International instability is only getting worse. Here's how industry can manage the risks

  • An emerging global phenomenon of dominant political leaders and the corrosion of systems of governance promise more of the international instability that closed 2018.
  • Four dynamics have changed in our global politics, creating more uncertainty.
  • Here's what it all means for international politics in 2019 and how to manage the risks.
Protesters clashes with riot police on Foch avenue next to the Place de l'Etoile, setting cars ablaze during a Yellow Vest protest on December 1, 2018 in Paris, France.
Etienne De Malglaive | Getty Images
Protesters clashes with riot police on Foch avenue next to the Place de l'Etoile, setting cars ablaze during a Yellow Vest protest on December 1, 2018 in Paris, France.

An emerging global phenomenon of dominant political leaders and the corrosion of systems of governance promise more of the international instability that closed 2018: the surprise U.S. withdrawal from Syria and Afghanistan, Russia and Iran's entrenchment in the Middle East, looming trade wars and erratic stock markets.

Four dynamics have changed in our global politics

1. In Russia, the United States, China, Saudi Arabia, Turkey, Mexico and Brazil – among others – dominant populist leaders are defining personalized visions of national and international power. In foreign affairs, their inevitable human volatility will make national actions and international negotiations more volatile as well.

2. As leaders assert their dominance nationally, systems of checks and balances will erode. U.S. security and economic officials sensitive to allies and trading partners have resigned. In China, Russia, Turkey and Saudi Arabia, opposition (and nuanced) views have no voice. We will see less or no debate within the administrations of many global powers.

3. At least in the U.S., checks and balances re-emerging between executive and legislative branches may be good for governance, but the turmoil in Washington will also heighten uncertainty about America's role in global affairs.

House Democrats will investigate and challenge President Trump on relations with Russia, campaign finance, and regulation. He will reassert his populist agenda on the Wall, migration and trade. Restlessly, the world awaits Robert Mueller's conclusions on Russian interference in American politics.

4. Systems of global governance are moribund. The dueling UN Security Council vetoes of the U.S., China and Russia increasingly make the UN a platform of rhetoric and inaction. Germany's sway on European governance has dwindled with the end of the Merkel era in sight.

France is consumed with domestic protests. The UK stands of the brink of a Brexit cliff that falls into an abyss. The largesse of China's Belt and Road Initiative increasingly rivals the financial discipline of multilateral development banks, even as it has become entangled in controversy over debt and geopolitical impact.

Here's what it means for international politics in 2019

For optimists, let's hope that dominant leaders use their power to settle conflicts. The U.S., Russia, China, Turkey, Europe and Israel all should want to end the war in Yemen – and such an initiative could give Saudi Arabia and Iran a path out.

Or perhaps President Trump and North Korean leader Kim Jong Un will renew their courtship – inescapably, with China's consent – to revive prospects for stability on the Korean peninsula. Slim as the prospects might be, in both these cases dominant powers could shape better global outcomes.

The Middle East, especially Syria, will be a cauldron for conflict. Even as the U.S. now pledges to slow its Syrian withdrawal, President Trump has made clear that it will happen. President Assad, ISIS, Turkey and Iran will wait him out.

Russia and Iran will test each other's hunger to be Syria's dominant power. Israel will be driven to check Iran's support for Hezbollah and Hamas and Iran's encroachment toward Israel's borders. Any spark could set off this tinderbox.

No issue will be watched more closely than the U.S.-China trade war. Since the IMF signaled in October a potential 1.6 percent percent fall in China's GDP due to U.S. tariffs, equity markets tumbled and commodity markets plummeted – with an upsurge at any signal of a settlement.

From a western perspective, nations may converge on bringing China into compliance with the norms of international trade, intellectual property, technology transfer, and cybersecurity. The uncertainty lies in the world being rendered a spectator on decisions, and perhaps a rivalry, that ultimately rest with Presidents Trump and Xi.

The stalemate over Russia's presence in Ukraine will remain – a stalemate. Europe struggles to maintain consensus on its current well-weathered sanctions toward Russia. A new U.S. Congress may well seek tougher penalties on Russia – partly in Ukraine's name, partly to punish and test President Trump on Russia.

Additional unilateral rather than multilateral sanctions may further strain already frayed trans-Atlantic relations. When it comes to negotiating a deal that will change Russian behavior, no executive authority in the U.S., Germany or France has greater political will and interest than President Putin to define the outcomes.

In the backdrop simmers a new geopolitical clash on climate change. The 30-40 percent gap between Paris Agreement pledges to reduce emissions and virtually any scenario on necessary reductions looms undiminished. Without the U.S. and China agreeing on specific measures, the gap is too big to close diplomatically.

Public pressures on financial institutions and industry to close the gap technologically will increase. The longer the impasse, the greater the risk that the climate agenda will revert to a type of post-Kyoto political stalemate.

Here's how industry can manage the risks

For industry, the global uncertainties in governance suggest two things. First, pick the worst of these risks for your business, and understand how to hedge against them. Second, invest in innovation and efficiency, as the most competitive producers that lead change will most likely prosper amidst volatility.

For leaders globally, the need for a new compact among governments, industry and citizens to build trust in the future is poignant. The inability of increasing numbers of people across the world to see better prospects for themselves or their children, helped usher in today's populist wave. For now, the world reaps the volatility we've added with the erosion of national and global governance.

Carlos Pascual is senior vice president for global energy and international affairs at IHS Markit. He Served as U.S. ambassador to Mexico (2009-2011) and Ukraine (2000-2003) and U.S. coordinator for international energy affairs (2011-2014).

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