The Eurasia Group has unveiled its Top Risks of 2012 list of greatest geopolitical threats the world will face in the next 12 months. Each year, this is an indispensable resource for anyone tasked with managing risk or just interested in global affairs.

Once again this year, their top ten list is a must read, but I personally find their “red herrings” list to be even more fascinating — and unexpectedly entertaining.

In addition to Top Risks, Bremmer and Gordon identify four Red Herrings, issues that despite the headlines, Eurasia Group believes will not be sources of geopolitical instability in 2012.

2012 political transitions – In addition to elections this year in Mexico, Venezuela, Kenya, Taiwan and (maybe) Egypt, 2012 will see political transitions in the US, China, Russia, and France, countries that together represent about nearly half of global GDP and four-fifths of the UN security council. Yet there is surprising little at stake here for geopolitics and the global economy. Whatever risks come with these outcomes will arrive in 2013 or beyond.

Eurozone breakup – probably the single most overrated risk of 2012, the political will to maintain the eurozone remains strong among all the major political parties in the core eurozone states, almost across the board in the European periphery, and among eurocrats in the ever-growing European bureaucracy. Further, there is no effective political mechanism for a eurozone breakup.

China’s hard landing – There are signs of overheated growth in China, but there’s no chance that the government will fail to pull out every stop to prevent a meltdown—or even a serious bump—especially in the middle of a major political transition.

Mayan apocalypse — Just isn’t happening. And if it does, well, sorry.

You heard it here first: the world will not end in 2012.

Lester Brown, founder and president of the Earth Policy Institute

Throughout his distinguished career, Earth Policy Institute founder and president Lester Brown has sought to protect resources across the globe. This morning in his opening address at the World Conference on Disaster Management in Toronto, he stressed the importance of one that may now be as important as any ocean, rainforest or glacier. ”Time is our scarcest resource,” said Brown on the urgency for the world to begin mitigating the effects of climate change. “How much do we have? No one knows for sure. When do we reach the point of no return. We don’t know.”

The theme of disaster prevention and catastrophe management will be at the forefront of all discussions that take place this week at the conference. But in Brown’s view, there is one disaster that supersedes all others: runaway climate change. To him, that’s “the Big D … the one that could end civilization.”

In addition to the ticking clock and the world’s inability to meaningfully cooperate on the issue, what makes the threat of climate change so catastrophic today is the volatility it places on the global food supply. More than ever, the world grain supply is being strained. And this comes at the same time that demand is increasing.

In the past, major grain surpluses for U.S. production could make up for unexpected droughts, floods or fires that wipe out crop yields in other areas of the globe. Today, however, those surpluses no longer exist. And this is likely the new normal.

To drive home his point, Brown highlighted the massive heat wave, drought and wildfires that wiped out 40% of the Russian grain harvest last summer. He said that if someone had told him before the disaster that the average temperature in Moscow in July would be 14 degrees Fahrenheit above average, he wouldn’t have believed it. “I’m not a climate denier, but that’s unreasonable,” is how he said he would have responded. “Well, that’s what happened.”

In and of itself, that supply shortage affected global prices and stressed the market. But if a similar event were to occur in Chicago? Grain prices would go through the roof.

Again, in the past, agriculture speculators could just chalk up such events as anomalies. Maybe a disaster wiped out some percentage of the global supply that year, but they could be confident that the next season would balance things out. Brown doesn’t seen that happening anymore, however. “There is no normal to go back to,” he said. “The climate is in a constant state of flux.”

And even without a single, identifiable disaster like the one in Russia, the future of the global food supply is troubling. Brown said that estimates project a 10% decrease in grain crop yields for every additional degree Celsius increase in global temperatures. ”Each year, agriculture and the climate are more out of sync,” said Brown.

That’s not the only bad news on the supply side.

There is also an irrigation bubble that means today’s global output is artificially high. The United States, China and India are the three top grain-producing nations in the world. Only one-fifth of the U.S. grain yield comes from irrigated land. Even if the continually strained Colorado River basin or Mississippi River region were to dry up somewhat, the nation could still produce at nearly the same level it does today. It’s a different story in India and China, however, according to Brown.

