The financial crisis is bad enough; but combined with empires in decline and ethnic disintegration, it is a recipe for disaster.

 

Just over seven years ago, in his State of the Union address of 2002, George W. Bush warned of an Axis of Evil that was assisting terrorists, acquiring weapons of mass destruction, and “arming to threaten the peace of the world”. According to President Bush, this exclusive club had three members: Iran, Iraq and North Korea.

 

The bad news for his successor, Barack Obama, is that he now faces a much larger and potentially more troubling axis – an axis of upheaval. What unites them is not so much their wicked intentions as their instability, which the global financial crisis only makes worse every day.

 

Unfortunately, that same crisis is making it far from easy for the United States to respond to this new “grave and growing danger”. When Mr Bush’s speechwriters coined the phrase Axis of Evil, they were drawing a parallel with the wartime alliance between Germany, Italy and Japan. The axis of upheaval, by contrast, is more reminiscent of the decade before the outbreak of the Second World War, when the Great Depression unleashed a wave of global political crises.

 

The Bush years revealed the perils of drawing facile historical parallels. Nevertheless, there is good reason to fear that the biggest financial crisis since the Great Depression could have comparable consequences for the international system.

 

In The War of the World, I argued that three factors made the location and timing of lethal organised violence more or less predictable in the last century. The first was ethnic disintegration: violence was worst in areas where majorities lived uneasily side by side with religious or linguistic minorities. The second factor was empires in decline: when imperial rule crumbled, battles for power were most bloody. The third was economic volatility: the greater the magnitude and frequency of economic shocks, the more likely conflict was.

 

In at least one of the world’s regions – the greater Middle East – two of these three factors have been present for some time: ethnic conflict has been rife there for decades and, after the difficulties and disappointments in Iraq and Afghanistan, the US is preparing to wind down its quasi-imperial presence in the region. The Obama Administration is hoping that, with a second military surge, General David Petraeus can achieve in Afghanistan what he achieved in Iraq – enough stabilisation to permit a “drawdown” of US troops.

 

Now the third variable, economic volatility, has returned with a vengeance. Ben Bernanke’s “Great Moderation” – the supposed decline of economic volatility that the Federal Reserve Chairman hailed in a 2004 lecture – has been obliterated by a financial chain reaction, beginning in the sub-prime mortgage market, spreading through the banking system, reaching into the “shadow” system of credit based on securitisation, and now triggering collapses in asset prices, production and trade around the world.

 

After nearly a decade of unprecedented growth, the global economy may even shrink in 2009. It won’t be as bad as the Great Depression that began in 1929, because governments worldwide are, trying to repress this new depression with policies undreamt of 80 years ago. But no matter how low interest rates go or how high deficits rise, Depression Lite will cause a substantial increase in unemployment and a painful decline in incomes. Such pain nearly always has geopolitical consequences. Indeed, we can already see the first symptoms of the coming upheaval.

 

NEEDLESS to say, there are some parts of the world where upheaval is the norm. Probably the Democratic Republic of Congo would be sliding back into civil war even if the world economy were still booming. Anarchy and piracy would still be rampant in Somalia and hyperinflation would continue to ravage Zimbabwe. The Colombia-style escalation of Mexico’s drug wars can’t really be blamed on the recession in El Norte.

 

Likewise, in the wake of the Israeli assault on Hamas in Gaza, it is tempting to think that things could hardly get worse in the Middle East. Yet the financial crisis will have the effect of raising the political temperature even higher.

 

Conditions in Gaza, which were already dire enough, will surely get worse as the global crisis snuffs out what little remains of economic activity. This is hardly likely to strengthen the forces of moderation among Palestinians. Moreover, events in Gaza have fanned the flames of Islamist radicalism. From Cairo to Riyadh, not to mention Baghdad, rising unemployment means more frustrated young men with nothing better to do than to fantasise about jihad. Expect violence to revive in Iraq as US troop levels fall.

