MIDDLE EAST: The pending fourfold crisis

Making predictions is a dangerous game, but experience shows that careful analysis of a situation can provide accurate foresight. Kaveh L Afrasiabi notes the unfortunate accuracy of his own warnings on the probable debacle that would result from a US invasion of Iraq, and offers some insight into King Abdullah of Jordan's triple - or more likely quadruple - crisis in the Middle East.
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Dec 23, 2006

The pending fourfold crisis
By Kaveh L Afrasiabi

As a political scientist, and a Hegelian at that, I have never considered making predictions more than an occasional byproduct of in-depth analysis that would be germane to an intrinsic evaluation of one's corpus of explanations.

However, that does not preclude analyzing the perspectives that offer forecasting with or without the benefit of a sound theoretical and methodological framework.

Take, for instance, King Abdullah II of Jordan's alarm of a coming "triple crisis" in the Middle East in 2007, ie, in Lebanon, Iraq and the occupied territories, although with Iraq still under foreign occupation, we must quickly add "in Palestine" to the last. How accurate is this prediction?

The situation in Lebanon is veering simultaneously toward and away from a civil war, not least because all parties have learned from the past the precious lesson that it could turn out to be a lose-lose situation and not worth the risk, particularly as the country has yet to recover minimally from the devastations of Israel's aggression last summer.

In terms of the tension between Hamas and Fatah, it is too early to tell, since the main theater of power struggle is in Gaza and not the West Bank, and the upcoming elections may succeed in taking some of the steam from the brewing conflict between the Palestinians.

In Iraq, on the other hand, there is a nexus between civil war and insurgency that has yet to be fully explored, and one wonders if the Shi'ites can hold onto their political gains as long as they are viewed as occupation collaborationists by the Sunnis. The current state of civil war in Iraq will likely continue unabated and will parallel the tempo of insurgency and counter-insurgency.

The US is now poised to increase its troop levels in Iraq, despite the opposite advice of the Iraq Study Group and the dissenting voice of former secretary of state Colin Powell, who has openly wondered what a surge in troop levels can actually accomplish (other than inflaming the nationalist sentiments of Iraqis further).

Maybe the United States should combine that with a timetable for withdrawal, a one-two punch, which avoids the binary decisions and recommendations hurled at President George W Bush these days. There is, after all, something amiss with the Iraq Study Group's pitch for a troop increase in Afghanistan because of rising insecurity there and yet refraining from making similar recommendations for Iraq, which admittedly faces a "grave and deteriorating" situation. Vice-versa, the US could apply the Afghanistan model, that is, just as the Taliban have won "sanctuaries" or "zones" of freedom in Afghanistan, similarly the US could forfeit certain areas in Iraq to the insurgents under the condition that they would not transgress their limits.

Had the US done this in Fallujah, for instance, and reached a modus vivendi with the insurgents, the situation might not have turned out as badly as it has. Another prudent move would be to give the Kurds a greater role in Iraq's security above and beyond their enclaves. Yet another idea would be somehow to bring the United Nations back in the picture and entertain the experimental infusion of UN peacekeeping forces in certain areas not too hot to handle by the UN.

Turning to Iran and the nuclear crisis, that is the other, fourth crisis that King Abdullah might have wanted to add to the list, given the impending UN sanctions and the negative ramifications of this crisis on regional security. The pertinent question is, of course, whether or not the electoral victory of a coalition of reformists and pragmatic conservatives led by the former president, Hashemi Rafsanjani, will translate into continuity or change in Iran's foreign policy.

There is a good-to-excellent chance that in light of the election results, widely interpreted as a vote of no confidence in President Mahmud Ahmadinejad, the moderate politicians in Tehran will succeed in influencing the tone and content of Iran's foreign policy toward compromise and dialogue with the West. The "Eastward" orientation pushed for by Ahmadinejad has its limitations, and a return to the more balanced, neither West nor East, initial elan of the post-revolutionary regime may be called for, albeit with the positive twist of "both West and East". That is more in tune with the Iranian character, in view of Iran's history and geographical location in Europe's proximity.

