Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Australia's strategic outlook: a longer-term view. Speech to the Australian Strategic Policy Institute, Canberra, 28 June 2006

Download PDFDownload PDF


Australia’s Strategic Outlook: A Longer-Term View

Speech by Mr Peter Varghese Director-General of the Office of National Assessments to the Australian Strategic Policy Institute, Canberra, 28 June 2006

I want to speak today about the strategic outlook over the next 10-15 years —

about as distant as it is prudent to look. Much of what I say must be

speculative. No one can see to the year 2020 with 2020 vision.

Looking forward 15 years, it is sobering to realise how unpredictable strategic

developments can be. The tectonic plates of strategic relations usually move

slowly. But not always. If this gathering had been held in 1986, who would

have anticipated the sudden end of the cold war, the collapse of the Soviet

Union, the Asian financial crisis or 9/11?

In strategic assessments, as in life, it sometimes pays to be humble. And it

always pays to be exposed to analysis from outside government — which is one

reason it is good to see ASPI producing an insightful and relevant body of work

on security, defence and international relations issues.

Australia does not face any direct threat to its territorial integrity. Our

continental geography and maritime approaches give us great strategic depth.

We have deeply rooted political stability and a strong economy.

And yet the historical memory of Australians is one of strategic anxiety, an

angst which has been shaped by many elements: a small population on a large

continent, a historical sense of isolation from cultural roots, a pattern of


instability in near regions and a visceral recognition that things can sometimes

change quickly for the worse.

Geography, culture and history — including our wartime experience from the

Sudan campaign of 1885 to Iraq today — have combined to make Australians

acutely sensitive to the fact that sunny strategic skies can quickly cloud over. In

strategic analysis, national psychology can be as important a vector as national


Australia may be tucked away in the southern reaches of the southern

hemisphere but our sense of strategic space is far broader than our vicinity: our

strategic horizons have always stretched well beyond our geography.

Australia has long seen its own security tied to broader regional and global

stability. Indeed, of the many instances where Australia has participated in

military conflict, only once — in 1942 — was it in direct defence of Australian

territory. In all other cases it reflected either a defence of principle or a

calculation that Australia should help defeat a threat before the threat defeated


Against this background let me offer some observations about the strategic

outlook, including the relationship between strategic reach and economic

strength. And let me acknowledge at the outset the dynamic tension between

continuity and change which lies at the heart of all long-term projections. In the

next 10-15 years, foundations of the global order — such as the centrality of

states, or US primacy — will remain familiar, even while they begin to alter.



Among the most significant economic trends with strategic implications over

the next 15 years are the continuation of globalisation, a shuffling global

hierarchy of economic weight with China and India rising, and competition for


States are not the engines of globalisation but they feel its impact. With

livelihoods that permeate borders, globally-integrated states get more averse to

interstate war. I am not claiming globalisation will abolish war — it will not.

One only has to look at that earlier period of global connectedness — up to

1914 — to see that globalisation can end in strategic tears. But globalisation

does raise the cost of war and thus can act as a deterrent of sorts.

Global connectedness moreover does not always herald an alignment of

interests. It can widen divisions. The disruption which globalisation brings to

traditional societies, including in the Muslim world, stirs grievances that

extremists can stoke. This is exacerbated when the gains from economic

openness are grossly uneven, and enhanced access to information makes it

easier for all to see.

Connectedness also gives extremists tools to magnify their influence. With the

internet and satellite television they can reach new audiences across national

boundaries. And access to the technology and knowledge base of open societies

enables terrorists to wreak havoc far beyond their numbers.


Terrorism will stay a destabilising force globally for at least a decade, and

possibly a generation: a danger to Australian and allied nationals, a challenge to


the authority of many governments, and a disruption to the patterns of trust and

openness globalised economies need.

Al Qaida and its fellow travellers, especially in SE Asia, will keep seeing

Australia as a target. Elimination of AQ’s operational capability — much

eroded — would not cripple the global terrorist threat. Such terrorism will keep

morphing and decentralising with a continuing flow of recruits and with

autonomous cells looking to AQ more for inspiration than for orders and


CT measures are improving. But tactical wins limit terrorists’ capabilities

without breaking their morale or motivation. Isolating terrorists politically, thus

denying them future followers, will be the work of a generation or more.

Yet Islamist terrorism has in-built limits as a strategic threat to Australia. It has

no scope to endanger the existence of, or take territory from, the Australian

state. Nor will terrorism threaten Australia’s fundamental freedom of action to

the extent that might, for example, coercion by an economically or militarily

powerful state.

