What’s Next in the Middle East?

While the missiles, planes and rockets fly over Gaza and Israel, both Hamas and the Israeli government have been engaged in a battle of social media.

Hamas:

And Israel:

It is a battle to shape the perceptions of the rest of the world.

The IDF appears so far to have the upper hand in terms of social media, having notched up 143,000 followers on Twitter, although Hamas’ al-Qassam Brigades are in swift pursuit having just climbed above 20,000 followers.

Yet to view this as a simple conflict between Hamas and Israel is too superficial. It ignores the history and the context. This is a much bigger and broader tapestry.

Glenn Greenwald writes:

Israel‘s escalating air attacks on Gaza follow the depressingly familiar pattern that shapes this conflict. Overwhelming Israeli force slaughters innocent Palestinians, including children, which is preceded (and followed) by far more limited rocket attacks into Israel which kill a much smaller number, rocket attacks which are triggered by various forms of Israeli provocations  — all of which, most crucially, takes place in the context of Israel’s 45-year-old brutal occupation of the Palestinians (and, despite a “withdrawal” of troops, that includes Gaza, over which Israel continues to exercise extensive dominion). The debates over these episodes then follow an equally familiar pattern, strictly adhering to a decades-old script that, by design at this point, goes nowhere.

And Michael Chussudovsky writes:

On November 14,  Hamas military commander Ahmed Jabari was murdered in a Israeli missile attack. In a bitter irony,  barely a few hours before the attack, Hamas received the draft proposal of a permanent truce agreement with Israel.

“Hours before Hamas strongman Ahmed Jabari was assassinated, he received the draft of a permanent truce agreement with Israel, which included mechanisms for maintaining the cease-fire in the case of a flare-up between Israel and the factions in the Gaza Strip.”(Haaretz, November 15, 2012)

F-16 fighter planes, Apache helicopters and unmanned drones were deployed. Israeli naval forces deployed along the Gaza shoreline were involved in extensive shelling of civilian targets.

While Israel continues to enforce extreme restrictions on the lives of Palestinians, it has been inevitable that organisations like Hamas who promise resistance against Israel and Zionism will thrive. And while Hamas has thrived, Israel has continued to impose sanctions and restrictions. Both sides have been locked into a cycle of brutal retaliation (and a particularly suicidal cycle for the Palestinians).

In the latest skirmishes, Hamas has inflicted three Israeli casualties in rocket strikes, the Israeli military has already assassinated two high level Hamas commanders, and carried out successful strikes on dozens of Gazan targets resulting in thirty deaths.

But Israel and Hamas share a deeply interwoven history. The WSJ notes:

“Hamas, to my great regret, is Israel’s creation,” says Avner Cohen, a Tunisian-born Jew who worked in Gaza for more than two decades. Responsible for religious affairs in the region until 1994, Mr. Cohen watched the Islamist movement take shape, muscle aside secular Palestinian rivals and then morph into what is today Hamas, a militant group that is sworn to Israel’s destruction.

Instead of trying to curb Gaza’s Islamists from the outset, says Mr. Cohen, Israel for years tolerated and, in some cases, encouraged them as a counterweight to the secular nationalists of the Palestine Liberation Organization and its dominant faction, Yasser Arafat’s Fatah. Israel cooperated with a crippled, half-blind cleric named Sheikh Ahmed Yassin, even as he was laying the foundations for what would become Hamas.

And co-operation has continued between Hamas and Israel, even while they throw rockets at each other, and even while Hamas continues to receive funds and weapons from Israel’s major rivals, including Iran. Upon Ahmed Jabari’s killing, Haaretz noted:

Israel killed its subcontractor in Gaza.

The political outcome of the operation will become clear on January 22, but the strategic ramifications are more complex: Israel will have to find a new subcontractor to replace Ahmed Jabari as its border guard in the south.

Co-operation between Hamas and Israel should not be surprising. The two factions of hardliners — on one side Hamas, and on the other side Netanyahu’s coalition — validate each other’s existence. Without a state of perpetual enmity, the hardliners would find themselves marginalised. Nothing strengthens Hamas in Palestine like an Israeli rocket attack, and nothing strengthens Likud and Yisrael Beitenu in Israel like a Palestinian rocket attack.

