Markets Blind to Rising Tensions on Korean Peninsula, Ian Bremmer Says

Tensions between North Korea and the United States have intensified since the Stalinist nation was accused of sinking a South Korean war ship in March.  The pressure rose again this week when the U.S. and South Korea conducted a series of large-scale naval exercises off the coast of the Korean Peninsula and Japan. This demonstration of military force is intended to deter North Korea, which possesses nuclear weapons, from further aggression.

Tech Ticker guest Ian Bremmer, founder and president of the Eurasia Group, a leading global risk research and consulting firm, says that these exhibitions of power are not going to bring an end to the conflict. In fact, he tells Aaron in the accompanying video that the markets should pay close attention because the situation on the Korean peninsula is only going to grow more serious.

Drumbeat of War

The strike on the Cheonan was North Korea's first big military escalation since their development of nuclear weapons. The assault killed 46 sailors, making it one of the most deadly provocations since the end of the Korean War in 1953. North Korea's aggression may be the result of increased pressure on North Korea's leadership. A number of officials have been executed in the recent months.

Immediately after South Korea condemned the sinking of the Cheonan there were massive demonstrations organized in North Korea calling for war. North Korea said they will "physically" respond to the military exercises, although they did not give further details. Bremmer says that the U.S. and its allies should be prepared for retaliation. 

"In a country like North Korea, with conventional artillery lined up to literally obliterate Seoul within hours and with direct nuclear capacity and ballistic missile capacity, this is an unprecedented threat from a rogue state," Bremmer says. "Clearly there is a drumbeat in North Korea that they are trying to use to build patriotism and support for their own regime. The question is: how far do they have to go?"

"So if this continues to escalate, and so far all indications are that it will, it is going to start creating an awful lot of concern on the ground with some economies that really matter to the world," he says.

As the joint military exercise demonstrates, the sinking of the warship Cheonan has helped the U.S. revitalize its relationships with its traditional allies in the region, South Korea in particular, Bremmer says. President Obama has said he hopes to pass a free trade agreement South Korea by 2011, which was never a priority or politically popular in the past.

Prior to the attack in March, South Korea was moving to pull away from the U.S. and economically integrate with China. Now, fear of North Korean dictator Kim Jong-il overrides any desire for independence from America, Bremmer says.

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