U.S. President-elect Barack Obama will be sworn in on Tuesday as president of the United States. Candidate Obama said much about what he would do as president; now we will see what President Obama actually does. The most important issue Obama will face will be the economy, something he did not anticipate through most of his campaign. The first hundred days of his presidency thus will revolve around getting a stimulus package passed. But Obama also is now in the great game of global competition — and in that game, presidents rarely get to set the agenda.

The major challenge he faces is not Gaza; the Israeli-Palestinian dispute is not one any U.S. president intervenes in unless he wants to experience pain. As we have explained, that is an intractable conflict to which there is no real solution. Certainly, Obama will fight being drawn into mediating the Israeli-Palestinian conflict during his first hundred days in office. He undoubtedly will send the obligatory Middle East envoy, who will spend time with all the parties, make suitable speeches and extract meaningless concessions from all sides. This envoy will establish some sort of process to which everyone will cynically commit, knowing it will go nowhere. Such a mission is not involvement — it is the alternative to involvement, and the reason presidents appoint Middle East envoys. Obama can avoid the Gaza crisis, and he will do so.

Obama’s Two Unavoidable Crises

The two crises that cannot be avoided are Afghanistan and Russia. First, the situation in Afghanistan is tenuous for a number of reasons, and it is not a crisis that Obama can avoid decisions on. Obama has said publicly that he will decrease his commitments in Iraq and increase them in Afghanistan. He thus will have more troops fighting in Afghanistan. The second crisis emerged from a decision by Russia to cut off natural gas to Ukraine, and the resulting decline in natural gas deliveries to Europe. This one obviously does not affect the United States directly, but even after flows are restored, it affects the Europeans greatly. Obama therefore comes into office with three interlocking issues: Afghanistan, Russia and Europe. In one sense, this is a single issue — and it is not one that will wait.

Obama clearly intends to follow Gen. David Petraeus’ lead in Afghanistan. The intention is to increase the number of troops in Afghanistan, thereby intensifying pressure on the Taliban and opening the door for negotiations with the militant group or one of its factions. Ultimately, this would see the inclusion of the Taliban or Taliban elements in a coalition government. Petraeus pursued this strategy in Iraq with Sunni insurgents, and it is the likely strategy in Afghanistan.

But the situation in Afghanistan has been complicated by the situation in Pakistan. Roughly three-quarters of U.S. and NATO supplies bound for Afghanistan are delivered to the Pakistani port of Karachi and trucked over the border to Afghanistan. Most fuel used by Western forces in Afghanistan is refined in Pakistan and delivered via the same route. There are two crossing points, one near Afghanistan’s Kandahar province at Chaman, Pakistan, and the other through the Khyber Pass. The Taliban have attacked Western supply depots and convoys, and Pakistan itself closed the routes for several days, citing government operations against radical Islamist forces.

Meanwhile, the situation in Pakistan has been complicated by tensions with India. The Indians have said that the individuals who carried out the Nov. 26 Mumbai attack were Pakistanis supported by elements in the Pakistani government. After Mumbai, India made demands of the Pakistanis. While the situation appears to have calmed, the future of Indo-Pakistani relations remains far from clear; anything from a change of policy in New Delhi to new terrorist attacks could see the situation escalate. The Pakistanis have made it clear that a heightened threat from India requires them to shift troops away from the Afghan border and toward the east; a small number of troops already has been shifted.

Apart from the direct impact this kind of Pakistani troop withdrawal would have on cross-border operations by the Taliban, such a move also would dramatically increase the vulnerability of NATO supply lines through Pakistan. Some supplies could be shipped in by aircraft, but the vast bulk of supplies — petroleum, ammunition, etc. — must come in via surface transit, either by truck, rail or ship. Western operations in Afghanistan simply cannot be supplied from the air alone. A cutoff of the supply lines across Pakistan would thus leave U.S. troops in Afghanistan in crisis. Because Washington can’t predict or control the future actions of Pakistan, of India or of terrorists, the United States must find an alternative to the routes through Pakistan.

When we look at a map, the two routes through Pakistan from Karachi are clearly the most logical to use. If those were closed — or even meaningfully degraded — the only other viable routes would be through the former Soviet Union.

