Iran’s Economy at the Edge

Iran’s Economy at the Edge

(UPDATE: 10/3/12 – BBC reporting protests in Tehran.)

Months of tightening U.S. sanctions appear to be taking their toll on Iran’s economy. The rial plunged against the dollar (losing 25% in street value in the past week and down some 80% since 2011). Imports, paid for in dollars, have become increasingly expensive. Inflation approached 24% in August alone. Oil exports, a major revenue earner for the regime have plummeted as well. Shrinking dollar reserves make financing whatever remaining trade even more difficult.

These extensive sanctions include all imports, exports and financial transactions with U.S. entities. With Europe’s participation Iran can now barely function in the international banking system.

The main goal, however remain stopping Iran’s nuclear enrichment activities, not destroying the livelihoods of the general population.

Here’s the gambit: Ratchet up non-lethal economic force on Iran while avoiding a military conflict (including keeping Israeli jets on the ground and averting a regional war). This in turn should cause a political crisis that either forces Ahmadinejad to capitulate or a new leader to replace him ready to negotiate. Regime change a la an “Iranian Autumn” of popular discontent might follow, but seems unlikely at the moment and has not been a core objective. Then again stranger things have happened in the Middle East since 2011.

Iran’s nominally “elected” ruler, Ahmadinejad would carry the full blame of his country’s increasing isolation, not the behind-the-scenes clerics who really run the country. His decidedly more sedate tone in a recent UN speech (no tirades against the U.S. and calls for the end of Israel) suggest his popularity has taken a hit. With barely nine months left in his final term of office he might be more ready to negotiate. The deal on the table before this latest round of provocation still gave Iran access to nuclear material for fuel and medical-grade uses.

Unintended consequences in international affairs are a constant risk. Influencing extremely complicated systems, including tens of millions of people reacting to sudden economic hardship and political machinations of theocratic leaders chief among them.

The flip-side of this strategy could include a backlash against the West for causing economic harm, a more radicalized government, and nuclear enrichment accelerating as a result. No one said this was going to be easy. Still since Iran’s economy already faces home-grown problems from years of serious mismanagement current troubles probably won’t radicalize secular Iranians while hard-liners gain one more reason to run riot.

Either way results should be in soon. Israeli Prime Minister Netanyahu, complete with an almost comical bomb illustration during his UN speech, continued to warn of a point of no return and Israel’s readiness to strike. The U.S. meanwhile re-affirmed its commitment to never allow Iran to possess a nuclear bomb, which could take less than a year once a decision to pursue weaponizing had been made. Iran’s economy gets closer to breaking point by the day and sanctions won’t be lifted without a deal while its nuclear race continues. The specter of destruction (economic, political or military) is coming to head in the not-so-distant future. Let’s hope the sanctions gambit pays off.

 

Photo: Wikimedia Commons

 

 

 

 

 

 

 

Occupy East China Sea – China, Japan Face Off Over Disputed Islands

Occupy East China Sea – China, Japan Face Off Over Disputed Islands

Chinese fishing fleets continue pressing their claims to the resources of a disputed island chain in the East China Sea while Japan considers what it can do with a Coast Guard fleet to protect their administrative control. The Senkaku/Diaoyu or Diaoyu/Senkaku island debate rages on with an occupy movement in full swing.

With the Japanese government’s decision to buy the islands from its private owner, rather than let right–leaning Tokyo governor Ishihara do the same (and escalate tensions further), a wave of anti-Japan protest spread in China. In addition to the anticipated demonstrations against Embassies and consulates, large crowds looted, set fires and attacked civilians (Japanese and Chinese, some in Japanese made cars).

The question over sovereignty of the islands has revolved around two main arguments from China –  historical precedent and geographical rights. Neither holds much sway in the international community of today rather than say several hundred years ago when imperial dynasties ruled.

