Wednesday, January 18, 2012

The Iran Dilemma

  "Iran in final stages of nuclear weapon" (Maariv, Israel, April 25, 1984)

International pressure on Iran is at white hot levels over its alleged nuclear weapons programme. The United States and the Europe Union have implemented tougher sanctions, and Israel is itching for conflict, not willing to lose its nuclear supremacy in the Middle East, especially to its arch nemesis. The world has been thrust into two camps, pro or anti-Iran, and it has left China in a difficult position, Paul Cochrane in Beirut reports for International Link (Hong Kong)

No smoking gun”

Claims that Iran is just “years away” from possessing a nuclear weapon have been repeatedly stated since 1984. Indeed, in 1992, the US House Republican Research Committee claimed that there was a "98 percent certainty that Iran already had all (or virtually all) of the components required for two or three operational nuclear weapons." Rhetoric has only increased since then.
Under international law, Iran is allowed to develop nuclear power and is a signatory to the Nuclear Non-Proliferation Treaty (NPT). Tehran has stated its nuclear efforts are for peaceful purposes, but the United Nation's International Atomic Energy Agency (IAEA) has found the country in breach of agreements and is accused of a “pattern of concealment.” The latest IAEA report, on 8 November, 2011, noted the “possible existence of undeclared nuclear facilities and material in Iran,” and was swiftly picked up as “proof” by US politicians and the mainstream media that Iran is developing a nuclear weapon. It soon led to additional US sanctions on Iran's banking system and oil industry. The European Union (EU) followed suit with new sanctions at the beginning of December.
However, critics have noted that the IAEA report presented “nothing new” in its assessment of Iran's nuclear capabilities while analysts have noted that recent acts of sabotage against Iranian facilities and the killing of nuclear scientists by unknown assassins have set back Tehran's plans. “Many centrifuges were taken off line because of the virus put through Iran's nuclear research facilities, and scientists have been bumped off. It is a real problem for Iran, and made them more paranoid,” said Professor Anoush Ehteshami, Head of the School of Government and International Affairs at Durham University in England, to International Link.
China has responded warily to the IAEA report. In a commentary, the Xinhua news agency said the UN agency still “lacks a smoking gun,” adding “there are no witnesses or physical evidence to prove that Iran is making nuclear weapons.”
Doubts about Iran's nuclear aspirations have also come from unexpected quarters, notably the United Arab Emirates, which is considered a close ally of the US and has long been wary of Iran's ascendancy in the Middle East. Sheikh Mohammed bin Rashid, the leader of Dubai and Vice President of the UAE, told CNN in early December that he doesn't believe Iran is developing a bomb. “What can Iran do with a nuclear weapon? For example, will they hit Israel? How many Palestinians will die? You think if Iran hits Israel, do you think their city [sic] would be safe? They’d be gone the next day,” he said.
Such an argument does not hold with the Israelis, paranoid that their undeclared position as the only nuclear power in the region – Israel has an estimated 200 warheads - would be undermined if Tehran develops a nuke. Anti-Iranian governments in the Middle East, particularly the monarchies and the Gulf countries, are also against Tehran upsetting the current balance of power, giving rise to fears of a regional nuclear arms race. Indeed, there have been unconfirmed reports that Saudi Arabia helped bankroll Pakistan's nuclear programme in the 1990s with the understanding that if Iran gets the bomb, then Islamabad will station a warhead in the kingdom.
Iran's motivation to have nukes would be to ensure the survival of the regime by preventing a possible invasion, as occurred with its two neighbours, but not to the West's other “rogue state,” North Korea, which has a nuclear arsenal.