• One route, along which a light load of fuel is currently transported, crosses the Caspian Sea. Fuel refined in Azerbaijan is ferried across the Caspian to Turkmenistan (where a small amount of fuel is also refined), then shipped across Turkmenistan directly to Afghanistan and through a small spit of land in Uzbekistan. This route could be expanded to reach either the Black Sea through Georgia or the Mediterranean through Georgia and Turkey (though the additional use of Turkey would require a rail gauge switch). It is also not clear that transports native to the Caspian have sufficient capacity for this.
• Another route sidesteps the issues of both transport across the Caspian and the sensitivity of Georgia by crossing Russian territory above the Caspian. Kazakhstan, Uzbekistan (and likely at least a small corner of Turkmenistan) would connect the route to Afghanistan. There are options of connecting to the Black Sea or transiting to Europe through either Ukraine or Belarus.
• Iran could provide a potential alternative, but relations between Tehran and Washington would have to improve dramatically before such discussions could even begin — and time is short.

Many of the details still need to be worked out. But they are largely variations on the two main themes of either crossing the Caspian or transiting Russian territory above it.

Though the first route is already partially established for fuel, it is not clear how much additional capacity exists. To complicate matters further, Turkmen acquiescence is unlikely without Russian authorization, and Armenia remains strongly loyal to Moscow as well. While the current Georgian government might leap at the chance, the issue is obviously an extremely sensitive one for Moscow. (And with Russian forces positioned in Armenia and the Georgian breakaway regions of Abkhazia and South Ossetia, Moscow has troops looming over both sides of the vulnerable route across Georgia.) The second option would require crossing Russian territory itself, with a number of options — from connecting to the Black Sea to transiting either Ukraine or Belarus to Europe, or connecting to the Baltic states.

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Both routes involve countries of importance to Russia where Moscow has influence, regardless of whether those countries are friendly to it. This would give Russia ample opportunity to scuttle any such supply line at multiple points for reasons wholly unrelated to Afghanistan.

If the West were to opt for the first route, the Russians almost certainly would pressure Azerbaijan and Turkmenistan not to cooperate, and Turkey would find itself in a position it doesn’t want to be in — namely, caught between the United States and Russia. The diplomatic complexities of developing these routes not only involve the individual countries included, they also inevitably lead to the question of U.S.-Russian relations.

Even without crossing Russia, both of these two main options require Russian cooperation. The United States must develop the option of an alternative supply route to Pakistan, and in doing so, it must define its relationship with Russia. Seeking to work without Russian approval of a route crossing its “near abroad” will represent a challenge to Russia. But getting Russian approval will require a U.S. accommodation with the country.

The Russian Natural Gas Connection

One of Obama’s core arguments against the Bush administration was that it acted unilaterally rather than with allies. Specifically, Obama meant that the Bush administration alienated the Europeans, therefore failing to build a sustainable coalition for the war. By this logic, it follows that one of Obama’s first steps should be to reach out to Europe to help influence or pressure the Russians, given that NATO has troops in Afghanistan and Obama has said he intends to ask the Europeans for more help there.

The problem with this is that the Europeans are passing through a serious crisis with Russia, and that Germany in particular is involved in trying to manage that crisis. This problem relates to natural gas. Ukraine is dependent on Russia for about two-thirds of the natural gas it uses. The Russians traditionally have provided natural gas at a deep discount to former Soviet republics, primarily those countries Russia sees as allies, such as Belarus or Armenia. Ukraine had received discounted natural gas, too, until the 2004 Orange Revolution, when a pro-Western government came to power in Kiev. At that point, the Russians began demanding full payment. Given the subsequent rises in global energy prices, that left Ukraine in a terrible situation — which of course is exactly where Moscow wanted it.

The Russians cut off natural gas to Ukraine for a short period in January 2006, and for three weeks in 2009. Apart from leaving Ukraine desperate, the cutoff immediately affected the rest of Europe, because the natural gas that goes to Europe flows through Ukraine. This put the rest of Europe in a dangerous position, particularly in the face of bitterly cold weather in 2008-2009.

The Russians achieved several goals with this. First, they pressured Ukraine directly. Second, they forced many European states to deal with Moscow directly rather than through the European Union. Third, they created a situation in which European countries had to choose between supporting Ukraine and heating their own homes. And last, they drew Berlin in particular — since Germany is the most dependent of the major European states on Russian natural gas — into the position of working with the Russians to get Ukraine to agree to their terms. (Russian Prime Minister Vladimir Putin visited Germany last week to discuss this directly with German Chancellor Angela Merkel.)