World Bank data says that in India there are 175 million people being fed with grain produced by the over-pumping of local aquifers. The Earth Policy Institute estimates that number at 130 million in China.

It doesn’t take a scientist to see that this is unsustainable. Eventually, the aquifers that are being aggressively pumped will be depleted and, once they are, the rate of irrigation will only be able to match the natural aquifer’s rate of recovery, says Brown. So eventually the current levels will have to fall. The irrigation bubble will burst.

“That bubble has already burst in Saudi Arabia,” he said, adding that the nation will likely be out of the grain production business altogether in just a few years. Since Saudi Arabia only produces 0.5% of the world’s global grain supply, this won’t significantly hamper the global market. And if anyone can afford to import, it’s the Saudis. But this, in addition to depleting water tables throughout the the Middle East, and the bubbles in China and Israel, spells trouble.

“We are only one harvest away from chaos,” said Brown.

Additionally, demand is increasing. Throughout the developing world, particularly in India and China, there are hundreds of millions of people rising out of poverty who will greatly inflate the world’s middle class in the coming decades. Along with a larger middle class comes more people wanting to live a middle-class standard of life. Perhaps more than anything, this affluence will lead to greater food consumption. And since grain feeds both people and livestock, grain consumption per capita will only rise.

Then there are biofuels. In this sense, ethanol is a non-solution solution. It may cut down on carbon dioxide emissions. But crop yields are now being divided between the dinner plate and the gas tank.

The grim reality of all this is that, as the global food supply becomes more strained, so will nations. Food supply security is something that citizens demand from their government and if it disappears, so could the social order, leading to more failed states. ”How many failing states before the whole system begins to unravel?” said Brown. “We don’t know this yet. We haven’t been there.”

And that’s the scariest part of all.

(In addition to listening to Lester Brown’s keynote address at the 2011 WCDM, I had the chance to interview him to get even more insight about climate change and the global food supply. Our Q&A will appear in the July/August issue of Risk Management magazine.)

It seems Chinese government officials are anything but honest employees. A lengthy report that recently made its way into the media details how corrupt Chinese officials have stolen $123 billion over several years and stashed most of it in the U.S.

The report claims that up to “18,000 corrupt officials and employees of state-owned enterprises have fled abroad or gone into hiding since the mid-1990s.” The PDF of the report is available in Chinese cyberspace and offers a glimpse into who was stealing money, how much they stole and how they handled their cross border money laundering.

In one case, Xu Fangming, a former Ministry of Finance official allegedly deposited roughly 1 million yuan into the bank account of a son studying abroad. In another, Cheng Kejie, a top politician got his mistress settled in Hong Kong and funneled money to her. Some of the stories are well known. Among the most notable is the tale of Zhang Jian, a former Communist Party chief of Haimen in Jiangsu province, who famously dumped his ill-gotten 18 million yuan into Macao casinos. According to the report, he funded his 48 visits over two years with credit cards.

The other popular methods used for stashing stolen money include black market banking services, trade under current accounts, overseas investments, credit cards and offshore financial centers in the Caribbean and Europe. China’s central bank has stated that it will cooperate with foreign officials.

Our columns explore topics such as data security in the age of WikiLeaks, the risks of China’s clean tech revolution, significant moments in workplace safety and the 10 worst locations for storm surge.

If you enjoy what you seen online, you can subscribe to the print edition to enjoy even more content.

Please let us know what you think in the comments below. And stay tuned to the blog for even more coverage in the future. Lastly, you can follow the magazine on Twitter, “like” us on Facebook and join our LinkedIn group.

With unprecedented flooding, Asia was the region worst hit, with $75 billion of the total occurring there. In relative terms, however, the fallout may be worse for the Latin America/Caribbean region. The $53 billion caused by the earthquakes in Haiti and Chile represents a staggering 1.1% of the region’s GDP. (By comparison, Asia’s $75 billion in losses was only 0.28% of its GDP.)