At this point, a note of self-reflection. Soon after the invasion of Iraq, I published the following letter in the New York Times, dated March 20, 2003:
The war just unilaterally declared by President Bush, in addition to lacking legitimacy and harming the United States' global image for a long time, is likely to turn most if not all of Iraq into rubble. At a minimum, it will turn Baghdad into a Mesopotamian Stalingrad, causing intolerable death and destruction, as well as an ecological catastrophe.

The shortsighted dreams of quick victory are likely to evaporate in a war of attrition, disruptions in the flow of Persian Gulf oil, acts of terrorism and so on - all this as a result of a war of choice, not of necessity.
My subsequent letter in the New York Times, dated September 3, 2003, explicitly stated that there was now a civil war in Iraq, reflected in the assassination of a Shi'ite leader:
Regarding the murder of the Shi'ite leader Ayatollah Muhammad Bakr al-Hakim and scores of others in Najaf, the United States military bears part of the responsibility for the security lapse. The ayatollah's death is a severe blow to the postwar political reconstruction of Iraq, and a sad reminder of the civil war that has followed the military invasion of the country in clear breach of the United Nations charter, notwithstanding the absence of weapons of mass destruction. The ayatollah's collaboration with the United States may have cost him his life, and he and his group may have underestimated the anti-foreign passion of Iraqis reflected in the sentiments of many younger Iraqi Shi'ites against the United States occupation.
In yet another such letter, published in April 2004, I stated that military victory in Iraq was unachievable and the US was better off thinking "shared sovereignty":

"There is no military solution to [the] Iraqi quagmire, and a prudent American policy would be to negotiate shared sovereignty at macro-levels as well as micro-levels (town by town) as the framework of a viable exit strategy."

These are just a few samples of my own "predictions", which I dare say have turned out on the mark, and, in turn, this gives me hope to keep the flame of writing that is the essence of enlightenment.

Kaveh L Afrasiabi, PhD, is the author of After Khomeini: New Directions in Iran's Foreign Policy (Westview Press) and co-author of "Negotiating Iran's Nuclear Populism", Brown Journal of World Affairs, Volume XII, Issue 2, Summer 2005, with Mustafa Kibaroglu. He also wrote "Keeping Iran's nuclear potential latent", Harvard International Review, and is author of Iran's Nuclear Program: Debating Facts Versus Fiction.

Copyright 2006 Asia Times Online Ltd.