The Germans already have made clear their opposition to expanding NATO to Ukraine and Georgia. Given their dependency on the Russians, the Germans are not going to be supporting the United States if Washington decides to challenge Russia over the supply route issue. In fact, the Germans — and many of the Europeans — are in no position to challenge Russia on anything, least of all on Afghanistan. Overall, the Europeans see themselves as having limited interests in the Afghan war, and many already are planning to reduce or withdraw troops for budgetary reasons.

It is therefore very difficult to see Obama recruiting the Europeans in any useful manner for a confrontation with Russia over access for American supplies to Afghanistan. Yet this is an issue he will have to address immediately.

The Price of Russian Cooperation

The Russians are prepared to help the Americans, however — and it is clear what they will want in return.

At minimum, Moscow will want a declaration that Washington will not press for the expansion of NATO to Georgia or Ukraine, or for the deployment of military forces in non-NATO states on the Russian periphery — specifically, Ukraine and Georgia. At this point, such a declaration would be symbolic, since Germany and other European countries would block expansion anyway.

The Russians might also demand some sort of guarantee that NATO and the United States not place any large military formations or build any major military facilities in the former Soviet republics (now NATO member states) of Estonia, Latvia and Lithuania. (A small rotating squadron of NATO fighters already patrols the skies over the Baltic states.) Given that there were intense anti-government riots in Latvia and Lithuania last week, the stability of these countries is in question. The Russians would certainly want to topple the pro-Western Baltic governments. And anything approaching a formal agreement between Russia and the United States on the matter could quickly destabilize the Baltics, in addition to very much weakening the NATO alliance.

Another demand the Russians probably will make — because they have in the past — is that the United States guarantee eventual withdrawal from any bases in Central Asia in return for Russian support for using those bases for the current Afghan campaign. (At present, the United States runs air logistics operations out of Manas Air Base in Kyrgyzstan.) The Russians do not want to see Central Asia become a U.S. sphere of influence as the result of an American military presence.

Other demands might relate to the proposed U.S. ballistic missile defense installations in the Czech Republic and Poland.

We expect the Russians to make variations on all these demands in exchange for cooperation in creating a supply line to Afghanistan. Simply put, the Russians will demand that the United States acknowledge a Russian sphere of influence in the former Soviet Union. The Americans will not want to concede this — or at least will want to make it implicit rather than explicit. But the Russians will want this explicit, because an explicit guarantee will create a crisis of confidence over U.S. guarantees in the countries that emerged from the Soviet Union, serving as a lever to draw these countries into the Russian orbit. U.S. acquiescence on the point potentially would have ripple effects in the rest of Europe, too.

Therefore, regardless of the global financial crisis, Obama has an immediate problem on his hands in Afghanistan. He has troops fighting there, and they must be supplied. The Pakistani supply line is no longer a sure thing. The only other options either directly challenge Russia (and ineffectively at that) or require Russian help. Russia’s price will be high, particularly because Washington’s European allies will not back a challenge to Russia in Georgia, and all options require Russian cooperation anyway. Obama’s plan to recruit the Europeans on behalf of American initiatives won’t work in this case. Obama does not want to start his administration with making a massive concession to Russia, but he cannot afford to leave U.S. forces in Afghanistan without supplies. He can hope that nothing happens in Pakistan, but that is up to the Taliban and other Islamist groups more than anyone else — and betting on their goodwill is not a good idea.

Whatever Obama is planning to do, he will have to deal with this problem fast, before Afghanistan becomes a crisis. And there are no good solutions. But unlike with the Israelis and Palestinians, Obama can’t solve this by sending a special envoy who appears to be doing something. He will have to make a very tough decision. Between the economy and this crisis, we will find out what kind of president Obama is.

And we will find out very soon.

Barack Obama has been elected president of the United States by a large majority in the Electoral College. The Democrats have dramatically increased their control of Congress, increasing the number of seats they hold in the House of Representatives and moving close to the point where — with a few Republican defections — they can have filibuster-proof control of the Senate. Given the age of some Supreme Court justices, Obama might well have the opportunity to appoint at least one and possibly two new justices. He will begin as one of the most powerful presidents in a long while.

Truly extraordinary were the celebrations held around the world upon Obama’s victory. They affirm the global expectations Obama has raised — and reveal that the United States must be more important to Europeans than the latter like to admit. (We can’t imagine late-night vigils in the United States over a French election.)