For the history defense, China claims the islands were never Japanese territory and show up on several ancient maps of the region. History converges around 1895 after the Sino-Japanese war when the Japanese government began to control the islands. Han Yi-Shaw, guest writing in Nicholas Kristof’s New York Times opinion blog dives deep into the historical record and concludes:

“Collectively, these official documents leave no doubt that the Meiji government did not base its occupation of the islands following “on-site surveys time and again,” but instead annexed them as booty of war. This is the inconvenient truth that the Japanese government has conveniently evaded.”

Whatever the reasons espoused by Japan’s rulers at the time, war was (and in some places continues to be) the main arbiter of establishing control over physical territory. If history was the gauge to judge international decisions over territorial disputes Mongolia could claim rights over China, India and vast swathes of the Middle East and Europe. Iran would have overlapping claims from their Persian empire. Mexico re-gains the American Southwest, but perhaps Spain, France and Britain would like to carve out the rest of the U.S.

Historical precedent also shows Japan did administer them, unchallenged, then lost them in World War II to the U.S., and then re-gained them afterwards. If China doesn’t recognize the end of war agreements (to some of which they were not a signatory) then far more lies in question than just a few islands.

Geography also plays a weak role. China is looking to the UN Convention on the Law of the Sea (UNCLOS) to arbitrate a claim that the islands belong to their continental shelf. Since they lie outside of the standard 200 nautical mile limit the government is setting in motion a review to extend the range of the shelf.

While this is certainly better than waging war to win back the islands based on an over one hundred year old conflict UNCLOS doesn’t settle national sovereignty issues, it attempts to resolve conflict over exclusive economic zones.

Neither historical precedent nor length of continental shelf is going to ultimately win favor with the international community or gain the credibility China wants for its claims over these islands. Maintaining the status quo by both sides has been the accepted norm. Increased interest in potential natural resources, rising nationalism on both sides, and China’s rapid military expansion threaten that tentative peace. Japan’s purchase from a private citizen may appear to upend the status quo, but not necessarily. It largely prevented more hawkish factions from attempting to fire up nationalistic sentiments.

For now both sides will need to look strong domestically without crossing a red line into open conflict. As long as neither country builds on the island, begins drilling operations at sea or aggressively restricts access to fishing grounds, a tentative calm can be maintained. The only peaceful way to resolve the dispute is for both sides to negotiate directly. Otherwise we’re back to the days of might makes right in Asia, and that didn’t go well at all.

Photo: Wikimedia Commons

Muslims Didn’t Kill U.S. Diplomats in Benghazi

Muslims Didn’t Kill U.S. Diplomats in Benghazi

First came anger. Anger at the images of the burning consulate. Anger at the senseless loss of life, at those who rioted, and the few who killed. On the anniversary of Sept. 11th that brought tragedy to so many, now more Americans were caught in the crossfire of a fight that never ended.

Then came questions. Secretary of State Hilary Clinton in her address to the nation asked “how could this happen in a country we helped liberate, in a city we helped save from destruction?”

Unfortunately anti-American sentiment never died with Gaddafi. An active terrorist training camp operated freely nearby. A bomb and note were left outside the Consulate back in July and a British diplomatic convoy had been attacked. The extremist flame has yet to be extinguished.

Finally the blame. It would be all too natural to say that Muslims were the cause of this senseless tragedy. After all, the killings are often “in the name of” Islam. Attackers yell “Allah hoo-akbar” (God is great), though Sunnis and Shia, both Muslim, yell the same when they kill each other. Muslims didn’t kill U.S. diplomats in Benghazi on 9/11, 2012, terrorists did. Those who call to the divine in the support of violence live furthest from the true foundations of their own religion, whether a Wisconsin murderer of Sikhs, a Norweigan fascist or extremists in Benghazi.

New images are now appearing of Libyans with signs expressing their sorrow at what happened. We can only hope they continue to come out in greater numbers to support the new Libya — their Libya — liberated by their own sacrifices to create a country free of the violence and fear of Gaddafi’s reign of terror and the radical groups now festering within their borders.

