January 5, 2010 / 10:14 PM / in 8 years

FACTBOX: Key risks in the Middle East in 2010

BEIRUT (Reuters) - Iran’s nuclear dispute with the West and planned U.S. troop cuts in Iraq will weigh heavily on the Middle East in 2010, as will Dubai’s debt woes, instability in Yemen and deadlock in Israeli-Palestinian peacemaking.

IRAN NUCLEAR AMBITIONS

Iran, beset by political turmoil since a disputed June election, seems likely to miss the West’s end-year deadline for it to accept an enriched uranium fuel deal aimed at calming international fears about the purpose of its nuclear program.

That would set the stage for the United States and its European allies to press for harsher United Nations sanctions against Tehran, although Russia and China, which both wield veto power on the U.N. Security Council, may continue to demur.

Iran says it will defy tougher sanctions, but U.S. President Barack Obama, keen to avoid a new war while his military is still fighting in Afghanistan and Iraq, may see them as the best way to head off any Israeli attack on Iranian nuclear sites.

An Israeli strike, while more likely to delay than destroy Iran’s nuclear potential, could entangle the United States in a regional conflagration that would threaten global oil supplies.

Things to watch:

-- Western decision on sanctions early next year; if Russia goes along, China might follow suit.

-- Political struggle with opposition; splits in ruling establishment; fate of government plan to lift fuel subsidies.

IRAQ ELECTION, U.S. TROOP CUTS

Groping toward a future without U.S. troops, Iraq heads into a parliamentary election on March 7 likely to herald months of political wrangling over the formation of a new government, amid unresolved disputes over territory, resources and power.

Oil deals signed this month have opened up visions of Iraq eventually eclipsing all producers except Saudi Arabia.

Violence has ebbed in the last 18 months, but may spike in the run-up to the first national poll since 2005. Recent big bombings of government targets, blamed on al Qaeda and others, point up the scale of the challenges for nascent Iraqi security forces.

Washington aims to cut troop levels to 50,000 by its August 31 2010 target for an end to combat operations, and to withdraw all its forces, now about 115,000-strong, by the end of 2011. It has left open the option of an agreed military role beyond that.

Arab-Kurdish tensions focused on the disputed city of Kirkuk -- and so far held at bay by U.S. forces -- could tip Iraq back into war, perhaps sucking in neighbors like Turkey or Iran.

Things to watch:

-- Election outcome, interplay of rival Shi‘ite, Sunni and Kurdish blocs to decide if Nuri al-Maliki stays prime minister.

-- Will post-election political deadlock tempt parties that control militias or army/police units to start fighting? U.S. troop reductions: will insurgents bide time or cause mayhem?

-- Iraq’s return to OPEC quota system as capacity rises.

DUBAI DEBT CRISIS

Dubai’s brash effort to turn itself into a glittering trade, finance and tourism hub has deflated in a welter of debt and slumping property prices. Can the emirate ditch its penchant for publicity-grabbing mega projects for a steadier business model?

A $10 billion lifeline thrown by Abu Dhabi failed to banish fears about how Dubai would repay debts racked up during years of breakneck expansion, although it rescued developer Nakheel from default on a $4.1 billion Islamic bond due this month.

Dubai World, the holding company to which Nakheel belongs, sought a six-month payment standstill on $26 billion of debt in November, jolting creditors and, briefly, global markets. Creditors have yet to accept the standstill or agree terms.

Dubai has a total debt stock of $120 billion, according to investment bank Goldman Sachs, with at least $55 billion coming due in the next three years. Dubai World alone owes $40 billion.

Things to watch:

-- Nakheel bonds -- 3.6 billion dirham ($980 million) maturing in May 2010 and $750 million in January 2011.

-- Impact on Gulf bourses, credit ratings of banks exposed to Dubai World, remittances from Dubai’s foreign workers.

-- Willingness of Abu Dhabi to bail out its neighbor in future and what political or other price it might exact.

YEMEN CRISIS DRAWS IN SAUDI ARABIA

Yemen is grappling with a Zaydi Shi‘ite revolt in the north, secessionists in the south and resurgent al Qaeda militancy, as well as acute water crisis, poverty and falling oil income.

Fierce fighting with the so-called Houthi rebels since August has worsened fears of Yemen sliding toward state failure and becoming a haven for Islamist militants hostile to the Saudi monarchy and other U.S. allies in the oil-producing Gulf region.

Saudi forces attacked the Houthis after a cross-border rebel raid in November, but the conflict, which has displaced around 170,000 civilians, has raged on. Yemen accuses Iran of backing the revolt. U.S. officials say they have no evidence for this.

Yemen, keen to show the vigor of its counter-terrorism drive to its Saudi and Western allies, announced its forces had killed up to 30 al Qaeda militants in raids and air strikes on December 17.

Things to watch:

-- Deeper Saudi involvement and more aid to Yemen by other Gulf states to ward off state collapse or southern secession.

-- Sunni-Shi‘ite tensions, even though Yemen’s Zaydi Shi‘ites are doctrinally distinct from Shi‘ites in Iran.

-- Economic decline, despite startup of natural gas exports in Nov 2009, in poor Arabian country with rampant corruption.

ISRAEL-PALESTINIAN PEACE HOPES WITHER

Prospects for progress toward peace look bleak, with a weak and divided Palestinian leadership, a hardline rightwing Israeli government and few signs of decisive United States involvement.

Palestinian President Mahmoud Abbas, whose negotiations have failed for years, has refused to return to talks unless Israel halts all settlement construction on occupied land.

U.S. President Barack Obama eased earlier demands for such a freeze and accepted Prime Minister Benjamin Netanyahu’s offer of a partial, 10-month halt to West Bank settlement building.

The debacle has underlined the widening gulf between the two sides, even though the United States and its European allies are still pushing for an increasingly implausible peace “process.”

Israel may have bought respite from direct attack from Hamas and Hezbollah with devastating assaults on the Gaza Strip nearly a year ago and Lebanon in 2006, but the risk of violence is high given Palestinian frustration and Israeli settler activity.

Things to watch:

-- Possible swap, mediated by Egypt and Germany, of Israeli soldier held by Hamas for nearly 1,000 Palestinian prisoners.

-- Palestinian power struggle between Abbas, who controls the West Bank, and Islamist Hamas rivals who run Gaza.

-- Efforts by settlers and their allies in Israel’s ruling coalition to circumvent effectiveness of any settlement curbs.

Editing by Charles Dick

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