Real men go to Iran”

Whether Iran has or does not have nuclear weapons capability has become essentially irrelevant to the anti-Iran camp. While the “doves” in the US are tightening the noose economically around Iran's neck, the hawks are keeping the military option open.
No options off the table means I am considering all options,” said President Barack Obama in early December. It does not matter to Washington, London or Tel Aviv that Tehran denies it is seeking a nuclear weapon, the Emir of Dubai saying he doesn't believe it, or experts pointing out the flaws in the IAEA report. The mantra is that Iran is developing the bomb and the Western public has long been prepped for a showdown, with mainstream media having banged on about the threat Iran poses to the world since the Islamic Republic was established in 1979, and rhetoric taken up a notch in the decade since America launched its so-called “war on terror.”
The push for a conflict, whether via nuclear bunker buster bombs to destroy Iranian facilities or all out war, is spearheaded by the Israelis and neo-conservatives in the US, picking up on the line of former US diplomat to the UN, John Bolton, who said during the lead up to the war on Iraq, “everyone wants to go to Baghdad, but real men go to Iran.”
However, it is widely thought that Israel will not act, especially unilaterally, until it has expanded the deployment of its $1.4 billion anti-missile defense shield, known as Iron Dome, which would be needed to shoot down rockets fired in retaliation in the event of an attack on Iran, such as by Iranian-ally Hizbullah in Lebanon. Furthermore, there seems to be little appetite for war by the American or European publics, given the current fiscal crisis and how overstretched the US military is globally.
I don't think war is on the horizon yet but it can't be ruled out,” said Ehteshami. “I don't believe in a 'surgical military strike', as once done in anger, it is war. And by the very nature of war, it would not be what is expected either, as it would involve the use of non-state actors, so it could go from a cold to a hot war very quickly. Everyone recognises that, except for Israel.”

Unbreakable ties?

The standoff over Iran has put China in an awkward position with the so-called “international community” and the US government. China has deep ties with Tehran, and consistently opposed US policy initiatives directed at Iran until 1997, when, after 13 years, Beijing agreed that foreign assistance to the Iranian nuclear programme should end. In 2006, when the US pushed for sanctions at the UN, China opposed but did accept symbolic sanctions. Since then, Beijing has opposed any further sanctions against Iran, and has sought a multi-lateral, diplomatic solution to the crisis that emphasizes offering Tehran a carrot, rather than threatening with a stick, to be transparent with the IAEA.
China is aware that the US has deep issues in the region and doesn't want, or have the political will, to get too heavily involved, while it is also a supporter of non proliferation,” said Dr Kerry Brown, Head of the Asia Programme at Chatham House in London, to International Link.
But China is increasingly in the minority in carrying out what Brown said was a “a studied neutrality.” Out of the 35 nations voting at the IAEA on the Iran file, 24 voted in favour. While significant that Russia did not vote against Iran – and also opposes the new US sanctions – Moscow has a different relationship with Tehran than Beijing: it is not dependent on Iranian energy.
China accounts for 22 percent of Iran's oil exports while Iran is China's third-largest crude oil supplier, shipping 20.3 million tonnes in the first nine months of 2011, an increase of nearly a third on the same period in 2010, according to Chinese data. Bilateral trade is also booming, worth an estimated $30 billion a year, and the Iranians are hopeful this will increase to $100 billion in the future, cementing China's position as Iran's leading economic partner.
At the core are economic interests, there is a lot of Chinese investment and it sources a lot of oil from there, so China doesn't want to jeopardize that or be isolated,” said Brown. “The Iranians always try to push China for a bigger commitment, and have some due to energy supply.”
Tehran however is wary about China's continued support following India voting against Iran at the IAEA, in 2005, 2006 and 2011. Iran accounts for nearly 13 percent of India's oil imports, and relations have been strained, made worse by India delaying payment of up to $6 billion, which has been further complicated by US banking sanctions against Iran.
I think deep in their hearts the Iranian's don't trust the Russians or the Chinese, as they are pursuing their own interests,” said Ehteshami. “Iran was very badly stung by India's support for the first round of sanctions as they thought India was the champion of the non-aligned movement.”
China will also have to balance ties with its top oil partner, Saudi Arabia, and other Gulf countries vis a vis Iran, which Tehran is only too well aware of. “The Saudis and Emiratis are not happy about what Iran is doing, and China is a major military partner. The Chinese have to manage those tensions,” added Ehteshami.