Americans too have now sacrificed their lives for the new Libya. Mourning has begun for the families who lost so much. The fallen diplomats went to Libya to do a job that few would undertake in conditions that most would never tolerate. Let’s hope that the majority of Libyans, who aren’t terrorists, continue the fight against those bent on depriving them of the liberty they fought so hard to win in the first place.

In memorium:

 

Photos: Mustafa El-Shridi and http://imgur.com/a/tlCyI

CNN Commentary: Has the UN Lost Its Peacekeeping Mandate?

CNN Commentary: Has the UN Lost Its Peacekeeping Mandate?

Now that Kofi Annan has stepped down from his position as U.N. Arab League Envoy to Syria and peacekeeping troops are being removed from the country one has to wonder – does the United Nations have any role to play in conflict resolution?

The reality is that the Annan Plan, which supported an interim government to shepherd Syria into a post-dictatorship future, was doomed from the start. Bashar al-Assad was to unilaterally step down in the middle of ongoing hostilities while his forces held the momentum against a popular uprising.

Al-Assad of course played the statesman, met with U.N. officials and allowed troops to enter Syria. No one was fooled for long. His military began an all-out assault soon after Annan’s plane took off. Helicopter gunships and fighter jets strafed cities as civilian casualties mounted. Nearly $17 million was authorized for the 150 military observers and 105 civilians. While a paltry sum considering the more than $7 billion peacekeeping budget, that money could have funded, for example, 2,400 water projects for creating wells to bring safe drinking water to over a million people in need.

Instead, United Nations’ efforts lengthened by weeks if not months a concerted move by regional powers to openly oppose Syria’s indiscriminate attacks on its citizenry.  The General Assembly then voted to censure its own Security Council for failing to do more. . . . Read more here.

Why Syria Matters

After months of skirting around the diplomatic edges of a year and a half old Syrian crisis the U.S. finally drew a red line.  If chemical weapons enter the conflict the U.S. will act with force. That prompted two of Assad’s last remaining benefactors to step up their rhetoric against greater U.S involvement in a civil war that has killed approximately 18,000 people and displaced hundreds of thousands more (see PBS for a succinct timeline.)

The AP is reporting that Russia, main military backer and advisor of the Assad regime, received Syrian assurances that stockpiles would not be used and they remained firmly under government control. China, echoing Syria, said the Americans were using the risk to justify intervention.

Why the sudden interest in kinetic involvement (aka bombs and bullets) rather than the continued non-lethal support the U.S. is already providing, including humanitarian assistance and commmunications? Syria, after years of speculation finally stated publicly that it has chem/bio weapons. An attack by “external forces” could trigger their use, according to Syrian government officials via the New York Times.

If the regime is teetering on the edge, as many suspect it may be considering the overwhelming use of conventional force, including fighter jets, helicopter gun ships and tanks, then chem/bio may be its last resort. Defining “external” could be as easy as saying foreign fighters, which are already battling alongside the Syrian Free Army.

Assad has shown a callous disregard for the non-Alewite majority civilian population so far, reminiscent of Saddam Hussein’s murderous rampages of the past. There is little reason to believe that the Iraqi Kurdish fate of a chemical gas attack might not befall Syrians as well.

At the moment Assad appears to favor a fight to the death having rebuffed the UN and two approaches by the Arab League to step down with safe passage. The BBC reported that during a recent visit to Moscow, Syrian Deputy Prime Minister Qadri Jamil added an Assad exit to the standard talking points of “options”, but not if Assad had to resign first – a clear non-starter.

Radicalized opposition groups possessing chem/bio weapons pose a definite threat of enhanced terrorism well beyond the region. Both Russia and purportedly China face potential Islamic fundamentalist uprisings within their borders which is perhaps one reason they favor these weapons under Syrian control. Even more importantly long standing economic interests including oil and Cold War era positioning for spheres of non-U.S. dominated influence define Russian and Chinese alliances with Assad.