The changing face of war

Despite globalisation and terrorism, the rise of interests that cross state borders

and the role of multilateral bodies, states remain the building blocks of the

world system. And the brutal fact remains that the ultimate arbiter in politics

among states is still strength of arms.

But the nature of war is changing. Increasingly it reflects a broad asymmetry in

which conventional combat gets more precise and narrower in its applicability,

while unconventional methods become more common and more lethal.


Keys to superiority in battle will include advances in technology, in precision-strike, speed, stealth and satellite-based networks for intelligence, command and

control. These are areas where the US aims to stay unbeatable. In general, the

gulf between rich states armed with new technologies and poor states lacking

them will widen. Still, rising powers that put much new wealth into defence —

notably China and India — could match all except the US. How rising powers

develop force projection capabilities will be a key determinant of the global

strategic future.

Some weaker states, and sub-state groups, will be attracted to irregular,

asymmetric means of war, deterrence and coercion. The aim is to deny a

superior power full use of its military strength and to hit its weak spots,

including perceived political will intolerant of casualties. For such goals,

weaker players will choose what they can from such options as terrorism and

insurgency, attacking information infrastructure, and, in rare and extreme cases,

the possibility of threats to build or brandish weapons of mass destruction.

Still, the human factor will continue to matter, and remains something of a

leveller. Iraq shows how important this remains in ground combat. In ground

forces, the need will often be for the special-forces qualities of soldiers in small

units and networks, drawing on information superiority, elite training and non-combat skills like languages.

Changes in advanced-country defence forces will tend to small units with high

flexibility and lethality, which can be deployed fast and supported from afar,

often through space-enabled systems. This doesn’t mean agility and

information will be the only priorities. Given the kind of irregular attacks seen

in Iraq, we are also seeing renewed emphasis on armour.


After Kosovo, some claimed that advanced militaries had entered an age of

‘virtual war’, of victory without losses. But Kosovo will remain the exception.

Casualties will still happen and still count — especially when intense media

coverage can turn a tactical loss into a strategic blow. More than ever, in

advanced militaries each soldier will matter — especially given the loss of

trained soldiers to private security firms, and the challenges of recruitment in

countries with ageing populations.

WMD and missiles

Weapons of mass destruction and missiles will remain a key part of the global

security landscape. This is not to say that widespread proliferation is inevitable.

In the strategic future to 2020, nuclear weapons will retain their prime roles of

deterrence against nuclear attack and of leverage in crisis. But the dynamics of

deterrence are becoming more complex. What deters a major power may not

deter a rogue regime that assesses it will gain stature from brinkmanship. Were

terrorists to acquire WMD, they would not be deterred by nuclear weapons from

using them.

Though there could be some spread of WMD to 2020, rampant proliferation of

nuclear weapons is unlikely. They are difficult and expensive to make.

Moreover, the normative influence of the Nuclear Non-Proliferation Treaty

(NPT) is resilient, despite dire predictions by some observers, including those

troubled by the US-India civil nuclear deal. Predictions of the NPT’s death

have been around since the treaty’s inception.


More than ever, the focus of proliferation fears, and of international measures,

will be the tough cases — North Korea and Iran. And these cases show no sign

of becoming easier. WMD ambitions could again be a catalyst for tensions.

Use of WMD by states in the next 15 years is likely to remain highly

improbable, but there is a growing risk of terrorist use of a probably

rudimentary chemical, biological or radiological device, though more likely to

cause mass panic than mass casualties.

The proliferation of WMD-capable ballistic and long-range cruise missile

technology will stay of concern. So will efforts by missile-possessing countries

to enhance existing capabilities —improving range and accuracy, and

developing multiple warheads.

Efforts to build defences against missiles will continue apace, though they will

be useful only against limited attacks. Japan is moving to develop missile

defences and integrate them with the US system. India, among others, has

indicated interest in studying missile defence. By 2020 others will also be

pursuing missile defence, so US systems will attract less attention.

The big players

In the world to 2020, a few powerful states, especially the US, will largely

shape the strategic landscape. Indeed, as the century moves on, we face the rise

of mega-states, giants unprecedented in their economic and strategic weight but

also in the scale and complexity of their potential domestic problems.

Other than the US — which will stay the superpower — the big powers that will

most shape Australia’s strategic environment in the decades ahead are China

and Japan, with India making a growing impact.


