The U.S. will reach a fiscal deal
U.S. politics again threatens the global financial system. Republicans say they will go to any length to force big spending cuts on Obama without accepting new tax increases. But after two substantial political triumphs (his own re-election, and a tax hike on high earners to avert the “fiscal cliff” on Jan. 1), Obama wants more tax concessions out of them. The flashpoint is the end of February, when the U.S. will reach a ceiling on government spending. At risk if it is not lifted is a default on U.S. debt, a further cut in the country’s risk rating, and global economic mayhem.
Can the rules unravel what is popularly called an irretrievably broken political system? We think they can.
Republicans are a bit like a recovering great power, as described in Rule 12 (corollaries 2 and 3). Even after four years, they seem unreconciled to Democratic control of the White House. This is exacerbated by their Tea Party branch, who have the zeal of true believers (Rule 11). But in Obama, the Republicans are pitted against a big personality with his own sense of destiny (Rule 10). He is energized by knowing that 69 current House Republicans showed themselves potentially pliable by voting for the tax hike on Jan. 1.
Yet Rule 2 (people generally don’t plunge over the precipice) suggests room for a deal. The two sides are in fact much closer than they claim to be: Both favor deep spending cuts, Medicare reform and changes in Social Security law. So Obama will agree to a higher retirement age, a smaller annual cost-of-living increase on pensions, and Medicare reform. Republicans will accept the closing of tax loopholes. And later in the year—on the strength of Rule 14, which describes the potency of local politics in global events—we foresee Obama finally approving the Keystone XL oil pipeline from Canada, and Congress passing an immigration bill.
Of course, sometimes governments ignore the rational middle (Rule 14) in their pursuit of self-interest. One or both sides could dig in, eye fixed on the 2014 mid-term elections, and a gamble on winning more seats–and leverage–in Congress.
The exploitation of the Arctic will gather pace
Climate change is beginning to clear the way for commerce in the Arctic Ocean. Underneath the waters lie 25% of the world’s remaining oil and natural gas reserves, according to the U.S. Geological Service. But the recent grounding of a Shell drilling vessel in turbulent Alaskan seas highlights the hazards confronting Arctic oil drilling, regardless of how much ice melts.
To look at the prospects, we turn to a previous set of Quartz rules–the 10 indicators of energy geopolitics.
What we derive is a collision of two rules. Indicator no. 1, “oil prices”, suggests that oil, once discovered, rarely becomes stranded—it is so valuable that it almost always gets out to the market. But Indicator no. 6 says that a critical mass of public opinion against a project can doom it. A case in point is the 1969 Santa Barbara oil spill, which has halted oil drilling off the California coast ever since. In the case of the Arctic, history and local politics suggest that, when the economics are right, oil and gas drilling in the Russian section of the sea will go ahead–unlike the U.S., Russian public opinion does not oppose offshore drilling. We look for American public opinion–and U.S. regulators–to respond to the Shell incident by demanding more safety measures before continuing any drilling in the Alaskan Arctic.