Where potentially before November midterm congressional elections in the United States, Washington might conduct operations in Pakistan to eliminate either al-Zawahiri or Taliban leader Omar it will create  domestic problem for Pakistan’s  Musharraf, there are some other issues we also like to cover in this overview.

Next to the one we already covered two days ago, another issue, is a looming financial crisis in China. In fact the longer they put off the steps that must be taken -- reduced financing at higher rates, bankruptcies, unemployment -- the worse it will be. Thus China will be increasing repression and casting foreign countries as the victimizers.

The argument will be that it was corrupt Chinese officials, colluding with Western business interests, who led China into its current crisis. In addition to exonerating the Communist Party, this line plays into Chinese patriotism and xenophobia. Now, China's opportunities to be aggressive internationally actually are limited. Since World War II, China has not been an aggressive foreign actor, being far more concerned with internal security. We expect this behavioral pattern to remain. However, rhetorical shifts and symbolic confrontations are entirely likely. Again, we see the third quarter as a time when China's processes will move toward a new dynamic -- not one during which the fundamental problem will be corrected. However, as China's political system begins to absorb the economic reality, politicians will move to stay ahead of the curve.

As China moves into open economic crisis and shifts its economic and political behavior, it will begin moving in tandem with Russia. Russia has already shifted its behavior, asserting itself in its "near abroad" and challenging the United States in the Middle East. Russia has moved with caution because it understood that, by itself, it lacked the weight to move against the United States. However, if China changes its behavior, alignment between China and Russia becomes logical. There are tensions between the two countries, of course, but the tension they have with the United States will be substantially greater.

As for the (world) economy as a whole, for one, the U.S.  yield curve serves as a good indicator of how investors and borrowers perceive risk. Currently inverted slightly, recession probably will follow in a few months. Plus where the Chinese system is predicated upon cheap money, the world economy is suffering from a liquidity mop up in Japan.

These and other trends increase the pressure on the United States to terminate the Iraq campaign and curtail the jihadist war. However, the campaign in Afghanistan remains a fundamental unsolved issue for the United States. Thus the coming quarter will see the most serious fighting since the fall of the Taliban government, as Taliban forces, recovered and rearmed, launch a summer campaign against insufficient U.S. and allied forces. The United States cannot commit the forces needed to suppress the Taliban. It is entirely dependent on its ability to fashion coalitions among warlords. The more difficult the U.S. position becomes, the more difficult it will be to fashion these coalitions.

But what about other trends in the world  today?

In Latin America, opposition candidates' accusations that Venezuelan President Hugo Chavez is interfering in Bolivia's electoral process is elevating tensions in the country. Chavez is not  toning down his anti-U.S. rhetoric either, is warming up to countries the United States considers adversarial: Syria, Iran, North Korea, Russia and China.

But more important are the developments in Sub-Saharan Africa today.

The Darfur crisis is not improving, but the Lord's Resistance Army (LRA) terrorizing the porous border region of  Uganda and southern Sudan, is unlikely to remain a major threat.

Somalia today is becoming a foreign Islamist militants' point of entry into the Horn of Africa region. This will further destabilize Darfur, and more violence will penetrate Chad. Al Qaeda activity in Somalia today  also threatens Kenya, where two Islamist militant operations have already been carried out. In Zimbabwe the political situation is  deteriorate fast today, and also Liberia is no more then a failed state.

In Iraq, the Shia are busy trying to deal with their own internal differences, especially in terms of reining in the militias, while they continue to negotiate with the Sunnis in terms of containing the insurgency. Sunni nationalist violence is expected to continue at more or less the same levels as a means of pressuring the Shia to disband their militias. Given that the future of the insurgency depends upon how the militias are handled -- and the Shia will be arguing over disbanding the militias -- significant breakthroughs are unlikely.

Instead, the need to placate the Sunnis could lead to serious rifts within the Shiite alliance. Iran will exploit these rifts to attempt to reach its geopolitical goals -- specifically, a new Iraqi state set up to Tehran's liking and leverage in the controversy around Iran's nuclear program. Infighting among the Shia will be especially evident in the south, as the government tries to impose its writ upon renegade Shiite groups. This means that while the Shiite-Sunni struggle continues, the intra-Shiite struggle will complicate the process that would lead to the end of the Sunni insurgency.

The jihadists in Iraq are trying to sustain themselves in the face of the offensive that follows the Sunni decision to move against al Qaeda; this translates into continuing violence from these militant Islamists. The jihadists will face a number of problems, including the struggle over the leadership of the jihadists in Iraq now that al-Zarqawi is dead. The tussle will be between al Qaeda and others in the Mujahideen Shura Council umbrella alliance; it will involve competition between Iraqi elements and transnational elements. This will add to the jihadists' difficulties as they face opposition from the mainstream Sunnis.