However, Israel’s co-operation with Hamas may now be at an end. The surprise strike on Jabari may well be a sign that Hamas is to be cast aside and driven out of Gaza. This seems like the beginning of a new era in the middle east.

Now that the American election is out of the way, Netanyahu may be stepping toward engaging with Iran.

John Glaser, writing for AntiWar.com lays out one theory:

Israel, lest we forget, instigated this resumption of missile exchanges last week when two Palestinian civilians were shot and killed and Israeli tanks intruded into Gaza, prompting Gaza militants to respond by targeting Israeli soldiers, which then gave Israel an excuse to unleash successive airstrikes. And Israel had numerous chances to pacify the situation, considering Hamas publicly offered to establish a total ceasefire and Egypt appeared about to broker a truce between the two. Israel has intentionally inched towards escalation from the beginning. Are we to believe this isn’t strategic?

A ground invasion, and a reoccupation of Gaza by the IDF could be the first step toward engaging Iran. It would allow for Israel to dislodge Hamas, and create a buffer between Israel and Egypt, and the forces of the Muslim Brotherhood. The Morsi government in Egypt has pledged to support the Palestinians — but is this a bluff? Does Egypt have the capability or the desire to really oppose Israel? Does Iran really have the capability or the desire to oppose Israel in a more active way? Ultimately, Iran may have no choice, as Netanyahu is certain that they are on the nuclear threshold.

The world is in motion. Israel is playing its cards. The intent? To create facts on the ground that cement Israel’s position as the dominant power in the middle east for the next century.

Now, Iran’s move.

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A Time for War?

Arch-neocon Charles Krauthammer — and Secretary of Defence Leon Panetta — say that Israel is ready to strike Iran:

Our own secretary of Defense has said it’s highly likely and he gave a timeframe — April, May, June — which means the Israelis think that the moment, the zone of immunity where they can no longer attack successfully, is approaching.

On the other hand, I am becoming more sceptical of such actions by the day.

Both China and Pakistan have given assurances of some kind of support for Iran, if attacked. Why would Israel choose direct and open warfare against Iran and risk provoking a wider conflict when they can instead engage in a much less risky covert war of subterfuge, sabotage and assassination?

Furthermore, why would the US Secretary of Defence go on the record to divulge Israeli military plans? Frankly, it sounds like Panetta’s vocalisation is a decoy to keep Iran edgy, and try to incite Iranians on the ground to rise up in revolt and overthrow the regime, as a path to avoiding war.

While I have already given a pretty comprehensive breakdown of the Western motivations for such a war, the simple truth emerging is that the risks of wider trouble and blowback are too big, and outweigh all the prospective benefits. American and Israeli policymakers may have finally realised that the West just has too much to lose from antagonising China and Russia even more. And, as I have clearly drawn out, the risks to Israel and to the West from an Iranian nuclear weapon are relatively small. Furthermore, the Israeli intelligence community is not overwhelmingly committed to such an action.

The only people who seem committed to such action are the rabid neocon wing of the Republican party: people like Rick Santorum.

From Haaretz:

Republican presidential candidate Rick Santorum on Thursday accused President Barack Obama of actively seeking ways to allow Iran to gain a nuclear weapon and suggested that the administration had betrayed Israel by publicly disclosing what may be a plan to attack the Muslim nation.

The bottom line is that there is very little reason to believe that America or Israel will openly engage Iran before the Presidential election. There will be a continued war of stealth, continued drone surveillance, continued cyber attacks, continued assassinations, and a continued blockade — all aimed at provoking an Iranian revolution. I could be wrong, and the situation could change, but as more anti-American rhetoric streams out of Eurasia, as Iran enriches more uranium, as the American national debt creeps higher, the prospects of a war grow more distant.

A zealous theocratic warmonger like Santorum in the White House would change all of that..

The Shape of Eurasia

Western journalists might denounce it as stump rhetoric. But I don’t think Vladimir Putin is beating a drum or rattling a sabre. I think he is deadly serious: what’s more, I think he is in a position of strength, not weakness.