Responding to conflict

As the expanded US sanctions take effect, oil companies and financial channels for oil payments to Iran will come under fire from Washington and could be blacklisted from operating internationally. The US is banking on this having a similar effect on China as it has with India. The sanctions will certainly present problems for China's state owned companies, which would be forced to set up complicated holding companies to circumvent the sanctions, as happened in the late 1990s during the UN oil embargo on Iraq.
How China handled Iraq is indicative of how Beijing may deal with the Iran crisis if the situation boils over into war. China opposed the invasion of Iraq in 2003, initially losing its oil investments but has since re-entered the Iraqi oil market.
I think China would do the same as with Iraq and sit on the sidelines,” said Ehteshami. “No war with Iran will occur unless there are guarantees from other oil exporters for the loss of Iranian oil, and they will try and keep prices around $100 a barrel.”
However, any diplomatic deal ensuring alternative oil supplies would mean negotiating before an attack, placing China in a vulnerable position over the outcome of a conflict, with Iran as well as the global hegemon, the US. “Diplomatically this is possible, but leads to a deep conviction in China that America is active all around it. That is becoming a pre-occupation and Beijing is feeling very contained,” said Brown.
The escalation with Iran equally has to be put into the context of the uprisings in the Arab world over the past year, which caught China unprepared for the changing dynamics in the region, notably in Libya, which had been the country's ninth largest oil supplier.
China has been playing catch up in the region, as most governments have. That China was the last of the P5 (at the UN Security Council) to recognize the Libyan revolutionaries, after Russia, shows how its foreign policy actors were taken aback and catching their breath,” said Brown. “The last thing China wants is a massive threat, like internal unrest, or ominous signs of an attack, led not necessarily by the US but could be Israel. In that case it wouldn't want to be caught out on a limb like in Libya, it would need to be quicker in its responses.”
The question now is how Beijing will juggle the Iran issue as the crisis mounts, ensuring oil supplies at the same time as hedging its position on the unknown outcomes of a possible war, which would certainly have major economic ramifications globally and could alter the balance of power in the Middle East in more ways than one.

Thursday, January 05, 2012

Bahrain’s colonial flashback

Commentary - Executive magazine

It is perhaps a cliché to say history repeats itself, yet this saying seems to have held true over the past year in the Middle East, particularly in Bahrain. Uprisings have happened before, and been successful or crushed through counter-revolutionary forces. But it is in behind-the-scenes developments that there really is a flashback to the past.

Last month, Bahrain appointed two men — a former Miami police chief and John Yates, the former assistant commissioner of London’s Metropolitan Police — to oversee the reformation of the state’s police force, which was found in an independent inquiry to have committed systematic human rights abuses and used torture to crush the 2011 pro-democracy uprising. (See the following info - and

By virtue of their nationalities and their countries’ strategic involvement with Bahrain, both former “top cops” are dubious choices. Yet Yates in particular stands out, as he was forced to resign from the Metropolitan Police in the summer over a newspaper phone-hacking scandal. Moreover, his appointment reeks of the colonial past. Britain set up Bahrain’s security force prior to independence in 1971, and the General Directorate of State Security was run from the mid-1970s until 1998 by former British policeman Ian Henderson.

Amnesty International documented widespread torture under Henderson’s leadership, and he forcefully put down protests in the 1970s and early 1990s, earning him the sobriquet “the butcher of Bahrain”. It is the second such nickname for Henderson, who was a senior policeman in British-occupied Kenya in the 1950s, playing a role in the brutal suppression of uprisings and becoming labeled “the butcher of the Mau Mau”. In 1986 he was awarded the title of ‘Commander of the Most Excellent Order of the British Empire’ for his services.

(Watch a 2002 British TV documentary, "Blind Eye to the Butcher" -

Although a Jordanian has headed Bahrain’s security force since Henderson retired, the modus operandi has remained the same, as last year’s events document. Furthermore, Henderson, who still lives in Manama, is believed to have provided advice to the authorities during the crackdown.

