Instability in Nigeria Likely to Rise Despite Tentative Peace Agreement; Fraud and Irregularities Threaten Upcoming Ukraine Election.

NEW YORK -- The Deutsche Bank Eurasia Group Stability Index (DESIX) monthly ratings were released yesterday. Most notably, Nigeria and Ukraine's stability scores decreased dramatically following further conflict in the oil town of Port Harcourt, Nigeria, and pre-election corruption in Ukraine. Russia's score remained stable this month, though questions persist regarding the nation's respect for the rule of law as the latest developments in the YUKOS affair emerge. The DESIX, which covers 24 emerging market nations, is a leading political risk index for financial institutions and multinational corporations seeking quantifiable ways to measure the impact of politics on their investments. This month's DESIX also includes three features which address the possible differences between a second Bush Administration and a Kerry Administration on the issues of Iraq, proliferation and energy security.

Nigeria's stability score continues to decline with growing violence in the Niger delta representing a continuing and significant threat to national stability. Despite a tentative peace agreement between the government and militias in the oil-producing Niger Delta, violence is likely to resurface as it reflects longstanding, but increasingly acute perceptions of unfair wealth distribution.

The conflict looks set to continue to center around the most crucial oil town in Nigeria, Port Harcourt, rather than Warri which until recently had been the focus of violence. Fighting in the city in Port Harcourt during the past three months has killed more than 500 civilians and after a respite is likely to resume. While Nigeria's foreign cash reserves are swelling because of high international crude prices, those high prices have also resulted in more expensive fuel prices which will continue for some time, even in the unlikely event that crude oil prices fall significantly in the near future. The central government will continue to argue that it cannot maintain subsidies necessary to insulate the local consumer from imported inflation in this price environment, a claim that the militias and their leaders will continue to regard as invalid.

Russia's stability score was unchanged in October, but political tensions continue to run high. The aftermath of September's attack in Beslan looms large as President Vladimir Putin pushes through a range of political and legal changes. Criticism is growing over these measures, which appear to represent a move away from democracy. Meanwhile the ongoing Yukos affair has called into question the government's commitment to the rule of law, especially in its dealings with the so-called "oligarchs" who profited from rigged privatization deals in the 1990s. The question of how far to go in reopening those deals and reasserting state authority over the private sector, particularly in the oil industry, has prompted a fierce behind-the-scenes fight in the Kremlin, with an uncertain outcome.

Ukraine's stability declined in the run-up to the 31 October presidential election, which could be marred by fraud and irregularities. The election (along with a likely 21 November runoff election) is shaping up as a two-man contest between current Prime Minister Viktor Yanukovych and opposition leader Viktor Yushchenko. The Kuchma-era political and business elite seems determined to preserve the status quo by seeing Yanukovych elected. If polls showing Yushchenko to be more popular are accurate, the elections could well be stolen, leading to domestic tensions and severe international criticism.

About Eurasia Group

Eurasia Group is a New York based research and consulting firm that focuses on global political risk and emerging market country analysis, serving more than 150 major financial institutions and multinational corporations. Founded in 1998, Eurasia Group has a full-time staff of 35, as well as a global network of more than 480 in-country experts and partners covering more than 65 countries.

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