By Ariel Cohen

While Azerbaijan had a bumper year in 2008, the Caucasus at large suffered a shock as Russian tanks rolled into Georiga. This was only one symptom of a deteriorating security situation in Eurasia and the Middle East. With the gas war and the Gaza clash, people shudder as to what else may be coming.

The world economy is already in the worst recession since the early 1980s, and the former Cold War rivals—the United States and Russia – have reached the lowest point in their relations since Yuri Andropov lay dying in the Kremlin in 1983. Yet, if you thought that 2008 has ended in a wreck, just look at how 2009 may unfold.

The world powers will be preoccupied with finding the way out of the economic crisis. The inauguration of Barack Obama on January 20 may be treated at least by some in the media as a sign of hope for America and Europe, at least for a while.

In Russia, China and the Middle East, expectations for the American president are not as high as at home. The governments there hope to avoid widespread social unrest as the only factory which provides jobs shuts down. Likewise, oil producers hope to see oil prices rise to at least $70-75 to feed their starved treasuries.

For Obama, the economy will be the top priority. His success in coping with the current severe recession will largely determine the outcome of U.S. Congressional elections in 2010 and his own bid for reelection in 2012.

So far, the U.S economic indicators are disappointing, particularly in the two sectors that drive the American economy: the automotive industry and housing construction. Detroit is on the brink of default. U.S. automobile production has fallen by over 30 percent (comparable with the decline in Japan).

On average, U.S. consumers used to buy some 12 million cars per year, half of them US-produced. The 30 percent decline in the auto market means that the domestic sales have fallen from six to four million units. This, in turn, has caused a drastic decline in related industries, such as spare parts, plastics, electronics, and steel.

Looking down the chain, employees in struggling industries will have limited funds for new homes, cars, appliances, travel, and even health insurance. More mortgage bankers and real estate brokers will lose their jobs. Scarcity of capital will send smaller companies into bankruptcy. These are the realities of the recession.

Barack Obama will need to generate multibillion-dollar infusions into the economy. Obama says he intends to lower taxes, as did George Bush. However, Obama would still need to fund those tax cuts. He would have to either cut budget expenditures or borrow more money from the Chinese and others via the sale of U.S. treasury bonds. Running deficits and increasing debt is not a good solution. The new president’s ability to reverse the disaster appears to be limited.

This year will be even more difficult for U.S. foreign policy. Washington’s challenging agenda for 2009 includes the withdrawal of troops from Iraq and an attempt to destory Al Qaeda and the Taliban in Afghanistan. The U.S. will work to prevent war between India and Pakistan and continue trying to make peace between the Israelis and the Palestinians, as well as attempt to stop Tehran’s march toward acquiring nuclear weapons.

The White House will also attempt to find common ground with the Kremlin and negotiate a new nuclear disarmament treaty in place of the expiring START-1. At the same time, the risk of new security threats coming from terrorists around the world remains very real.

In the meantime, China (and not Russia) may expand its influence in places like Africa, Latin America, Southeast Asia, Kazakhstan, and Turkmenistan.

However, China itself faces numerous domestic challenges. Some 200 million Chinese live as the middle class – owning a car, a computer, a refrigerator, maybe an apartment. One-quarter to one-third live somewhat below middle-class standards, while the remaining two-thirds to three-quarters live in outright poverty. Previously, the boosming industry in the Chinese coastal cities lured them with numerous jobs, but now the economic slowdown means no more jobs, no residence permits, and the need to return into the hungry villages.

The communist nomenklatura of the Celestial Empire, which no longer represents the interests of the “working class, peasants, soldiers and the patriotic businessmen,” is afraid of possible unrest among these disillusioned migrants.

And what about Russia? Due to high oil prices, Moscow has accumulated considerable currency reserves to fuel its global ambitions. In early 2008, the Kremlin called to revise the global geopolitical and economic architecture to reflect the realities of the “multipolar” world. China, which would be the key winner of such transformation, has quietly supported this course.

However, the global financial crisis began to deplete Russia’s oil-derived national wealth.

Many hoped that the Kremlin and the White House would turn a new page in their relations after the inauguration of Barack Obama. In addition, the economic crisis could help their interests converge – neither Moscow nor Washington can afford the cost of a new Cold War. The price of confrontation is too high.

However, the Kremlin is also preparing for an "asymmetric response". In December 2008, Moscow for the first time made a formal move toward OPEC, announcing its willingness to reduce oil production and export. This move, along with the Russian-lead «gas OPEC» will cause friction with the West, as more energy consumers find themselves at risk of being held hostage in supply disputes, like the current one between Russia and Ukraine. Europe literally shudders as the Russian gas fails to arrive.

In such a difficult year as 2009, Russia and the U.S., China and Europe, Arabs and Israelis, Sunni and Shiites, should be dropping hostile attitudes and seeking cooperation. Yet, narrow interests and parochialism prevail, making the New Year 2009 one of the most dangerous since the end of the Cold War.

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