Barring unlikely major setbacks, China by 2020 will have global strategic

influence and the strongest Asian military. It should stand — with the US and

Japan — among the largest economies by any measure. China has an advantage

and a shackle earlier rising powers lacked: its rivals have deep stakes in its

economic success — and it can’t afford to disrupt the world economic system.

Foremost, it needs stable conditions for continued development.

China has other priorities too. It will stay determined to stop Taiwanese

independence. It expects to become the leading Asian power. Its relationship

with the US will contain elements of both engagement and competition. All the

while, China will be at pains to be seen as a friendly power in its region.

None of this will be simple, not least given Beijing’s need to square strategic

calculations with rising public expectations, including nationalist sentiment.

And plenty of commentators remind us that China’s economic trajectory is not

guaranteed. A breakdown in the Chinese economy — like an unlikely

conjunction of financial, social and resource-supply shocks — could well cause

a sudden drop in world economic growth, with wide social, political and

strategic repercussions. But this is less probable than China’s undergoing a

series of manageable disruptions.

India, meanwhile, is likely to go far in translating economic growth into greater

strategic weight. Like China, it is focused on fostering development while

seeking recognition as a power with global interests. It also seeks defence

capabilities commensurate with its widening interests. India won’t want its

global aspirations hostage to old tensions with Pakistan. It will want a deeper

partnership with the US. And in its ties with China, it will try to reconcile


burgeoning economic relations with elements of competition, including over


There are shoals India will have to navigate, including the need to ensure energy

to feed its economic engines and meet public expectations. Still, Indian

democracy’s success in managing domestic pressures suggests it will help

absorb shocks.

Japan’s economic weight will stay great in global terms, despite an ageing and

declining population. And Tokyo will keep moving carefully to a more active

security posture, within the US alliance and multilateral coalitions. Still, Japan

faces a challenging time of keeping its level of influence in Asia as China

continues to rise. Japan will keep a watchful eye on China’s rise, and will

remain determined to keep US engagement close.

South Korea will be an important player in East Asia’s future, particularly in

how it plays its relations with the US, China and Japan — a key to the balance

of power in North Asia. Seoul’s alliance with the US, though it will feel

growing stress, has every chance of enduring.

I won’t dwell here on Russia or the EU. Their strategic horizons will overlap

Australia’s but for the most part selectively and indirectly. Still, the UK and

France in particular will remain players with global reach. Australia and Europe

will keep sharing deep interests in combating terrorism, and in addressing state

fragility and the side-effects of globalisation. But on big questions of interstate

security relations in Asia, it is hard to see Russia or the EU as strategic shapers.

Of course this doesn’t mean the region’s governments won’t look to the big

Russian and European defence industries to update their armories.


Major power dynamics

Co-operation among major powers is at an historic high — not surprising, given

globalisation and transnational threats. But these powers won’t manage their

affairs in sustained concert. Their values and cultures differ. Their interests,

though sometimes congruent, are far from unified — that would take a shock

more global than 9/11 to change. And we haven’t yet seen how they will come

to terms with the shake-up in their economic, demographic and military

hierarchy, which has far to go.

The US will stay in a league of its own to 2020 and well beyond. Washington’s

global leadership will be sustained by its global interests and by the persistent

terrorist threat. In the decades ahead, its lead over other powers is likely to

shrink noticeably in economic weight and soft power, but generally not in

technology or warfare. And we can expect others to probe the limits of US will

and strength and what they might see as the tensions between its democratic

values and its hard strategic equities.

A lasting impact of 9/11 and Iraq will be the way these events influence US

choices, including about resort to force, force structure and alliances. The US

defence budget will have to balance the divergent priorities of land forces,

including for irregular combat, and powerful maritime capabilities.

The US is set to retain its strong engagement and strategic presence in East

Asia. As it comes to rely less on permanent bases, strategic partnerships could

become even more useful than some formal alliances. Still, the US alliances

with Japan and Australia will continue to anchor Washington’s East Asia



Relations among the US, China and Japan are entering unmapped territory.

Never have China and Japan been so strong at the same time. In China, the US

has a vital stake in a rising power’s growth. Japan-US defence ties are closer

than ever. All three are grappling with these new realities.

Differences between Japan and China are unlikely to vanish. Differences over

history make it harder to manage rivalry over maritime boundaries, energy, or

leading regional co-operation.

The North Asian powers will steer an unsteady course of expanding economic

ties coupled with strategic wariness. Where they deepen regional co-operation,

as in the growth of East Asian diplomatic and financial architecture, it will be

partly a contest for influence over these institutions.