While Yates may not be cut from the same colonial cloth as Henderson, his mindset is not radically different. “Bahrain’s police have some big challenges ahead, not dissimilar to those the United Kingdom itself faced only a couple of decades ago,” Yates was quoted as saying in The Daily Telegraph newspaper. But what exactly is Yates referring to? When were there “pro-democracy” uprisings in Britain in the past 20 years? Or any protests suppressed by putting tanks and soldiers on the streets? Perhaps he is referring to the Brixton riots in London in 1980 and 1995, which, in any case, were widely attributed to racist policing methods and high unemployment. Yates appears to have fallen for the official Bahraini line that Iran is primarily to blame for inciting the uprising and the demonstrations had nothing to do with political repression or a minority Sunni monarchy ruling a Shia majority country.

The appointment is also curious when one considers the role of the Metropolitan Police in the riots in London and other English cities last August. A joint study by The Guardian newspaper and the London School of Economics into the causes of the riots published in December, identified “distrust and antipathy toward police as a key driving force.”(See -

Such findings do not brook a great amount of confidence in appointing a senior London cop to overhaul Bahrain’s police force. Neither is there any mention of reforming the police by including more Shia, who currently account for just 2 percent of the force. But then, reforming a police force without reforming Bahrain’s political system, by giving the opposition seats in government and addressing the root causes of the uprising, will not change much either. As Saeed Shahabi, a campaigner with the Bahrain Freedom Movement, said of the appointments: “This is not the first time that foreigners have come from the West to upgrade the security services… The government cannot survive without suppressing freedom of expression; only a democracy can tolerate protest.”

The appointments are therefore just a veneer of reform, with Bahrain too strategically important to the West — especially with rising tensions over Iran’s alleged nuclear weapons program and Bahrain’s accommodation of the American Navy’s Fifth Fleet — to allow for substantive democratic change or dissent. By appointing one cop from the former colonial power and another from the current global hegemon, it seems that history really does repeat itself.

Finance for thought

Executive magazine, January 2012

Reviews of four books that challenge and elucidate the most pertinent economic topics of our times

In the years since the credit crisis erupted in 2007 there has been a steady flurry of economic and financial books published claiming to tackle the root causes of what some have dubbed ‘The New Great Depression’, offer alternatives to the current financial system or provide warnings of the inherent dangers still facing the world economy. With the beginning of a new year that has dark storm clouds still crackling with lightning and thunder over the global economy, Executive has selected four of the most thought-provoking economic books printed in the past year to prime the reader for the challenges ahead.

Debunking Economics

Revised and Expanded Edition: The Naked Emperor Dethroned?

A book by Steve Keen

‘Debunking Economics’ has been a critical and commercial success since it was published in 2001, largely due to Australian economist Steve Keen’s withering critique of the neo-classical economic theories that have dominated policy since the 1970s. His claims are also given more weight by the fact that he predicted the 2008 financial crisis well in advance.

In a newly revised edition, Keen hammers the point home that mainstream economists, as well as central bankers, deserve no credit for the boom years prior to the crash but should shoulder the blame for the crisis and its aftermath. Through a pioneering explanatory statistical model, Keen argues that classical economic thought has little to contribute to what is known as Reality Economics, which is more cause-and-effect than assumption based. He argues that the near hegemonic adoption of a narrow-minded approach to economics in academia, which is then carried into professional life, is at the core of the problem, with those supposed to be implementing a cure still theoretically blinkered, evident in counterproductive solutions such as bailing out the banks and quantitative easing.

Keen’s historical and economic analysis of what went wrong are worth delving into, yet it is his alternatives that will interest the reader mulling options to get us out of the current maelstrom. He proposes radical changes, such as reducing or wiping out private debt through a widespread amnesty and, heretical though it may sound, the temporary nationalization of the American financial system.

It is doubtful whether Keen’s voice will be heard amid the hullabaloo, particularly as the United States enters an election year; as John Maynard Keynes pertinently remarked in 1935: “The difficulty lies, not in the new ideas, but in escaping from the old ones.”

