As the world turns – an Iranigans update

For today’s second post I wanted to give a brief update on what is going on with the Iranian nuclear development program.

In short, nothing much has changed…

The United States:

The U.S. continues to want a delay in dealing with Iran so that it can focus its military, diplomatic and logistical attention on its existing Middle Eastern wars: Iraq and Iran.

U.S. forces are winding down their involvement in Iraq. Each time there is movement toward the exit doors Iraqi factions launch a terrorist attack to remind competing factions that de-stabilization awaits as soon as the U.S. is gone. Needless to say, this must be causing U.S. military and political leaders trepidation. This is because Iraq with a power vacuum takes the pressure off of the Saudi Arabians, the Syrians and the Iranians. Essentially when the U.S. cat is away, the other nations play. Interestingly, the nation that possesses the greatest ability to de-stabilize Iraq is Iran. This is, in conjunction with the desire to ramp up in Afghanistan, why the U.S. is not pressing the Iranians more on its nuclear program.

What the U.S. wants is for the worldwide Western-dominated economy to be back on firm footing before strongly (read: militarily) dealing with Iran. The U.S. also wants to withdrawal its troops from Iraq to win the hearts and minds of its own citizens who are exhausted by war. Additionally, the U.S. wants to up the war in Afghanistan to forever drive the Taliban out of power. [By the way, as the recent Yemen-based al Qaeda attack prove, al Qaeda is decentralized and no longer in Afghanistan. Why the U.S. wants to fight there is beyond me.]

To accomplish the above, the U.S. favors tactics that delay dealing with the Iranian situation militarily. This is why the U.S. blusters about “crippling sanctions” rather than going silent and planning a bombing of Iranian nuclear facilities. As discussed at length on this blog, economic sanctions will fail because they rely upon the absolute backing of Russian (see below).

Iran:

The Iranian “Republic” is experiencing an inner domestic struggle for power right now. Some believe that the power struggle is between hardcore religious fundamentalists and Iranian elements that want a more modern, less dogmatic Iran. Other reports I have read indicate that the real struggle is between Iranian politicians who are also economic oligarchs that are struggling for the economic future of the Republic and consequently, for their own wallet share. Whatever the case may be, over the last 7 months there have been numerous well-organized protests in Iran that have failed to overwhelm the Iranian power apparatus. If these internal struggles were fomented by the West as a way of dealing with the nuclear issue, they have failed.

After the most recent round of protests failed to illicit change it is very likely that Iranian political and economic power remains in the hands of the status quo. What this means is that the Iranian leadership can now focus its attention on power consolidation internally, and annoying the U.S. externally. This means that Iran is in the cat-bird seat in its negotiations with the West to terminate its nuclear program. Other than the threat of war, Iran has no reason to listen to the U.S. Frankly, Iran holds all of the cards.

If the U.S. or Israel bombs Iran then Iran destabilizes oil shipments in the Straits of Hormuz. This drives oil prices higher and causes billions of dollars of economic damage to the west. If the U.S. or Israel bombs Iran then Iran destabilizes Iraq. This causes the U.S. to waste precious resources in maintaining Iraq when it wants to up the pressure in Afghanistan. If the U.S. or Israel bombs Iran then Iran gives support to terrorist organizations that could potentially destabilize or irritate every country on Earth.

Russia:

Russia wants to re-establish dominance in the countries on its periphery. Because the country has no natural barriers to invasion it relies on buffer states to protect itself. During the 90s U.S. foreign policy had as a focus taking over the Russian periphery to permanently emasculate the nation. Post the 2003 Iraq War Russia has been retaking its periphery politically (the Ukraine) and militarily (Georgia). So what Russia wants is a U.S. utterly distracted by its Iraq and Afghan wars. This is so that none of the U.S.’s limited military bandwidth can be brought to bear against Russian ambitions. Russia supports the U.S. in Iraq and Afghanistan politically and logistically for this very reason. But this is also why Russia supports Iranian nuclear ambitions. Iran represents just enough of an irritation to the U.S. that it ensure it cannot raise its head up from the Middle East to stave off Russia retaking its periphery. In short, Russia is not going to move on the Iranian issue unless the U.S. gives some assurance that Russian has a right to dominate its near abroad. Without Russian support economic sanctions against Iran will fail.

Israel:

Israel remains as the wildcard in all of this. The Jewish State cannot afford to gamble on whether or not Iran is close, or not close, to developing its nuclear technologies to the point of weaponization. Therefore, Israel must act soon. As an outsider looking in, it appears that Israel is laying foundations for military action. However, most military analysts feel that Israel does not possess the unilateral ability to simultaneously bomb Iranian nuclear facilities but also prevent Iran from invading northern Iraq and mining the Straits of Hormuz. But Israel may act unilaterally anyway and just deal with the diplomatic fall out after the fact. Israel would do this if its calculus concludes that Iran is close to developing “The Bomb.” And who knows what Israel’s estimation of this is?

Conclusion: In my opinion, we remain in a gigantic game of chicken. However, the longer this crisis continues, the more likely that there is a military “solution” to checking Iranian nuclear ambitions. The timing of any such action is unbelievably difficult to handicap. But with U.S. equities at, or near, fair value, oil stocks look particularly attractive.

Jason