Obama is an extraordinary rhetorician, and as Aristotle pointed out, rhetoric is one of the foundations of political power. Rhetoric has raised him to the presidency, along with the tremendous unpopularity of his predecessor and a financial crisis that took a tied campaign and gave Obama a lead he carefully nurtured to victory. So, as with all politicians, his victory was a matter of rhetoric and, according to Machiavelli, luck. Obama had both, but now the question is whether he has Machiavelli’s virtue in full by possessing the ability to exercise power. This last element is what governing is about, and it is what will determine if his presidency succeeds.

Embedded in his tremendous victory is a single weakness: Obama won the popular vote by a fairly narrow margin, about 52 percent of the vote. That means that almost as many people voted against him as voted for him.

Obama’s Agenda vs. Expanding His Base

U.S. President George W. Bush demonstrated that the inability to understand the uses and limits of power can crush a presidency very quickly. The enormous enthusiasm of Obama’s followers could conceal how he — like Bush — is governing a deeply, and nearly evenly, divided country. Obama’s first test will be simple: Can he maintain the devotion of his followers while increasing his political base? Or will he believe, as Bush and Cheney did, that he can govern without concern for the other half of the country because he controls the presidency and Congress, as Bush and Cheney did in 2001? Presidents are elected by electoral votes, but they govern through public support.

Obama and his supporters will say there is no danger of a repeat of Bush — who believed he could carry out his agenda and build his political base at the same time, but couldn’t. Building a political base requires modifying one’s agenda. But when you start modifying your agenda, when you become pragmatic, you start to lose your supporters. If Obama had won with 60 percent of the popular vote, this would not be as pressing a question. But he barely won by more than Bush in 2004. Now, we will find out if Obama is as skillful a president as he was a candidate.

Obama will soon face the problem of beginning to disappoint people all over the world, a problem built into his job. The first disappointments will be minor. There are thousands of people hoping for appointments, some to Cabinet positions, others to the White House, others to federal agencies. Many will get something, but few will get as much as they hoped for. Some will feel betrayed and become bitter. During the transition process, the disappointed office seeker — an institution in American politics — will start leaking on background to whatever reporters are available. This will strike a small, discordant note; creating no serious problems, but serving as a harbinger of things to come.

Later, Obama will be sworn in. He will give a memorable, perhaps historic speech at his inauguration. There will be great expectations about him in the country and around the world. He will enjoy the traditional presidential honeymoon, during which all but his bitterest enemies will give him the benefit of the doubt. The press initially will adore him, but will begin writing stories about all the positions he hasn’t filled, the mistakes he made in the vetting process and so on. And then, sometime in March or April, things will get interesting.

Iran and a U.S. Withdrawal From Iraq

Obama has promised to withdraw U.S. forces from Iraq, where he does not intend to leave any residual force. If he follows that course, he will open the door for the Iranians. Iran’s primary national security interest is containing or dominating Iraq, with which Iran fought a long war. If the United States remains in Iraq, the Iranians will be forced to accept a neutral government in Iraq. A U.S. withdrawal will pave the way for the Iranians to use Iraqi proxies to create, at a minimum, an Iraqi government more heavily influenced by Iran.

Apart from upsetting Sunni and Kurdish allies of the United States in Iraq, the Iranian ascendancy in Iraq will disturb some major American allies — particularly the Saudis, who fear Iranian power. The United States can’t afford a scenario under which Iranian power is projected into the Saudi oil fields. While that might be an unlikely scenario, it carries catastrophic consequences. The Jordanians and possibly the Turks, also American allies, will pressure Obama not simply to withdraw. And, of course, the Israelis will want the United States to remain in place to block Iranian expansion. Resisting a coalition of Saudis and Israelis will not be easy.

This will be the point where Obama’s pledge to talk to the Iranians will become crucial. If he simply withdraws from Iraq without a solid understanding with Iran, the entire American coalition in the region will come apart. Obama has pledged to build coalitions, something that will be difficult in the Middle East if he withdraws from Iraq without ironclad Iranian guarantees. He therefore will talk to the Iranians. But what can Obama offer the Iranians that would induce them to forego their primary national security interest? It is difficult to imagine a U.S.-Iranian deal that is both mutually beneficial and enforceable.

