Developments in the wider international, and in particular Asian, security environment have an important bearing on peace and security in Southeast Asia. This external security environment can be said to have worsened.

War and the continued deterioration of the situation in Iraq in 2004 has had significant negative repercussions. It has given a boost to international terrorism as foreign and Iraqi Islamic militants seek to turn the country into a new base for jihad. It has caused divisions between the United States and some of its key European allies, in the process rupturing the grand international anti-terror coalition that came into being in the wake of the 9/11 attacks. The growing insurgency and chaos in Iraq has absorbed much of the quality time of the Bush administration and stretched the US armed forces, especially the army. While this has not adversely affected the balance of power in the Asia-Pacific, where the United States remains the strongest military power, it has a certain conscribing effect on US strategic freedom in the region.

A domestic debate is taking place in the United States on Iraq. Although most Americans still appear to support the war, a perception that the war has no end in sight as casualties mount could erode that support. So what will happen in Iraq and with what consequences for international security has become a major new uncertainty. Any US withdrawal which leaves Iraq in chaos and which looks like a US defeat could have important strategic repercussions as well as implications for international jihadist terrorism.

The latter remains a significant threat. While Al-Qaeda has suffered from the loss of the Afghan sanctuary and attrition in its leadership ranks, the movement's dispersal and atomization to various countries has made the threat more decentralized and less detectable. Al-Qaeda-associated and other groups in various parts of the world now operate in relatively independent cells, while sharing a common ideology.