The crucial relationship, in East Asia and globally, will be between the US and

China, and will likely stay a delicate mix of engagement and competition. Both

will find the threads of competition, co-operation and economic co-dependence

hard to weave into consistent policy. A major upset in economic relations

which caused increased protectionism could hasten strategic competition.

Over Taiwan, US-China relations carry the only foreseeable risk — currently

low —of war between major powers. Both powers will try very hard to avoid

such a strategic, economic and humanitarian disaster.

A high-intensity war in Korea is a very small likelihood. But other worrisome

scenarios are more likely. Though the North Korean regime has proven

surprisingly resilient, we can’t rule out its collapse — a possibility that would

unpredictably change North Asia’s strategic equilibrium. There would be

pressure for an international stabilisation effort. The turmoil of Korean


reunification would be a critical test for US-China relations. Still, the impacts

of a discontinuity on the Korean Peninsula would be less profound globally than

those of a US-China war over Taiwan.

Energy security

The policing of sea lanes is a rising concern for major powers. As China and

India join Japan in relying acutely on energy imports, the luxury of being able

to give each other a wide berth, on the spectrum of energy security issues, will

become harder.

Asia’s energy pressures could make some ambitious pipeline dreams real. This

could make key energy importers such as China, India and Japan more

pragmatic with their neighbours. But importers could also become more

concerned to wield influence if their energy lifelines are threatened. As

growing powers in Asia acquire energy sources around the world, they

accumulate both energy insurance and investments they’re anxious to protect.

On the ocean highways, the US Navy will stay prime sentinel. But others,

especially China, Japan and India, will seek roles too, even though the

globalised nature of shipping can make it hard to identify or protect national


Southeast Asian states will continue to improve protection of straits, with

cautious steps to co-operation and a greater openness to outside help, notably in

surveillance. Though waterways will get busier, piracy and terrorism at sea

should stay manageable risks.

Big uncertainties will be how much major powers co-operate or compete in

maritime security, how much sway they seek over states along transit routes,


and how much the need to guard sea lanes drives them to power-projection

capabilities which others might try to match.

Maritime Asian states will try harder to exploit or win control of seabed energy

deposits, even those of marginal commercial value. This will heighten tensions

over contested waters and islands. Shows of force could occur occasionally.

But energy rivalries alone aren’t likely to cause war.

Looking globally, the Middle East’s dominant share of oil reserves will be

strategically more important. The OECD countries increasingly will rely on it,

while China and India will deepen their dependence, despite their efforts to

diversify energy sources. So the big Asian powers, like all energy importers,

will feel a tension between the long-term enlightened self-interest of

contributing to Middle East stability and the short-term temptation simply to

buy oil from whichever regime will sell. Revenue from global energy demand

will let supplier states postpone the economic and political reforms that would

increase stability in the longer term.

The Middle East and Southwest Asia

The need for the US to sustain deep strategic engagement in the Middle East

will stay large. Here the currents of counter-terrorism, counter-proliferation,

energy security and democratisation will keep turbulently meeting.

The region will continue facing serious religious and political rivalries and

inter-state mistrusts along with population growth and rising water scarcity. It

will face increased unrest from a youth bulge, especially in countries with high

unemployment and limited economic openings, including weak involvement in

the global knowledge economy.


Political structures in some Arab countries will likely become somewhat more

representative. But we can expect these changes to be incremental, and they

may continue to bring to power governments with Islamist and anti-Western

agendas. Many regional governments will also face leadership transitions, with

potential for heightened instability as regimes try to respond to pressures for

liberalisation while retaining political control.

Iraq will likely be a federal state with democratic elections, and Islam will have

a prominent constitutional role. But political violence will not recede quickly

and the risk of increased sectarian conflict will remain.

Iran’s nuclear weapons intentions will likely remain a first-order concern. A

nuclear-armed Iran would have a strengthened hand in opposing Western

interests. Iranian pursuit of nuclear weapons will depend in part on how Tehran

perceives Iran’s rightful status and its strategic circumstances, not just on

whether its ideology stays hardline.

Radical Islamist capture of state power, in the Middle East or beyond, is a small

possibility but one with very dangerous consequences. Still, it is less likely

through an unforeseen revolution or coup than in observable stages of disorder

exploitable by extremists.

The strengthening of state institutions in Afghanistan will likely need

international support for many years. Western military forces will remain

important for stabilisation and occasional combat roles for some time.

Southeast Asia

In Southeast Asia, threats to Australia will continue to arise not from states but

from sub-state problems. Likely higher economic growth and improving


governance would reduce but not end terrorism, insurgency and communal

violence where it occurs in the region.