Obama will then be forced to make a decision. He can withdraw from Iraq and suffer the geopolitical consequences while coming under fire from the substantial political right in the United States that he needs at least in part to bring into his coalition. Or, he can retain some force in Iraq, thereby disappointing his supporters. If he is clumsy, he could wind up under attack from the right for negotiating with the Iranians and from his own supporters for not withdrawing all U.S. forces from Iraq. His skills in foreign policy and domestic politics will be tested on this core question, and he undoubtedly will disappoint many.

The Afghan Dilemma

Obama will need to address Afghanistan next. He has said that this is the real war, and that he will ask U.S. allies to join him in the effort. This means he will go to the Europeans and NATO, as he has said he will do. The Europeans are delighted with Obama’s victory because they feel Obama will consult them and stop making demands of them. But demands are precisely what he will bring the Europeans. In particular, he will want the Europeans to provide more forces for Afghanistan.

Many European countries will be inclined to provide some support, if for no other reason than to show that they are prepared to work with Obama. But European public opinion is not about to support a major deployment in Afghanistan, and the Europeans don’t have the force to deploy there anyway. In fact, as the global financial crisis begins to have a more dire impact in Europe than in the United States, many European countries are actively reducing their deployments in Afghanistan to save money. Expanding operations is the last thing on European minds.

Obama’s Afghan solution of building a coalition centered on the Europeans will thus meet a divided Europe with little inclination to send troops and with few troops to send in any event. That will force him into a confrontation with the Europeans in spring 2009, and then into a decision. The United States and its allies collectively lack the force to stabilize Afghanistan and defeat the Taliban. They certainly lack the force to make a significant move into Pakistan — something Obama has floated on several occasions that might be a good idea if force were in fact available.

He will have to make a hard decision on Afghanistan. Obama can continue the war as it is currently being fought, without hope of anything but a long holding action, but this risks defining his presidency around a hopeless war. He can choose to withdraw, in effect reinstating the Taliban, going back on his commitment and drawing heavy fire from the right. Or he can do what we have suggested is the inevitable outcome, namely, negotiate — and reach a political accord — with the Taliban. Unlike Bush, however, withdrawal or negotiation with the Taliban will increase the pressure on Obama from the right. And if this is coupled with a decision to delay withdrawal from Iraq, Obama’s own supporters will become restive. His 52 percent Election Day support could deteriorate with remarkable speed.

The Russian Question

At the same time, Obama will face the Russian question. The morning after Obama’s election, Russian President Dmitri Medvedev announced that Russia was deploying missiles in its European exclave of Kaliningrad in response to the U.S. deployment of ballistic missile defense systems in Poland. Obama opposed the Russians on their August intervention in Georgia, but he has never enunciated a clear Russia policy. We expect Ukraine will have shifted its political alignment toward Russia, and Moscow will be rapidly moving to create a sphere of influence before Obama can bring his attention — and U.S. power — to bear.

Obama will again turn to the Europeans to create a coalition to resist the Russians. But the Europeans will again be divided. The Germans can’t afford to alienate the Russians because of German energy dependence on Russia and because Germany does not want to fight another Cold War. The British and French may be more inclined to address the question, but certainly not to the point of resurrecting NATO as a major military force. The Russians will be prepared to talk, and will want to talk a great deal, all the while pursuing their own national interest of increasing their power in what they call their “near abroad.”

Obama will have many options on domestic policy given his majorities in Congress. But his Achilles’ heel, as it was for Bush and for many presidents, will be foreign policy. He has made what appear to be three guarantees. First, he will withdraw from Iraq. Second, he will focus on Afghanistan. Third, he will oppose Russian expansionism. To deliver on the first promise, he must deal with the Iranians. To deliver on the second, he must deal with the Taliban. To deliver on the third, he must deal with the Europeans.

Global Finance and the European Problem

The Europeans will pose another critical problem, as they want a second Bretton Woods agreement. Some European states appear to desire a set of international regulations for the financial system. There are three problems with this.

First, unless Obama wants to change course dramatically, the U.S. and European positions differ over the degree to which governments will regulate interbank transactions. The Europeans want much more intrusion than the Americans. They are far less averse to direct government controls than the Americans have been. Obama has the power to shift American policy, but doing that will make it harder to expand his base.

Second, the creation of an international regulatory body that has authority over American banks would create a system where U.S. financial management was subordinated to European financial management.