Here is Swiss Re’s regional breakdown of the number of disasters, death toll and financial fallout.

Insured losses in 2010 totaled $43 billion as a whopping 10 different events caused insured losses of at least $1 billion. This was a huge jump from the $27 billion in insured losses for the global industry in 2009.

In all, 2010 had 304 catastrophic events.

The globe has seen a troubling trend of more natural catastrophes nearly every year in recent decades, and 2010 was no different with 167 natural disasters. On the flip side, the declining trend of man-made disasters the world has experienced since 2005 also held true, with just 137 man-made events. This is perhaps the only positive nugget of information in the entire report. (Although even this silver lining is bittersweet as you will see below when we look at the resulting death toll.)

Worst of all, of course, were the 304,000 people killed by disasters last year, making 2010 the third deadliest year since 1970 (the year Swiss Re first began collecting such data).

In 2010, severe catastrophes claimed significantly more lives than the previous year: around 304,000 were killed, compared to 15,000 in 2009. The deadliest event in 2010 was the Haiti earthquake in January, which claimed more than 222,000 lives. Nearly 56,000 people died during the summer heatwave in Russia. The summer floods in China and Pakistan also resulted in over 6,200 deaths.

Man-made disasters accounted for a small percentage of deaths last year, in relative terms, but the 6,446 killed was still a significantly higher number than the 5,970 who died in this manner in 2009. This fact puts a large blemish on the positive news that there were fewer man-made events. There may have been fewer incidents, but the ones that did occur were deadlier and that lower-occurrence/worse-outcome ratio should be going the other way in 2011 as safety, security and other risk management means strive to lessen the impact of catastrophes.

The man-made disasters that claimed the most victims in 2010 were a lead poisoning outbreak at an illegal gold mine in Nigeria in March (400 victims, mainly children), a stampede on a bridge at a festival in Cambodia in November (375 victims) and the collapse of a gold mine in Sierra Leone in March that killed approximately 200 people. Meanwhile, aviation and maritime disasters accounted for more than 800 and 1,100 victims respectively.

Moving beyond the past, the globe has already been badly battered so far in 2011.

The Japanese earthquake and tsunami killed an estimated 18,500 people and caused upwards of $30 billion in insured losses alone, according to some experts. The Christchurch quake in New Zealand also ravaged the insurance industry, Australia floods cost billions and winter storms in the United States did plenty of damage of their own. Who knows what the final fallout will be from social revolutions in the Middle East, but it’s safe to say that there will be some claims.

All this and it’s not even hurricane season yet.

Hopefully, there is no way that more people will be killed by disasters in 2011 than we saw in 2010. But when it comes to economic losses, specifically insured losses, it is already shaping up to be a historic, market-altering year.

This year, however, only one rogue nation cracks the top five (North Korea). Instead, global macro-shifts and emerging, nontraditional global conflicts are viewed as the largest threats.

Below is a rundown of their top five.

Head over to their website for a more detailed description of their top ten global political risks.

1. The G-Zero

The concept of the “G-Zero” presents a world devoid of global leadership. Ever since American primacy has dwindled on the international scale, most thinkers have looked at a few likely realities for the coming decades: (1) the United States re-establishing itself as the dominating global power, (2) the start of a “Chinese Century,” (3) the “Rise of the Rest” in which multiple emerging economies (China, India, Russia, Brazil, etc.) become the most important political force or (4) the coordinated rise of international cooperation via bodies like the G-20.

Another scenario, the G-Zero, seems increasingly likely to the Eurasia Group and its head Ian Bremmer. And with no apparent global leadership, conflict rooted in nations increasingly operating for their own self interest will emerge.

the default policy response to a breakdown in global economic governance is every man/nation for himself. As demonstrated even in a politically integrated Europe, without common rules, there’s no such thing as collective economic security. In the G-Zero, domestic constituencies will become increasingly effective in pushing populist agendas on trade, currency, and fiscal policy. However much economic dispositions become ideologically statist, in the absence of agreed global norms, economic agendas are overwhelmingly resolved at the national level

On a conference call about this list today, Bremmer mentioned that this new reality was probably coming anyway due to various factors but has been delayed by the cooperative sentiments and two years of panic following the meltdown of the global financial system. Obviously, the fallout of that is far from over, but the panic has at least subsided.