Syria also has one of the best equipped conventional militaries in the region. With a virtual arms bazaar for the budding terrorist group, landmines and shoulder mounted rockets that can take down aircraft would pose an immediate threat if seized by radical groups. The Monterey Institute’s Deputy Director Leonard S. Spector lays out five categories of weapons and associated concerns in his July Congressional testimony.

Intentionally or otherwise this last hold-out of the Arab Spring has turned into a battleground for influence while a captive Syrian populace pays the ultimate price. Still a U.S. ground invasion remains a remote possibility. There is no stomach for more U.S. casualties after Iraq and Afghanistan and even less so in the run-up to elections this fall.

That doesn’t mean there isn’t a lot at stake for the U.S. if only that were better defined.

What Really Ails America This Election Season

The internet is abuzz with criticism of Niall Ferguson’s factually-challenged rebuke of President Obama’s performance in the latest Newsweek cover story. His views include a steady stream of slanted statistics circulating these days (which is not to say there aren’t reasonable criticisms out there). But that’s nothing new for the historian turned pundit.

Consider his January 16, 2012 Newsweek article “Rich America, Poor America” in which he uses Charles Murray’s book “Coming Apart” as evidence for the uneducated, lazy and irreligious poor in America essentially being the cause of their own misfortune. After all educated people simply self-segregate themselves, have smarter children, go to church more, and work harder than the poor (his assessment). By the end of the article he recommends Romney read the book as a guide to fixing the country (article here).

In “The Cure for Our Economy’s Stationary State”, 7/16/12, he focuses on rising disability claims and people not moving around the country as much as they purportedly did in the past to find jobs as reasons for U.S. economic stagnation. Again it’s the “lazy” poor abusing the system or just not working hard enough.

Disability claims have been rising. Yet he doesn’t bother to address precisely how much is due to an increase of the aging population and other factors or exactly how much fraud is occurring (or its cost on economic growth). Instead he leans on overly general statistics and insinuation. Here’s a certainty, something definitely happened back in 2008 on Wall Street that stinks like abuse. Maybe that was a plot by overnight janitors to sneak derivative trading schemes into the computers at night and pad their retirement accounts, maybe not.

Then he uses the overplayed China card saying:

“It is Westerners who are in the stationary state, while China is growing faster than any other major economy in the world.”

As economists and well informed historians know all too well countries in different stages of economic development grow at different rates. That China is in a growth spurt coming out of a very low developmental base starting in the late 1980’s is a well studied phenomenon. Rwanda, Indonesia and Lithuania have all been growing (and outpacing the U.S.) lately as well. Good for them. That says absolutely nothing about what ails America.

And finally he says:

“The mood disorder is especially bad for investors. Only seven out of 47 national stock markets around the world have posted gains in the last 12 months.”

Is he suggesting that U.S. markets are among those without gains and U.S. investors have fallen on hard times? Fact check: The Dow Jones Industrial (DJI) is up over 22% from 12 months ago. Maybe he meant since January, 2012. Um, nope. Still up. Here’s the chart.

Okay, okay, maybe he was referring to NASDAQ. Wrong again. A gain of almost 24% since a year ago, and up since January too. Take a look here. These two data points took all of five minutes and basic math to figure out.

Mislead and misdirect appear to be the commentary tricks of the trade these days rather than fact-based opinion. Maybe this is what you get when a historian tries to play economist, except that he isn’t even playing economist but simply an information-twisting partisan hack.

As we go into election season what America really needs is informed debate. There are plenty of thinkers who take the future of this country very seriously and have good arguments to support their positions (conservative and liberal alike). Ferguson is not among them.

World Politics Review Article: The Crisis of the Global Middle Class

World Politics Review Article: The Crisis of the Global Middle Class

The Arab Spring uprisings were fueled by the rising expectations of a nascent middle class in the face of opportunity that for too long had been denied. Tunisia’s uprising was in essence a middle class awakening, with the fight for economic opportunity replacing political ideology as the principal force shaping the future of fragile nations. It is a problem that even industrialized countries now face.