And the possibility Australian help might be sought to handle security threats in

Southeast Asia should become more remote as regional capabilities increase.

Conflict between Southeast Asian states is not likely. Political determination

will stay strong to prevent escalation of potential confrontations, for instance

over maritime boundaries.

Accommodating the politics of Muslim identity will be a challenge for several

Southeast Asian states. Unrest among Muslims in Thailand and the Philippines

is unlikely to abate. In Indonesia, democracy will give political Islam more

space to advance its aspirations, but will also likely force compromise on

Islamists engaged in the political process.

The character of the government in Jakarta will stay a key to our strategic

outlook. To reduce chances of population pressures bringing instability,

Indonesia will need prolonged economic growth, supported by sustained legal

reforms to assure investors.

Some power relativities within ASEAN will shift. For instance, we are yet to

see how a growing Vietnam will play its part. In general, there is a risk that

wealth disparities among ASEAN states could rise, as economic integration

leaves weaker states behind. In development and governance too, lagging states

could lag further and have trouble handling unrest.

ASEAN as a body will be under pressure to maintain its strategic significance,

as regional forums increasingly become Asia-wide and as external powers


strengthen their ties with individual ASEAN states. ASEAN states will be wary

of the expanding influence of the great powers, but will also look to take

advantage of competition among them.

Regional co-operation and dialogue in Asia will be driven partly by, and help to

manage, transnational challenges. Regional multilateral architecture will

strengthen, although the sheer number of processes — under APEC, ASEAN+3,

the East Asia Summit or the ASEAN Regional Forum — could also dilute the

effectiveness of some. Inclusive and outward-looking regional processes will

tend to suit Australia’s interests.

As regional multilateral dialogue deepens, it could have confidence-building

effects on some inter-state tensions. But bilateral links will remain the bedrock

of strategic relationships and states will remain reluctant to entrust bodies like

the ASEAN Regional Forum with mediating serious differences.

South Pacific

As recent events remind us, the South Pacific is where we can most expect

trouble of the kind which generates pressure for Australia to respond directly —

the threats that accompany worsening state weaknesses.

Australia will stay under pressure to play the leading foreign role in making up

for local administrative incapacity and to respond to lawlessness in Melanesia,

as well as to humanitarian and natural disasters throughout the islands.

The region’s very small states with fast-growing populations will struggle to

stay viable. China-Taiwan rivalry over ties with island states can further weaken

governance. Transnational crime will keep exploiting porous borders and other



PNG’s challenges are on a scale apart. Infrastructure and law-and-order

problems, fast population growth and poor education and health all threaten the

population’s welfare and reduce chances to strengthen the state. Tribal conflict

in the Southern Highlands and urban raskol gangs point to the kind of social

problems that could conceivably challenge the writ of government.

Strategic shock

I will end where I began — on strategic shocks. Today I have focused more on

likely trends than on the improbable — an approach some would say smacks of

continuity. So I reiterate that we should expect the world to 2020 to face

strategic shocks of one kind or another, even though each specific scenario for a

crisis is in itself unlikely.

The timing of shocks is by definition unpredictable, their cascading effects hard

to gauge. The range of wild cards is wide. Some are already imaginable, like

regime change in North Korea, extremists gaining power in a Muslim state, or a

convergence of terrorism and WMD. Other possibilities are currently harder to

imagine, including the ways multiple shocks might interact. And some

surprises could erupt for reasons far removed from international politics.

Fast environmental degradation and natural disasters, along with pandemics and

economic crises, are possible systemic shocks which military capabilities can’t

do much to prevent. More new viruses may emerge. With changes in the flu

virus, and in the human and animal populations it can infect, the chance of

another flu pandemic on the scale of 1918 is real. The economic, social,

political and security impacts would be very large.


I’ve ranged far today, but this strategic survey has not been exhaustive. To

offer much value, strategic assessments can’t simply be undifferentiated lists of

everything that might go wrong. They need to convey a sense of salience,

likelihood and consequence, to identify which contingencies might matter the

most, and to define their probable contours.

Even so, the list of issues affecting Australia’s security in the years ahead is

long, and will keep growing. Looking back, it’s clear that new strategic

problems advance faster than old ones retreat. In a complex and interdependent

world, the new issues do not replace the old — they join them on a more

crowded horizon. So I don’t envy the task of the analysts who will sit down in

2020 to chart Australia’s strategic environment to 2040 — but I’m sure their

product will be much in demand.