Thus, enter the G-Zero — probably this year, they say.

2. Eurozone Economics

With the debt and fiscal concerns still mounting throughout the Eurozone, the next year may see increasing tension between the struggling economies (specifically, Ireland, Greece, Portugal and Spain) and those tasked with bailing them out (namely, Germany and France). Obviously, populist sentiments in Germany and France are making it harder and harder for Berlin and Paris to continue helping out other countries. Given this, the Eurasia Group sees a future of “bailouts with conditionality” that aren’t altogether appealing for either party, much like those adopted by the IMF and World Bank while loaning “strings attached” money to South American and African nations throughout the 1980s and 1990s.

In the meantime, real Eurozone reform remains difficult and far away. And the resulting uncertainty will make the market and investors increasingly leery of the region in the coming year.

3. Cybersecurity and Geopolitics

Despite Time magazine’s assertion that Facebook’s Mark Zuckerberg was the man of the year, WikiLeaks founder Julian Assange kicked a much bigger hornet’s nest last year. Now, information anarchists of his ilk will make more disruptions for nations that have their secret information exposed. (Companies, too … tread lightly.)

More importantly, cyberwarfare in which states attack states has become a reality. We have seen it in Iran, from China and (probably) from Russia. We will likely see it more in 2011.

4. An Unresponsive China

With China’s economy and exports still booming even amid sluggish global consumption, Eurasia Group believes that Western nations will implore Beijing to adjust its growth model to one that better dovetails with the policies of the world’s other leading economies. This is what is referred to as “global rebalancing.” China, in theory, agrees with the need to do this — not just to integrate with the rest of the G-20, but for its own self-interest. Long-term, its export-driven economy just isn’t sustainable, and it knows this.

But it is very unlikely that Beijing’s rebalancing schedule will come as quickly as other nations want it to. And this may cause great contention.

China will talk of participating in global coordination, but they will not follow through.

China’s pattern of export growth that is twice the rate of economic growth, with resulting large current account surpluses, will be the object of intensified international outcry as the world’s second largest exporter in a demand-constrained world economy. In 2010, the gloves started to come off between the United States and China. The trend broadens this year with Europe, japan, and much of the emerging markets and the developing economies also looking to China to adjust its growth model …

frustration with and pressure on China will build. So too will the risks of market-moving international reactions to China’s incremental, deliberate, consensus-driven approach.

Much has been made about how China will disrupt the “old world order” in the next few decades. For the next 12 months, however, Bremmer and company see this as the largest factor that may cause market disruption.

5. North Korea

Kim Jong Il was — and is — utterly nuts. So him beginning to transfer power to his son is, in a way, a good thing. How can anyone possibly be as certifiably insane as that guy?

But the transition also might prove to be a major destabilizing force on the Korean peninsula. And that could be disastrous for South Korea, the region and the international community.

North Korea’s decision to keep pushing the South Koreans’ buttons is almost certainly the result of a faster-than-expected leadership transition in Pyongyang. That’s the only variable that could explain the sudden dramatic change in behavior. The belligerence could be coming from external concerns—that Kim Jong Un will be vulnerable to international “testing” if Pyongyang doesn’t first prove his mettle. Or it could be internal if Kim Jong Il doesn’t believe he can win agreement within the North Korean leadership for his son’s safe accession, especially in the event that the father dies suddenly. The latter scenario is much more troubling in terms of North Korea’s willingness to provoke military conflict on the peninsula. There’s no way of knowing which of the two is the more likely.