From Bloomberg:

Russian Prime Minister Vladimir Putin is stepping up rhetoric against the U.S. as his campaign for the March 4 presidential election intensifies after the biggest protests against his rule.

The U.S. “wants to control everything” and takes decisions unilaterally on key questions, Putin said on a campaign stop yesterday in the Siberian city of Tomsk, 3,100 kilometers (1,900 miles) east of Moscow. “Sometimes I get the impression the U.S. doesn’t need allies, it needs vassals.”

Putin, 59, is seeking a new term in the Kremlin amid the biggest challenge to his 12-year rule after fraud allegations at parliamentary polls sparked mass protests. The Russian leader, who has repeatedly accused the U.S. of interfering in other countries’ affairs, said last week that reports by a state-owned Moscow radio station supported American interests.

“The No. 1 reason Putin is doing this is elections,” Jan Techau, director of the European Center of the Carnegie Endowment for International Peace in Brussels, said yesterday in a phone interview. ‘‘It’s pre-election saber-rattling. This is vintage Putin.’’

Alas, it is all about context. This isn’t 1992; the end of history is finished. America is not an invincible hegemon, but instead has been taxed and weakened by two big wars and a myriad of small ones, a huge financial blowup, and the fallout of losing a huge hunk of its manufacturing sector to Asia. America’s monopoly over the global oil trade — and its ability to acquire oil and components with newly-printed dollars — is threatened by the current shape of Eurasia, where a coterie of authoritarian leaders, united by their shared anti-Americanism is moving to displace the dollar as the global reserve currency.

Vladimir Putin was very explicit about this.

From Rianovosti:

Russian Prime Minister Vladimir Putin accused the US of hooliganism on Monday [July 2011] over the US government’s efforts to ease its financial problems by injecting hundreds of billions of dollars into the economy.

“Thank God, or unfortunately, we do not print a reserve currency but what are they doing? They are behaving like hooligans, switching on the printing press and tossing them around the whole world, forgetting their main obligations,” Putin told a meeting of economic experts at the Russian Academy of Sciences.

The Russian authorities have said they would like to see a basket of currencies including the ruble replacing the dollar as the main reserve currency, although most analysts have said a more realistic target for Russia would be if the ruble became a regional reserve currency for the CIS.

Regular readers will know that this is not just rhetoric. These Eurasian leaders are taking direct action to displace the dollar.

From Zero Hedge:

Yuan bonds have spread across the planet, China has dropped the dollar in bilateral trade with Russia, the ASEAN trading bloc has formed into a tight shell of export partners, and that is just the beginning. Two major announcements in 2011 have solidified my belief that a complete dump of the dollar by eastern interests is near…

First was the announcement that China was actively and openly pursuing the establishment of a central bank for the whole of ASEAN, with the Yuan utilized as the reserve currency instead of the dollar:

http://www.reuters.com/article/2011/10/27/us-china-asean-financial-idUST…

This news, of course, has barely been reported on in the mainstream. As I discussed at the beginning of this article, the terminology surrounding economic developments has been diluted and twisted. When China states that an ASEAN central bank is in the works, we need to point out what this really means; the ASEAN trading bloc is about to become the Asian Union. The only missing piece of the puzzle is something that I have been warning about for at least a couple years, ever since my days at Neithercorp (see “Migration Of The Black Swans” as a recent example). This key catalyst is the inclusion of Japan in ASEAN, something which many said would take five to ten years to unfold. News released this Christmas speaks otherwise:

http://www.bloomberg.com/news/2011-12-25/china-japan-to-promote-direct-trading-of-currencies-to-cut-company-costs.html

Japan has indeed entered into an agreement to drop the dollar in currency exchange with China and has expressed interest in melting into ASEAN. Japan has also struck somewhat similar though slightly more limited deals with India, South Korea, Indonesia, and the Philippines almost simultaneously:

http://www.bloomberg.com/news/2011-12-28/japan-india-seal-15-billion-currency-swap-arrangement-to-shore-up-rupee.html

This means that the two largest foreign holders of U.S. debt and Greenbacks will soon be in a position to tap into an export market far more profitable than that of America, and that all of this trade will be facilitated by currencies OTHER THAN THE DOLLAR. It means the end of the dollar as the world reserve and probably the end of the dollar as we know it.