 

Iran, meanwhile, continues to support both Hamas and its Shia counterpart in Lebanon, Hezbollah, and to pursue an alleged nuclear weapons programme that Israelis legitimately see as a threat to their very existence. With presidential elections due in June, President Ahmadinejad has little incentive to tone down his anti-Israeli rhetoric. Economically, to be sure, Iran is in a hole that will only deepen as oil prices fall further.

 

History suggests that it is precisely when such regimes feel insecure that they are most likely to take foreign policy risks. Just ask Vladimir Putin, the Russian Prime Minister, who has been aiding and abetting the Iranian nuclear programme. “Let us be frank,” he declared darkly at Davos. “Provoking military-political instability and other regional conflicts is also a convenient way of deflecting people’s attention from mounting social and economic problems. Regrettably, further attempts of this kind cannot be ruled out.”

 

In Afghanistan upheaval also remains the disorder of the day. General Petraeus’s task there is made difficult by the anarchy that prevails in neighbouring Pakistan. India, meanwhile, accuses some in Pakistan of having had a hand in the Mumbai terrorist attacks last November, spurring yet another South Asian war scare. India, too, has an imminent election. Expect gains for sabre-rattling Hindu nationalists.

 

The governments in Kabul and Islamabad are two of the weakest anywhere. Among the biggest risks the world faces this year is that one or both will break down. Once again, the economic crisis is playing a crucial role. Pakistan’s small but politically powerful middle class has been hammered by the collapse of the country’s stock market. Meanwhile, a rising proportion of the country’s huge population of young men are staring unemployment in the face. Remember: the most likely recruits to radical Islamist organisations are not the sub-continent’s millions of dirt-poor slumdogs but the relatively well-off educated twentysomethings who have glimpsed prosperity only to have their hopes dashed.

 

THE CRISIS of globalisation is bringing trouble to parts of the world we thought had been made safe for democracy. The financial crisis is proving to be most severe among the newly industrialised countries of Asia – South Korea, Taiwan and Thailand – where collapsing exports have caused steep declines in industrial production. In the space of just a few months, the Asian “tigers” have turned into mangy tomcats.

 

Of the three, Thailand is the most politically vulnerable. At the end of 2007 it reverted to democracy after a spell of military rule that was supposed to crack down on corruption. But within a year the country was in chaos, with protesters blocking the streets of Bangkok and a ban on the majority People’s Power Party. The prospects for the new minority government are surely bleak.

 

The other region suffering acute pressure at the moment is Eastern Europe, where many former Communist countries are paying the price of a reckless borrowing binge. Already the Latvian Government has been toppled as a consequence of the financial crisis. But the most troubling case is Ukraine, where economic collapse threatens to trigger political disintegration. While President Yushchenko leans towards Europe, his ally-turned-rival, the Prime Minister Yuliya Tymoshenko, now favours a Russian orientation. This reflects the widening gap between the Ukrainian West of the country and its Russian East.

 

Meanwhile, in Moscow, Mr Putin talks menacingly of “ridding the Ukrainian people of all sorts of swindlers and bribe-takers”. The Crimean peninsula, with its ethnic Russian majority, is the part of the “near abroad” (meaning the former Soviet Union) that Mr Putin covets most. The wrangle over gas supplies may well have been just the first phase of a Russian bid to destabilise and even break up Ukraine.

 

The Soviet Union may be gone, but it has left a legacy of Russian minorities all over Eastern Europe, the Caucasus and Central Asia. Adding economic volatility to the mix of ethnic disintegration and post-imperial conflict is a recipe for upheaval.

 

THE PROBLEM is that, as in the 1930s, most countries are looking inward, grappling with the domestic consequences of the economic crisis and paying little attention to the wider world crisis. This is true even of the US, which is so preoccupied with its own domestic problems that countering global upheaval looks like an expensive luxury.

 

Even with the White House’s optimistic forecasts for growth, its gross federal debt is going to balloon to 100 per cent of GDP within ten years. Few commentators are asking what all this implies for US foreign policy. The answer is obvious: the resources available for policing the world are certain to be reduced.

 

Economic volatility, plus ethnic disintegration, plus empires in decline: that combination is about the most lethal in geopolitics. We now have all three. The age of upheaval starts here.