And third, the Europeans themselves have no common understanding of things. Obama could thus quickly be drawn into complex EU policy issues that could tie his hands in the United States. These could quickly turn into painful negotiations, in which Obama’s allure to the Europeans will evaporate.

One of the foundations of Obama’s foreign policy — and one of the reasons the Europeans have celebrated his election — was the perception that Obama is prepared to work closely with the Europeans. He is in fact prepared to do so, but his problem will be the same one Bush had: The Europeans are in no position to give the things that Obama will need from them — namely, troops, a revived NATO to confront the Russians and a global financial system that doesn’t subordinate American financial authority to an international bureaucracy.

The Hard Road Ahead

Like any politician, Obama will face the challenge of having made a set of promises that are not mutually supportive. Much of his challenge boils down to problems that he needs to solve and that he wants European help on, but the Europeans are not prepared to provide the type and amount of help he needs. This, plus the fact that a U.S. withdrawal from Iraq requires an agreement with Iran — something hard to imagine without a continued U.S. presence in Iraq — gives Obama a difficult road to move on.

As with all American presidents (who face midterm elections with astonishing speed), Obama’s foreign policy moves will be framed by his political support. Institutionally, he will be powerful. In terms of popular support, he begins knowing that almost half the country voted against him, and that he must increase his base. He must exploit the honeymoon period, when his support will expand, to bring another 5 percent or 10 percent of the public into his coalition. These people voted against him; now he needs to convince them to support him. But these are precisely the people who would regard talks with the Taliban or Iran with deep distrust. And if negotiations with the Iranians cause him to keep forces in Iraq, he will alienate his base without necessarily winning over his opponents.

And there is always the unknown. There could be a terrorist attack, the Russians could start pressuring the Baltic states, the Mexican situation could deteriorate. The unknown by definition cannot be anticipated. And many foreign leaders know it takes an administration months to settle in, something some will try to take advantage of. On top of that, there is now nearly a three-month window in which the old president is not yet out and the new president not yet in.

Obama must deal with extraordinarily difficult foreign policy issues in the context of an alliance failing not because of rough behavior among friends but because the allies’ interests have diverged. He must deal with this in the context of foreign policy positions difficult to sustain and reconcile, all against the backdrop of almost half an electorate that voted against him versus supporters who have enormous hopes vested in him. Obama knows all of this, of course, as he indicated in his victory speech.

We will now find out if Obama understands the exercise of political power as well as he understands the pursuit of that power. You really can’t know that until after the fact. There is no reason to think he can’t finesse these problems. Doing so will take cunning, trickery and the ability to make his supporters forget the promises he made while keeping their support. It will also require the ability to make some of his opponents embrace him despite the path he will have to take. In other words, he will have to be cunning and ruthless without appearing to be cunning and ruthless. That’s what successful presidents do.

In the meantime, he should enjoy the transition. It’s frequently the best part of a presidency.

By George Friedman

In 1989, the global system pivoted when the Soviet Union retreated from Eastern Europe and began the process of disintegration that culminated in its collapse. In 2001, the system pivoted again when al Qaeda attacked targets in the United States on Sept. 11, triggering a conflict that defined the international system until the summer of 2008. The pivot of 2008 turned on two dates, Aug. 7 and Oct. 11.

On Aug. 7, Georgian troops attacked the country’s breakaway region of South Ossetia. On Aug. 8, Russian troops responded by invading Georgia. The Western response was primarily rhetorical. On the weekend of Oct. 11, the G-7 met in Washington to plan a joint response to the global financial crisis. Rather than defining a joint plan, the decision — by default — was that each nation would act to save its own financial system with a series of broadly agreed upon guidelines.

The Aug. 7 and Oct. 11 events are connected only in their consequences. Each showed the weakness of international institutions and confirmed the primacy of the nation-state, or more precisely, the nation and the state. (A nation is a collection of people who share an ethnicity. A state is the entity that rules a piece of land. A nation-state — the foundation of the modern international order — is what is formed when the nation and state overlap.) Together, the two events posed challenges that overwhelmed the global significance of the Iraqi and Afghan wars.

The Conflict in Georgia

In and of itself, Russia’s attack on Georgia was not globally significant. Georgia is a small country in the Caucasus, and its fate ultimately does not affect the world. But Georgia was aligned with the United States and with Europe, and it had been seen by some as a candidate for membership in NATO. Thus, what was important about the Russian attack was that it occurred at all, and that the West did not respond to it beyond rhetoric.