America might well be expected to throw a wrench into the changing chape of the global system. A (messy, prolonged and expensive) war with Iran — to disrupt Eurasian co-operation and re-assert American hegemony — might suffice in the minds of hawks, but will in reality do more harm than good, perhaps driving Russia and China into explicitly and directly defending their ideological ally. Even if this was not the case, American military power runs thin on manpower, and is  funded not by American productivity, but by debt acquisition. More debt will just strain the status of the dollar as reserve currency even more.

The Edge of Bankruptcy

We are like a man who used to be rich and is in the habit of paying for everybody’s meals and announces at a lavish dinner that he will pay the bill, only to then turn to the fellow sitting nearby and say, “Can I use your credit card? I will pay you back!”

— Ron Paul

I have in the past very briefly made the case for why it is not time to attack Iran:

The truth is that Iran (and more explicitly a strong and united Eurasia) is only a threat to America if America chooses to continue the absurd and destructive path of a world-dominating petrodollar superpower, dependent on foreign oil and resources, and with a foreign policy designed to (essentially) extort these things from the rest of the world.

Today, I want to go a little further: While — unlike some readers — I believe that Islamic terrorism is a real (though minor) threat, I believe that America’s neoconservative foreign policy is the greatest threat to American interests.

Neoconservatism holds that American and Western civilisation has a unique moral role in policing the world. That means military commitment, and very often war. That, in turn, means spending:


Spending has meant huge deb acquisition:

There are many historical antecedents of empires convinced of their own special role in history, and determined to impose it on the rest of the world by force. Look at Rome — driven into the ground by the cost of imperialism, and its “bread and circuses” welfare state.

A greater example still is Britain:

This graph is a tale of imperial overstretch, a tale of debt acquired by a colonial power playing world policeman, and trying to maintain the status quo.

Imperial Britain’s debt load hit its peak at the very point when its empire crumbled into the sand. This is not a co-incidence, and the good news for America is that once Britain ended its global role, growth soon returned, and Britain’s debt-to-GDP ratio fell back to a sustainable level.

Of course, America’s debt position might be more sustainable if she was still the world’s greatest industrial powerhouse. But she has instead exported much of her productivity to her hostile creditor, China:

The deindustrialisation of the West has allowed newly industrialised nations, especially China, to build up huge monetary wealth. This is a map showing the net of each nation’s reserves, minus external debt:


And neoconservatives continue to believe that America — dependent on foreign goods and resources, hugely indebted to hostile nations, and war fatigued — is somehow in a position to expand her empire, and to attack more countries?

Is the Middle East About to Explode?

It looks like Israel and America’s secret war on Iran has finally provoked a response.

From AP:

Iran’s semiofficial Fars news agency says the country’s armed forces have shot down an unmanned U.S. spy plane that violated Iranian airspace along its eastern border.

The report says the plane was an RQ170 type drone and is now in the possession of Iran’s armed forces. The Fars news agency is close to the powerful Revolutionary Guard.

Iran is locked in a dispute with the U.S. and its allies over Tehran’s disputed nuclear program, which the West believes is aimed at the development of nuclear weapons. Iran denies the accusations, saying its nuclear program is entirely peaceful.

Iran’s response to the downed U.S. drone’s violation of its airspace will not be limited to the country’s borders, a military source told state television.

“The Iranian military’s response to the American spy drone’s violation of our airspace will not be limited to Iran’s borders any more,” Iran’s Arabic language Al Alam television quoted the military source as saying, without giving details.

Iran said in July it had shot down an unmanned U.S. spy plane over the holy city of Qom, near its Fordu nuclear site.

Why is this happening?

As I wrote last month, a new middle eastern war can provide a lot of opportunities to the Western establishment:

  1. Create a new post-9/11-style hard-to-question patriotism — “There’s a war on — we all need to rally together around the flag — the complainers and protestors must hate America”
  2. Put America back to work — in weapons factories, and on the front lines.
  3. Give the economy a large Keynesian injection — through war spending.
  4. Take out Iran, a powerful enemy of America — and send a threatening message to other uppity Eurasian autocracies like Russia and China.
  5. Curtail civil liberties & censor the internet — “There’s a war on — we all need to rally together around the flag — and those who don’t must be working to undermine America”

The real danger here is that this won’t solely be a middle eastern war. Israel and America have grossly miscalculated the odds of drawing Russia and China into a global confrontation. Russia and China want a new world order centred around themselves, not America, and they will grab this opportunity to dethrone the West.

