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WASHINGTON (Reuters) - The global economic crisis has become the biggest near-term U.S. security concern, sowing instability in a quarter of the world's countries and threatening destructive trade wars, U.S. intelligence agencies reported on Thursday.
The director of national intelligence's annual threat assessment also said al Qaeda's leadership had been weakened over the last year. But security in Afghanistan had deteriorated and Pakistan had to gain control over its border areas before the situation could improve.
"The financial crisis and global recession are likely to produce a wave of economic crises in emerging market nations over the next year," said the report. A wave of "destructive protectionism" was possible as countries find they cannot export their way out of the slump.
"Time is our greatest threat. The longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests," the report said.
The report represents the findings of all 16 U.S. intelligence agencies and serves as a leading security reference for policymakers and Congress. Besides reviewing adversaries, it also considered this year the security impact of issues including climate change and the economy.
It said a quarter of countries have already experienced at least "low-level" instability, such as government changes, linked to the economy.
There have been anti-government protests in Europe and the former Soviet Union, and growing economic strains in Africa and Latin America, the national intelligence director, Adm. Dennis Blair, told Congress in delivering the report.
"Instability can loosen the fragile hold that many developing countries have on law and order, which can spill out in dangerous ways to the international community," Blair told the Senate Intelligence Committee.
Steps such as devaluations, tariffs and export subsidies were possible from countries desperate to boost economies.
Last year's threat report warned of a resurgent al Qaeda leadership in the Pakistan border area with Afghanistan. But a pressure campaign by the United States and allies has killed several al Qaeda leaders and weakened its central command structure, the report said.
Al Qaeda still wants to attack Europe and the United States, but views the West "as a harder target than in the past," the report said.
In Afghanistan, where U.S. President Barack Obama plans to send more troops, Taliban insurgents are attacking more often and over a wider area, the report said.
It said Pakistan must gain control of its border areas, but was losing authority in parts of its North-West Frontier Province. Tough economic times and frustration with the government were radicalizing people all over the country.
The report called Iran a key Middle East flashpoint. Persuading Tehran to give up suspected nuclear weapons development would be difficult, requiring a combination of international pressure and incentives.
"With Iran developing a nuclear weapon capability and Israel determined not to allow it, there is potential for an Iran-Israeli confrontation or crisis," the report said.
Iranian President Mahmoud Ahmadinejad, a champion of Iran's nuclear program, faces uncertain prospects for re-election in June. "Ahmadinejad's economic policies have reduced unemployment marginally, but have fueled significant inflation, providing his critics ample ammunition," the report said.
Blair said a change in president would not necessarily mean a change in nuclear policy.
Iran continues to seek influence in Iraq and resist a permanent U.S. presence. But after six years of war in Iraq, security gains are enduring, a bright spot for U.S. interests in the Middle East, the report said. "A more stable Iraq could counterbalance other negative trends in the region."
Such trends include a widening gap between moderate and hard-line Middle East states after the latest fighting between Israel and Hamas in Gaza, and a more difficult path toward Israeli-Palestinian peace.
Lower oil prices could crimp the "adventurism" of Iran and U.S. Latin American antagonist Venezuela, the report said. It said if oil remained below $50 per barrel for some time, it could force major spending cuts or a devaluation in Venezuela.
Editing by Eric Beech