Part of the problem was that the countries that could have intervened on Georgia’s behalf lacked the ability to do so. The Americans were bogged down in the Islamic world, and the Europeans had let their military forces atrophy. But even if military force had been available, it is clear that NATO, as the military expression of the Western alliance, was incapable of any unified action. There was no unified understanding of NATO’s obligation and, more importantly, no collective understanding of what a unified strategy might be.

The tension was not only between the United States and Europe, but also among the European countries. This was particularly pronounced in the different view of the situation Germany took compared to that of the United States and many other countries. Very soon after the Russo-Georgian war had ended, the Germans made clear that they opposed the expansion of NATO to Georgia and Ukraine. A major reason for this is Germany’s heavy dependence on Russian natural gas, which means Berlin cannot afford to alienate Moscow. But there was a deeper reason: Germany had been in the front line of the first Cold War and had no desire to participate in a second.

The range of European responses to Russia was fascinating. The British were livid. The French were livid but wanted to mediate. The Germans were cautious, and Chancellor Angela Merkel traveled to St. Petersburg to hold a joint press conference with Russian President Dmitri Medvedev, aligning Germany with Russia — for all practical purposes — on the Georgian and Ukrainian issues.

The single most important effect of Russia’s attack on Georgia was that it showed clearly how deeply divided — and for that matter, how weak — NATO is in general and the Europeans are in particular. Had they been united, they would not have been able to do much. But they avoided that challenge by being utterly fragmented. NATO can only work when there is a consensus, and the war revealed how far from consensus NATO was. It can’t be said that NATO collapsed after Georgia. It is still there, and NATO officials hold meetings and press conferences. But the alliance is devoid of both common purpose and resources, except in very specific and limited areas. Some Europeans are working through NATO in Afghanistan, for example, but not most, and not in a decisive fashion.

The Russo-Georgian war raised profound questions about the future of the multinational military alliance. Each member consulted its own national interest and conducted its own foreign policy. At this point, splits between the Europeans and Americans are taken for granted, but the splits among the Europeans are profound. If it was no longer possible to say that NATO functioned, it was also unclear after Aug. 8 in what sense the Europeans existed, except as individual nation-states.

The Global Financial Crisis

What was demonstrated in politico-military terms in Georgia was then demonstrated in economic terms in the financial crisis. All of the multinational systems created after World War II failed during the crisis — or more precisely, the crisis went well beyond their briefs and resources. None of the systems could cope, and many broke down. On Oct. 11, it became clear that the G-7 could cooperate, but not through unified action. On Oct. 12, when the Europeans held their eurozone summit, it became clear that they would only act as individual nations.

As with the aftermath of the Georgian war, the most significant developments after Oct. 11 happened in Europe. The European Union is first and foremost an arrangement for managing Europe’s economy. Its bureaucracy in Brussels has increased its authority and effectiveness throughout the last decade. The problem with the European Union is that it was an institution designed to manage prosperity. When it confronted serious adversity, however, it froze, devolving power to the component states.

Consider the European Central Bank (ECB), an institution created for managing the euro. Its primary charge — and only real authority — is to work to limit inflation. But limiting inflation is a problem that needs to be addressed when economies are otherwise functioning well. The financial crisis is a case where the European system is malfunctioning. The ECB was not created to deal with that. It has managed, with the agreement of member governments, to expand its function beyond inflation control, but it ultimately lacks the staff or the mindset to do all the things that other central banks were doing. To be more precise, it is a central bank without a single finance ministry to work with. Unlike other central banks, whose authority coincides with the nations they serve, the ECB serves multiple nations with multiple interests and finance ministries. By its nature, its power is limited.

In the end, power did not reside with Europe, but rather with its individual countries. It wasn’t Brussels that was implementing decisions made in Strasbourg; the centers of power were in Paris, London, Rome, Berlin and the other capitals of Europe and the world. Power devolved back to the states that governed nations. Or, to be more precise, the twin crises revealed that power had never left there.