Russia is already supplying Bashar al-Assad’s Syrian regime with cruise missiles.

Western policy has been built around a false cornerstone of interdependence, the idea that there can be no war between China and America because America is dependent on Chinese goods, and China is dependent on the American monetary system. Nothing could be further from the truth — America (and its consumeristic zombie hordes) need China far more than China needs America. China’s dollar reserves are a luxury, not a necessity, and they are a luxury that can be thrown away in the name of Chinese dominance in Eurasia and the Pacific.

Of course, although a new middle eastern or global war will be an economic, political, social and humanitarian disaster, it will be very profitable for weapons contractors, and provide a large boost to aggregate demand.

Kinetic Peace Action #2

Following NATO’s war in Libya, hawkish commentators have been salivating over the prospect of more “liberal interventionism” in the middle east.

Now, thanks to the Arab League, they might just get their wish.

From Zero Hedge:

Yesterday we reported that the Arab League (with European and US support) are preparing to institute a no fly zone over Syria. Today, we get an escalation which confirms we may be on the edge. Just out from CBS“The U.S. Embassy in Damascus urged its citizens in Syria to depart “immediately,” and Turkey’s foreign ministry urged Turkish pilgrims to opt for flights to return home from Saudi Arabia to avoid traveling through Syria.” But probably the most damning evidence that the “western world” is about to do the unthinkable and invade Syria, and in the process force Iran to retaliate, is the weekly naval update from Stratfor, which always has some very interesting if always controversial view on geopolitics, where we find that for the first time in many months, CVN 77 George H.W. Bush has left its traditional theater of operations just off the Straits of Hormuz, a critical choke point, where it traditionally accompanies the Stennis, and has parked right next to Syria.

The point, I think, is that the Arab League and NATO would be very happy to see Iran’s wings clipped through regime change in Syria. I’ll be absolutely clear: I think that this is an attempt to get Iran to directly intervene in Syria, and get their fingers burnt by a humiliating NATO counter-offensive. The preferred outcome would be a resurrection of the Green Revolution, a bringing of the Arab Spring to the streets of Tehran, and regime change.

I don’t think Ahmadinejad is that stupid. He long ago absorbed the lessons of Saddam Hussein (now confirmed by the demise of Qaddafi). As I wrote last month, these are:

  1. Nuclear weapons are an essential prerequisite to holding off NATO-sponsored regime change.
  2. Western nations and organisations — including NATO, the United States, Britain, France and the UN — cannot be trusted.

Ahmadinejad would not respond. Iran is preparing for the coming Israeli-NATO onslaught, and doing everything in its power to urge China and Russia to heavily discourage any such move. China and Russia — strong Iranian trade partners (and to some extent ideological partners) — already have a strong interest (energy and resources) in resisting regime change in Tehran.

But this is all part of a greater game: America and the West are locked in a proxy war with the Eurasian autocracies (Pakistan, Russia, Iran, China — for short, the PRICs) for both Eurasia’s huge resources and manpower, and global military and financial supremacy. American policy is to retain the petrodollar-standard, and continue enjoying the free lunch such a system yields.

Iran’s fall could give America — as heavily indebted and zombified as America is — a significant boost toward retaining primacy in years to come, and scare the other autocracies into compliance. For that reason, Russia and China — who have gained a very strong position through accumulating American currency, and become hubs of global trade — will not be keen to see further American encroachment into their back yard.

Forward-thinking readers are urged to get a copy of Zbigniew Brzezinski’s masterpiece The Grand Chessboard, and study it.

China is Not Ready to Pull the Plug on America

A very interesting article on alt-market asks a question I have been contemplating these past few weeks. In my view, America’s economic health is totally dependent upon two things: the flow of dollars to the middle east in exchange for oil, and the flow of dollars to China for consumer goods. Any disruption to either or both of these flows would result in sustained and significant disruption to America’s economy. That’s why America — absent of any real plan to move its energy generation, and its supply chains back to America — spends so much money policing the world.