On today’s conference call, Bremmer added that war on the peninsula is indeed a possibility and that, in fact, it is “probably the only place in the world that large-scale conventional warfare is possible.”

Troubling indeed.

China produces 97% of rare earth metals, much of which is exported to Japan. But recent reports claim that shipments of the metallic element to Japan were halted. There are a few theories as to why.

The halting of shipments came, coincidentally (or not), after Japan arrested a Chinese fishing boat captain “whose trawler collided with two Japanese patrol boats off disputed islands in the East China sea.” Now, Japan is accusing China of using the metals, and its near-monopoly of it, as a “bargaining chip.” A claim China denies:

Speaking to a China-European Union business summit in Brussels, [China's Premier] Wen [Jiabao] echoed other Chinese officials in denying Beijing had ordered traders to hold back rare earth shipments to Japan due to a recent flare-up in tensions, the newspaper China Daily reported Friday.

China claims they cut back (denying they halted shipments) because demand for the metals is exceeding supply (a claim that has received much attention lately). In either case, the Japanese are very concerned that cutbacks in exports will hurt their tech-heavy manufacturing businesses. A valid concern indeed.

“Organized” chaos

A few weeks ago, a report came out that — once again — India led the world in traffic deaths. Given its population (estimated at nearly 1.2 billion, which puts it behind only China), the nation would logically be near the top of the list regardless of any priority it placed on safety. In fact, when India took over the number one spot for road fatalities (from China) in 2006, many people saw this as further evidence that India was truly becoming a economic power.

While having many of you citizens die on the road is obviously counterintuitive to progress, more people driving meant more people were buying cars because more people had more money. Safety needed to be improved, sure, but automobile transportation is always going to lead to some casualties that correlate to population and/or what percentage of that population has purchasing power great enough to afford a luxury like a car.

Anyone who subscribed to that theory five years ago, however, is probably starting to see India’s high death rate for what it is: tragic and avoidable. This New York Times article breaks it down.

While road deaths in many other big emerging markets have declined or stabilized in recent years, even as vehicle sales jumped, in India, fatalities are skyrocketing — up 40 percent in five years to more than 118,000 in 2008, the last figure available.

A lethal brew of poor road planning, inadequate law enforcement, a surge in trucks and cars, and a flood of untrained drivers have made India the world’s road death capital. As the country’s fast-growing economy and huge population raise its importance on the world stage, the rising toll is a reminder that the government still struggles to keep its more than a billion people safe.

In China, by contrast, which has undergone an auto boom of its own, official figures for road deaths have been falling for much of the past decade, to 73,500 in 2008, as new highways segregate cars from pedestrians, tractors and other slow-moving traffic, and the government cracks down on drunken driving and other violations.

It has been illustrated through various means time and time again, but this is just one more example of how India’s city planners and public officials are failing to provide adequate infrastructure to support the nation’s booming economy.

Unfortunately for Indians, roadways aren’t the only transportation problem. As you can see in the video below, the trains are not a much better option. Marked by overcrowding and delays, it takes workers who commute to the major cities an exorbitant effort just to make it to their jobs every day. Worse still, there are still many political and religious-based attacks on railways in many regions. The 2006 Mumbai bombings, for example, killed more than 200 and injured another 700.

A few weeks ago I went to the annual meeting of Coface, a company that specializes in international credit risk. As it does each year, Coface brought in a group of experts to talk about the most pressing global economic issues and professor David Denoon of New York University spoke about China and India, painting a much different development picture of the world’s two most populous locales.

China, he said, is characterized by places like Shanghai, where just in recent years alone construction has begun on more high rises than exist in all of Chicago. By contrast, he emphasized that the per capita income in India is merely $3,100. That’s equal to one-third of the average income in Brazil and one-fifth the average in Russia.

Looking at those numbers, it seems that both infrastructure and income distribution will pose a growing concern for the nation that puts the I in BRIC.*

* (The acronym for the world’s four biggest emerging economic powers, Brazil, Russia, India and China. Also, for a look at some of the risks that have plagued the largest Indian carmaker, check out Bill Coffin’s look at Tata Motors’ “Cheap Cars, Costly Protests.”)