Besides the issue of security, Iraq's key political factions will also revisit the controversial aspects of the constitution, especially those having to do with the federal character of the post-Saddam Hussein Iraqi republic. The idea of creating federal zones -- like the northern Kurdistan region in central and southern Iraq will exacerbate the existing tensions over the distribution of control over Iraq's resources.

Iran is spending time  over the future of Iraq and the nuclear issue, plus there will be much back-and-forth on the incentives offer from the P-5 plus Germany group after Iran makes a counteroffer. Given that the situation in Iraq is intertwined with the nuclear issue. These issues also will play into the campaigning before Iran's critical Assembly of Experts elections, slated for Nov. 17, when the various factions within the conservative clerical establishment go up against one another in an intense process of jockeying for power.

In Palestine, Fatah and Hamas are working on a power-sharing agreement and a consensus on dealing with Israel in terms of final status negotiations. Both groups have an interest in not rocking the boat -- which could lead to intra-Palestinian fighting -- and they both realize that neither of them can fly solo. At the same time, Hamas cannot afford to be seen as having officially recognized Israel. Therefore, the ruling radical Islamist movement will work on drawing distinctions between Hamas the movement and its members who are part of the PNA Cabinet and parliament.

Thus, regardless of whether Hamas itself resumes attacks against Israel, it will continue encouraging rocket attacks, and even suicide bombings if the need should arise. Moreover, Israel's need to defend itself against Palestinian militant attacks will lead to pre-emptive strikes, which will trigger reprisal attacks from Palestinian militants. Therefore, continuing violence in the Israeli-Palestinian territories is to be expected for the foreseeable future, regardless of the progress on the political front.

In Sri Lanka, violence between the Liberation Tigers of Tamil Eelam and Colombo escalating, but India is  planning to become involved in the peace talks between Colombo and the Tigers.

Thailand's upcoming elections will ensure it remains paralyzed. And in the Philippines troubles  between the government and rebel forces are set to continue.
In Europe today anticipation goes out  to the Group of Eight (G-8) summit in St. Petersburg on July 15. Here Russia will push for access to European downstream markets, but the Europeans will not be willing to compromise if they do not get anything in return. In order to offset the United States' improving fortunes, Russia is strengthen its position in Eurasia, seek strategic cooperation with China and seek to maintain its influence in Europe.
Where France is politically lamed today, the real powerbroker in Europe is Germany, and that is where Russia is focusing  its energy. However Germany has slid into recession thus,  Germany has neither the political will nor financial wherewithal to play any role the Russians might find useful.

This leaves the managing of Russian-European relations to the next EU president: Finland. This is surprisingly a good match. Unlike most European powers, the Finns have an uncanny ability to speak to the Russians with just the right mix of fear and authority to get and hold the Russians' attention and respect, and is sufficient to keep European-Russian relations for now…. well, quiet.

Russia  therefore is devoting much attention to its periphery. Like we mentioned two weeks ago Moscow is especially concerned about Ukraine and Georgia's drive to join the North Atlantic Treaty Organization (NATO). Moscow's actions to keep NATO as far as possible from its periphery are likely to  continue escalating . Though this conflict will not come to a head until the November NATO summit in Riga, Latvia, where membership action plans could be extended to Ukraine and Georgia.

The Central Asian regimes in turn attempt to maintain a balance between political allegiance to Russia and economic ties with China and other nations. Uzbekistan, Turkmenistan and Kazakhstan is working with China in energy exploration and export, including more recently Kazakhstan.
Returning back to our remark at the outset of this overview, the United States today is preparing to  deliver an ultimatum to Musharraf: Cooperate with U.S. forces and provide the necessary human intelligence to launch a successful operation and take out a key al Qaeda figure, or be left to fend for himself against growing domestic opposition. Washington will make it clear to Musharraf that if he helps out on this front, the United States will not do anything to help strengthen the opposition parties.

Taliban leader Mullah Omar and al Qaeda deputy leader Ayman al-Zawahiri's increased exposure from involvement in planning al Qaeda and Taliban operations will make them more susceptible to capture. But  Taliban and tribal forces today are preparing  an uptick in jihadist activity.

And in conclusion, as China deals with its growing  internal unrest however, it will again turn to nationalism to try to control the masses. First and foremost comes Japan, an ever-present foil for the Chinese leadership. While Japanese politicians are seeing it in their interest to smooth relations with China ahead of the departure of Prime Minister Junichiro Koizumi, China can turn on the ire at any time.

Japan is not the only country China will use as a scapegoat; China's focus is shifting to include the United States. With U.S. congressional elections coming up, Washington is bound to see new debates on the revaluation of China's currency and new legislation proposed for the purpose of punishing China. From Beijing's perspective, this will simply add weight to complaints that it is the Western investors who are causing China's economic problems. By blaming foreigners, Beijing will create a focal point to draw angry public sentiment away from the CCP. If China's political crisis develops to the point at which the CCP's survival is in question, Washington will become a direct target. Beijing's attention will turn away from salvaging its swan-diving economy and toward maintaining the CCP's hold on power.

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