So, that brings us onto the question: What would happen if China liquidated its dollar and bond holdings and moved its wealth into harder assets? And is China on the verge of doing just that?

From alt-market:

There are two mainstream market assumptions that, in my mind, prevail over all others. The continuing function of the Dow, the sustained flow of capital into and out of the banking sector, and the full force spending of the federal government are ALL entirely dependent on the lifespan of these dual illusions; one, that the U.S. Dollar is a legitimate safe haven investment and will remain so indefinitely, and two, that China, like many other developing nations, will continue to prop up the strength of the dollar indefinitely because it is “in their best interest”. In the dimly lit bowels of Wall Street such ideas are so entrenched and pervasive, to question their validity is almost sacrilegious. Only after the recent S&P downgrade of America’s AAA credit rating did the impossible become thinkable to some MSM analysts, though a considerable portion of the day-trading herd continue to roll onward, while the time bomb strapped to the ass end of their financial house is ticking away.

The debate over the health and longevity of the dollar comes down to one very simple and undeniable root pillar of economics; supply and demand. The supply of dollars throughout the financial systems of numerous countries is undoubtedly overwhelming. In fact, the private Federal Reserve has been quite careful in maintaining a veil of secrecy over the full extent of dollar saturation in foreign markets in order to hide the sheer volume of greenback devaluation and inflation they have created. If for some reason the reserves of dollars held overseas by investors and creditors were to come flooding back into the U.S., we would see a hyperinflationary spiral more destructive than any in recorded history. As the supply of dollars around the globe increases exponentially, so too must foreign demand, otherwise, the debt machine short-circuits, and newly impoverished Americans will be using Ben Franklins for sod in their adobe huts. As I will show, demand for dollars is not increasing to match supply, but is indeed stalled, ready to crumble.

We know from insiders in the Chinese government that China are looking at “liquidating more of our holdings of Treasuries once the US Treasury market stabilizes”, and “buying stakes in Boeing, Intel, and Apple and these types of companies… in a proactive way”, and of course gold. But does that mean China will be liquidating as soon as possible? After all Bernanke won’t stop printing, the dollar won’t stop being devalued, and America won’t stop burning through its productive capital on military spending.

I don’t believe they will. Wen Jiabao’s subtle and supportive public remarks during Joe Biden’s recent visit suggests that China wants a controlled and managed transition away from the dollar as the global reserve currency. Withdrawing support for the dollar right now would send China’s remaining dollar pile crashing into the earth.

From the Council on Foreign Relations:

China has accumulated a massive stock of U.S. dollar reserves in recent years. Statements of concern from China regarding the risk that U.S. economic policy might undermine the future purchasing power of these assets has fuelled the market’s concern that China may shift away from dollar purchases. Yet in the 12 months ending in July 2009 China accumulated more dollar-denominated assets, mainly U.S. Treasuries, than foreign assets in total. Despite its rhetoric, China has thus far taken no actions to wean itself off of the dollar.

And as I have noted numerous times, China has no interest in upsetting the global balance — under the current circumstances it is very rapidly strengthening, whilst America falters. And why change something that is working for China?

So when will China pull the plug? There are a few relevant pictures to watch:

  1. China’s gold reserves: currently at 1,000 tonnes, these would have to go significantly higher.
  2. China’s acquisitions of American industry: this would signify Chinese dollar-outflows.
  3. China’s holdings of U.S. debt: if Bernanke keeps printing, these would have to remain stable, or more likely tip-toe lower.
  4. Flotation of the yuan: if China wishes to curb domestic inflationary pressures, they will float the yuan on global markets. A successful yuan flotation would cut the relative value of China’s dollar holdings, lessening the incentive to hang onto U.S.-denominated assets

I expect all of these developments to take place over years, not months. And, in my view, the greatest threat to the dollar’s status as global reserve currency is a global oil shock, triggered by a new middle eastern war, or some black swan. And it is an oil shock that is precisely the event that might force China to accelerate offloading its dollar hoard.