Between the events in Georgia and the financial crisis, what we saw was the breakdown of multinational entities. This was particularly marked in Europe, in large part because the Europeans were the most invested in multilateralism and because they were in the crosshairs of both crises. The Russian resurgence affected them the most, and the fallout of the U.S. financial crisis hit them the hardest. They had to improvise the most, being multilateral but imperfectly developed, to say the least. In a sense, the Europeans were the laboratory of multilateralism and its intersection with crisis.

But it was not a European problem in the end. What we saw was a global phenomenon in which individual nations struggled to cope with the effects of the financial crisis and of Russia. Since the fall of the Soviet Union, there has been a tendency to view the world in terms of global institutions, from the United Nations to the World Trade Organization. In the summer of 2008, none of these functioned. The only things that did function effectively were national institutions.

Since 2001, the assumption has been that subnational groups like al Qaeda would define the politico-military environment. In U.S. Defense Department jargon, the assumption was that peer-to-peer conflict was no longer an issue and that it was all about small terrorist groups. The summer of 2008 demonstrated that while terrorism by subnational groups is not insignificant by any means, the dynamics of nation-states have hardly become archaic.

The Importance of the State

Clearly, the world has pivoted toward the nation-state as the prime actor and away from transnational and subnational groups. The financial crisis could be solved by monetizing the net assets of societies to correct financial imbalances. The only institution that could do that was the state, which could use its sovereign power and credibility, based on its ability to tax the economy, to underwrite the financial system.

Around the world, states did just that. They did it in very national ways. Many European states did it primarily by guaranteeing interbank loans, thereby essentially nationalizing the heart of the financial system. If states guarantee loans, the risk declines to near zero. In that case, the rationing of money through market mechanisms collapses. The state must take over rationing. This massively increases the power of the state — and raises questions about how the Europeans back out of this position.

The Americans took a different approach, less focused on interbank guarantees than on reshaping the balance sheets of financial institutions by investing in them. It was a more indirect approach and less efficient in the short run, but the Americans were more interested than the Europeans in trying to create mechanisms that would allow the state to back out of control of the financial system.

But what is most important is to see the manner in which state power surged in the summer and fall of 2008. The balance of power between business and the state, always dynamic, underwent a profound change, with the power of the state surging and the power of business contracting. Power was not in the hands of Lehman Brothers or Barclays. It was in the hands of Washington and London. At the same time, the power of the nation surged as the importance of multilateral organizations and subnational groups declined. The nation-state roared back to life after it had seemed to be drifting into irrelevance.

The year 1989 did not quite end the Cold War, but it created a world that bypassed it. The year 2001 did not end the post-Cold War world, but it overlaid it with an additional and overwhelming dynamic: that of the U.S.-jihadist war. The year 2008 did not end the U.S.-jihadist war, but it overlaid it with far more immediate and urgent issues. The financial crisis, of course, was one. The future of Russian power was another. We should point out that the importance of Russian power is this: As soon as Russia dominates the center of the Eurasian land mass, its force intrudes on Europe. Russia united with the rest of Europe is an overwhelming global force. Europe resisting Russia defines the global system. Russia fragmented opens the door for other geopolitical issues. Russia united and powerful usurps the global stage.

The year 2008 has therefore seen two things. First, and probably most important, it resurrected the nation-state and shifted the global balance between the state and business. Second, it redefined the global geopolitical system, opening the door to a resurgence of Russian power and revealing the underlying fragmentation of Europe and weaknesses of NATO.

The most important manifestation of this is Europe. In the face of Russian power, there is no united European position. In the face of the financial crisis, the Europeans coordinate, but they do not act as one. After the summer of 2008, it is no longer fair to talk about Europe as a single entity, about NATO as a fully functioning alliance, or about a world in which the nation-state is obsolete. The nation-state was the only institution that worked.

This is far more important than either of the immediate issues. The fate of Georgia is of minor consequence to the world. The financial crisis will pass into history, joining Brady bonds, the Resolution Trust Corp. and the bailout of New York City as a historical oddity. What will remain is a new international system in which the Russian question — followed by the German question — is once again at the center of things, and in which states act with confidence in shaping the economic and business environment for better or worse.

The world is a very different place from what it was in the spring of 2008. Or, to be more precise, it is a much more traditional place than many thought. It is a world of nations pursuing their own interests and collaborating where they choose. Those interests are economic, political and military, and they are part of a single fabric. The illusion of multilateralism was not put to rest — it will never die — but it was certainly put to bed. It is a world we can readily recognize from history.

This article republished with permission from Stratfor.com.