U.S. isolationism top risk to markets in 2008: Lloyd’s

A United States retreat into political isolationism, tensions in the Middle East and the growing threat of another terrorist attack are the major risks threatening the global financial market in 2008, according to the results of a study posted on the Lloyd’s of London Web site.
Ian Bremmer, the president of the U.S. research and consulting firm Eurasia Group, prepared the ‘Top Risk’ report.
The report identifies key geopolitical areas for global investors and market participants to watch out for. Among them, a fear the U.S. government will retreat from globalization is identified as a chief risk.
Bremmer warns that politically, the United States is becoming increasingly inwardly focused. As a result, should the country face a serious recession, domestic terrorism or a sharp deterioration in Iraq, these events could steer the United States towards a new, neo-isolationist phase.
Such a phase might lead to a power vacuum that opens up an increased risk of terrorist activity, the report suggests.
The Eurasia Group, for example, raises the issue of heightened tensions between the Middle East and the United States. If the United States were to withdraw their troops in Iraq early, due to domestic pressures, the report says, insurgents might intensify their campaign and precipitate a Sunni-Shia civil war.
Such a conflict would cause a ripple effect with neighbouring countries such as Saudi Arabia and Iran.
In addition, the threat of another terrorist attack looms over the United States because of the regrouping of Al Qaeda in Afghanistan and Pakistan, the report notes. “Other groups, including Hezbollah, could also pose serious threats with Israel, the U.S., Europe, and Russia remaining at high risk of attack.”
Lloyd’s says the Eurasia Group’s research ties in with the results of recent research commissioned by Lloyd’s and the Economist Intelligence Unit (EIU) in 2007. That research found 54% of business leaders felt that the risk to their company of political violence and terrorist activity would increase over the next five years.