To discuss this and the rest of the year ahead, I was fortunate enough to touch base with Kurt Karl, chief U.S. economist at Swiss Re, to get his take on this year’s report.

In your opinion, what is the biggest global risk facing the U.S. for 2010 and why?

Kurt Karl: The biggest global risk facing the U.S., as the “Global Risk 2010″ report points out, is renewed asset price collapse. This would essentially be a global double-dip recession. With very high deficits and very low interest rates, another recession would be very difficult to combat. A return to recession could come from continued employment declines eroding consumer confidence, another banking sector scare or possibly a mutation in the pandemic virus which increases the fatalities causing consumers to panic and stop traveling and reduce shopping.

How will underinvestment in infrastructure (especially agriculture) affect the U.S. economy in the long run?

Karl: Infrastructure is essential for long-term growth and there is some evidence that the U.S. has been under-investing in infrastructure. Not only could this lead to catastrophes, such as the Minneapolis bridge collapse, but it would reduce economic growth by creating bottlenecks in, for example, the transportation system. The key risk for the agricultural sector is infrastructure that supports water supplies. This is partly an investment issue and increasingly a political issue. Reduced agricultural production will harm the US trade deficit — we export a lot of agricultural products — increase inflation and reduce standards of living.

What is the biggest, long-term international risk you see? And how will that affect the U.S.?

Karl: China, which is growing rapidly, is the biggest risk and the biggest opportunity for the U.S. economy. The global economy is increasingly dependent upon the health of the Chinese economy. At the same time, China needs to become a more open economy, with — ultimately — a floating exchange rate and free trade practices where it and other countries are competing on a level playing field.

What do you see as the biggest factor that could possibly prevent a complete economic recovery?

Karl: The biggest risk is global employment growth. If confidence turns sufficiently negative, companies will start cutting jobs again and that would kill the recovery.

1. Wen Jiabao, China – “Having guided China through the worst of the economic crisis, Premier Wen Jiabao, the head of China’s sprawling state bureaucracies, now faces the equally difficult task of shifting Chinese policy from stimulating the economy to containing inflation and preventing asset bubbles.”
2. Barack Obama, United States – “This year may define the presidency of Barack Obama. He enters 2010 with diminished approval ratings, high unemployment, a massive deficit and poor prospects for the Democratic Party in mid-term elections in November. On issues of critical importance to his agenda, he has ceded considerable responsibility to Congress to determine timelines and details—which the legislature will be reluctant to give back.”
3. Ichiro Ozawa, Japan – “If he survives the scandal that threatens to engulf him, Ichiro Ozawa has the opportunity to maneuver the ruling Democratic Party of Japan (DPJ) to victory in upper-house elections in July, giving it firm control over the government. Ozawa holds no cabinet position, but he is the most powerful politician in the DPJ, controlling its finances, electoral strategy, and the candidate-selection process as its secretary-general.”
4. David Cameron, United Kingdom – “If, as expected, the Conservative (Tory) Party wins national parliamentary elections in May, its leader David Cameron will take over as prime minister of a troubled country. The UK is still struggling to overcome a recession, a real estate bubble, and a serious crisis in its all-important financial sector.”
5. Luiz Inacio Lula da Silva, Brazil – “As President Luiz Inacio Lula da Silva begins his final year in office, he looks set to go out with a bang. Brazil is quickly recovering from the global economic downturn; Lula and his relatively market-friendly economic policies are closely associated with Brazil’s economic success. Internationally, he will utilize this appeal to pursue a larger role for Brazil in developing multilateral policies—in forums like the G20 and at climate change negotiations.”

Rounding out the rest of the top 10 are: Ali Akbar Hashemi Rafsanjani, Iran; Ashfaq Kayani, Pakistan; Vladimir Putin, Russia; Sheikh Khalifa bin Zayed al Nahyan, United Arab Emirates; and Olli Rehn, European Union.