Economic storm brewing in America

By Ambrose Evans-Pritchard

Last Updated: 12:01am GMT 07/12/2006

America's stock markets typically start crumbling four months before each recession, anticipating the crunch in profits. Shares then grind relentlessly down for 10 months or so until they have on average knocked 26 per cent off the S&P 500 index, Wall Street's listing of top companies. So if you think the US property slump is looking scary after October's 9.7 per cent drop in new home prices, it may be time to take a little money off the table. It has been a lucrative autumn rally, but the four-year bull market is long in the tooth by any standards. As we report today, the rate of insider stock sales by company directors on both sides of the Atlantic is the highest since records began 20 years ago, with sales outnumbering purchases by 60:1. It makes scant difference whether your shares are on Wall Street or the London Stock Exchange. The FTSE 100 index is a global play these days. The lion's share of profits come from overseas, while London's AIM market has become a bet on Chinese and Russian companies nesting there by the dozens. The world economy is what matters, and I don't like the smell of it. Nor, apparently, does Hank Paulson, who made $700 million at Goldman Sachs before taking over the US Treasury this year. He has reactivated a crisis team with a command centre in Washington to cope with the "systemic risk" in a market melt-down. His worry? 8,000 unregulated hedge funds with $1.3 trillion at hand, and derivative contracts now worth $370 trillion. "We need to be very careful here," he said. A well-sourced article in Washington's Weekly Standard says Mr Paulson fears a "serious crisis that would be a body-blow to the US economy". Yes, China is booming – for now – but it accounts for just 4 per cent of world consumption. The great US shopping extravaganza is six times bigger, and remains the anchor of the international system. It is slowing fast, unsurprising after 17 interest rate rises from 1 per cent in June 2004 to the current 5.25 per cent. "Big ticket" orders for cars, aircraft, computers and such plummeted 8.2 per cent in October. Average house prices have fallen from $244,000 in April to $221,000 last month, with more violent corrections in Florida, Arizona, and New England. Builders have warned of a "death spiral" as they slash prices to off-load a glut of unsold homes. The "happy handover" orthodoxy of the International Monetary Fund is that America will escape with a shallow slowdown. Asia and Europe will pick up the growth baton. The world will march on without missing a step. Nice if you can get it. The more ominous possibility is that America fails to recover quickly, and takes the world with it. Japan already shows signs of stalling. Retail sales have fallen for two months. Far from bursting back to life as expected, it is still teetering on the edge of deflation. France ground to a halt in the last quarter as the surging euro ate into the country's industrial core. Airbus was humming when the euro was worth 90 US cents. Now it must compete at $1.33, with wage costs in euros set against delivery contracts in dollars. Currency hedges protect for a while, then reality hits. German industry says $1.40 is the pain limit. It is hard to see what can stop the dollar sliding that far as funds bet on US rate cuts next year. The yield premium that kept the currency aloft earlier this year is about to narrow, perhaps sharply. The central banks of Asia and Russia are sated on dollar reserves. They may not slash their US holdings, but they are unlikely to add either. So who will fund America's deficits? "The US needs a trillion dollars a year just to stand still," says David Bloom, currency guru at HSBC. Modern financial crises have always begun on the peripheries of global economy, setting off a chain reaction. Mr Bloom says the seizure this time will be at the heart of the system as the dollar buckles, pressing down on the "aorta of capitalism". So we have a world where the ageing economies of Europe and Japan are too fragile to withstand a dollar slide, yet America needs a weak dollar to cushion its own downturn. Meanwhile, China is holding its currency far below equilibrium. Nobody is doing much to break this impasse. The 1930s come to mind. The consensus is that America will rebound quickly, averting a sticky end. But it takes two years for rate rises to feed through an economy, so Americans have not yet faced the worst. Nobody knows how US households with record debt will cope with the squeeze. Borrowings rose 8.1 per cent in 2000, 8.6 per cent in 2001, 9.7 per cent in 2002, 11.4 per cent in 2003, 11.1 per cent in 2004, 11.7 per cent in 2005, with no let-up in 2006. Debt payments have reached an all-time high of 13.9 per cent of personal income. Americans extracted 6 per cent of GDP from their homes last year in equity withdrawals (ie, more debt), mostly to subsidise their lifestyles. This game is up. Professor Nouriel Roubini from New York University says recession is inevitable. "People have been using their homes as their ATM machine, but many are now facing negative equity so there will be a lot of foreclosures. As the housing recession spreads to manufacturing, this is going to lead to a much harder landing than people think." The bonds markets are alert, even if equities are not. Interest rates on 10-year Treasury bonds (4.46 per cent) have dropped below short-term rates (5.25 per cent) for five months. This is the "inverted yield curve" of satanic fame, flag of recession. Ignore that at your peril. Whatever happens, the Federal Reserve will come to the rescue. But how soon? The Fed minutes from December 2000 show some governors fretting about inflation long after the danger had shifted to slump. That wily old bird Alan Greenspan silenced them, knowing in his bones that the economy was going over a cliff. His untested sucessor, Ben Bernanke – burdened with inflationist baggage – does not yet have the credibility to pull off that stunt. Whatever he really thinks, he will have to play by the book. So batten down the hatches for a long storm.