The Quest

Energy, Security and the Remaking of the Modern World

A book by Daniel Yergin

Daniel Yergin is renowned for his Pulitzer Prize-winning ‘The Prize’, which charted the rise of the world’s insatiable thirst for black gold as far as the first Gulf War in 1990. ‘The Quest’ picks up where he left off and ventures into the “Great Game” for energy following the break-up of the Soviet Union, the emergence of national oil companies from emerging markets like India and China and the dirty world of oil politics in the twenty-first century. He tackles the effects of the United States’ invasions of Afghanistan and Iraq on energy security and assesses the twisted reasons for the oil price spike between 2004 and 2008. As in ‘The Prize’, ‘The Quest’ shows why understanding the geopolitics of energy is essential to comprehending the world today, and where we may be going next. He discusses how new technologies and high oil prices are making previously untappable oil reserves accessible, although at significant environmental cost. Such ramped up output in the US, Canada and Brazil — each to some 3 million barrels per day by 2020 — could well change the ‘oil world order,’ particularly the West’s problematic reliance on the Middle East, he argues. And while Yergin is no believer in the ‘peak oil’ theory — arguably a flaw in his analysis — this does not stop him discussing at length the need for alternative energy sources, and how potentially disruptive technologies could be game changers in global politics and security.

Poor Economics

A Radical Rethinking of the Way to Fight Global Poverty

A book by Abhijit Banerjee and Esther Duflo

‘Poor Economics’ focuses not on Wall Street and the problems of the financial markets — the “1 percent” as the Occupy Wall Street protesters have labeled them — but rather the poorest of the world’s poor; not the three billion people that live on less than $2.50 a day but the billion surviving on less than a buck.

The focus is on how the poor respond to aid strategies, based on empirical research in 49 countries carried out over 15 years. What is radical about their work is that Abhijit Banerjee and Esther Duflo draw their findings from actually listening to and understanding the needs and behavior of the poor. Why, for instance, do people buy a TV and go hungry, or prioritize the education of one child over the rest of their offspring?

Moreover, their research is into what has worked in development economics and what has not: micro-finance is not the cure-all it is championed to be and higher rates of literacy and schooling do not necessarily equate to economic development and prosperity. As the inequality gap widens, addressing global poverty is a pressing issue for governments, development agencies and businesses. Banerjee and Duflo tell us where our attention needs to be, and it is no wonder their book won the Financial Times and Goldman Sachs Business Book of the Year Award for “the most compelling insight… into modern business issues.”

Currency Wars

The Making of the Next Global Crisis

A book by James Rickards

We are in the early stages of Currency War III, according to veteran financier James Rickards. The first currency war (CW) was between 1921-1936, and CW II took place from 1967, beginning in the lead up to the end of the gold standard in 1970 and culminating in the 1987 stock market crash.

Rickards argues that the United States has instigated CW III through the Federal Reserve’s quantitative easing policy — printing dollars to boost base money supply to get the economy out of recession. But by doing so, “the Fed has effectively declared currency war on the world” and the result is stagflation — stagnant growth and high inflation — and the world going deeper into financial crisis.

According to estimates, the US dollar comprises 61 percent of identified official foreign currency reserves, while the euro represents 26 percent. What happens to the dollar is of prime importance and the trends are worrying. The dollar’s position has declined from 71 percent in 2000, and stands to fall further as American power is challenged, confidence in the greenback weakens and more countries change their reserve currencies, as Russia and others have threatened to do.

Rickards uses possible scenarios — as played out at a Pentagon-organized financial war game — to highlight what a currency war entails and it is eyebrow-raising reading. The end result could be the dollar joining a crowd of multiple reserve currencies (MRCs), although all major currencies have recently devalued in parallel against gold, and in fact MRCs could exacerbate rather than alleviate the currency war. The other alternative is the International Monetary Fund pushes for greater adoption of its “world money”, Special Drawing Rights. The final possibility is the dollar will be “rejuvenated by gold or descend into chaos with both redemptive and terminal possibilities.”

Rickards suggests a return to the gold standard to retain stability, of money backed by something tangible, not paper or digits on a screen. Yet, however this currency war plays out Rickards warns that it “is the most meaningful struggle in the world today — the one struggle that determines the outcome of all others.”