very happy bunch, these  Canadians, and generally sorry to see us go. I heard nary a complaint about  the traffic, the soggy weather, the two-hour line to get into the Irish house, the mint, and the Olympic superstore. They love the notion, quite unexpected, that the entire world came to visit them. Americans get gentle ribbing, but for folks from anywhere else (the Czech Republic, really? Here in Vancouver?)  -- backslapping and applause.
 
2) Though, to be fair, the  Canadians (from all over the country) vastly outnumber everyone else  here. And many of the Americans present are attached to some corporate  sponsor (NBC, Coca-Cola, Visa, and guests of guests of guests) -- more Madison  Square Garden than Wrigley Field. It's an expensive ticket and most  Americans have decided 2010 is the year to remember what it's like to save a  couple of bucks. So while the TV coverage tends to show a fair number of  American flags (they're in front of the cameras... in those corporate seats), the loud, proud crowds are Canadian.   

3) It's a  fantastic display of Canadian pride here in Vancouver, yes. But keep in  mind the reserved Canadian context. Looking at the homes lining Granville Street coming into town from the airport, about 10 percent are flying maple leaf  flags. For apartments in the city center -- less than 5 percent. Those numbers are up  for cars around the city center -- but that's self-selecting for folks that  want to come downtown during the Olympics.

4) Hockey. With  the United States demolishing Finland 6-0 after one period, we were looking to  run up the score... and hoping for a few fights with the demoralized  Finns -- particularly the brawler Olli Jokinen, who looks like a cross between a  speed metal rocker and a thunderdome villain. 

With the  Canadians up 3-0 against the Slovaks in the opposing semifinals, the Canadians  were rooting for the Slovaks to get a goal. After all, you don't want to  humiliate these folks. Then they did... and then another... and then I've  never seen a collective panic like the Canadians experienced the last minute  of that game.

Which led to the finals, an extraordinary  breathless finale to the games.  Honestly, the Canadians made me want to  root for them, especially once the match went to overtime.  In part  because I don't care that much about hockey. But mostly because I'd  spent a few lovely days in Vancouver, and it seemed the decent thing to do.  
 
* * *
 
P.S. The most-quoted Canadian I've seen  -- after winning the gold, curling skipper Kevin Martin, at 43, pleased as  punch to win his gold medal, but reminding the interviewer that his silver  back in 2002 was a really, really big deal.  South of the border, we  might have a think on that.