If nothing is done to build up the fragile middle class, we run the risk of greater social, economic and political polarization that, at its worst, could lead to a rise in nationalism, xenophobia and a breakdown of a tenuous global order. Historically speaking, that generally does not end well. Fortunately, such an outcome is not inevitable.

Full article is available on the World Politics Review website.

Photo by Wikimedia user Ghassen Bradai, licensed under the Creative Commons Universal Public Domain Dedication.

The Week That Was (and Wasn’t)

Walking Backwards into the Future – In a 5-4 Supreme Court ruling upholding President Obama’s healthcare bill the U.S. finally joined the rest of the developed world of 60 years ago with universal coverage. China joined the space world of 50 years ago with a successful orbital docking mission, including a safe return to earth of three astronauts and China’s first woman in space. Read more »

Blinded by the Euro Light – Hopes for a breakthrough on several fronts in the global economy came to naught this week. EU leaders met, and discussed, and discussed some more. Solutions to the spread of financial distress affecting France, Italy, Greece, Spain, and Cyprus appeared at hand. Markets rallied after the European Stabilization Fund was announced which would buy sovereign debt and lend to banks across the EU. The compromise solution avoided the more prickly bailout mechanism of direct loans to financially unstable countries. Have any of the foundational problems changed? Sadly, no. Read more »

Financial Deception, Not Just for Wall Street Anymore – Were the financial mess in Europe not enough to make people wonder about the global economy more banking scandals erupted, this time in the UK. Collusion on bank-to-bank lending rates first discovered at Barclay’s are now suspected across a number of other banks. Not only do these rates directly impact financial performance, they are supposed to be a bell-weather of economic activity. If the instruments of market temperature-taking are faulty then a host of undiscovered ills will erupt yet again in crisis. Read more »

A Tentative Peace, and More War – China and the Philippines withdrew their ships from the Scarborough Shoal after a tense standoff in contested fishing waters. Wars have started over lesser disagreements. There’s no end sight to the cycle of provocation and pushback. ASEAN has failed to act – non-claimant states are loathe to risk their economic relations with China by siding with their southeast Asian counterparts. And China is quick to react to perceived slights using import bans including Norweigan fish after a Dalai Lama visit (no more smoked salmon from you, literally). Philippine fruit was the latest during the recent stand-off. The Chinese government also banned tourist travel (yes, travel agencies still need government approval to organize trips from China to other countries). Read more »

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A Tentative Peace, More War

China and the Philippines withdrew their ships from the Scarborough Shoal after a tense standoff in contested fishing waters. Wars have started over lesser disagreements. There’s no end sight to the cycle of provocation and pushback. ASEAN has failed to act – non-claimant states are loathe to risk their economic relations with China by siding with their southeast Asian counterparts. And China is quick to react to perceived slights using import bans including Norweigan fish after a Dalai Lama visit (no more smoked salmon from you, literally). Philippine fruit was the latest during the recent stand-off. The Chinese government also banned tourist travel (yes, travel agencies still need government approval to organize trips from China to other countries).

The civil war in Syria continues to worsen as the international community largely sits by and watches while civilians are massacred. Opposition forces took the fight closer to the capital Damascus. Underfunded and lightly armed their tactics shift heavily towards guerrila urban warfare. Improvised explosive devices and pipe-bombs are already in production. Syria’s bold shoot-down of a Turkish fighter jet (did it stray or was it still outside of Syrian air space – a fact obscured) was a decidedly non-proportional response to a sometimes Middle East leaning Erdogan administration. That is until Turkey wanted NATO reassurance which they received in a yawning generic response from Secretary-General Anders Fogh Rasmussen. This will largely be a war of attrition rather than a regional conflict.

U.S.-Russian negotiations have gone nowhere. Not a surprise considering Russia’s long standing ties with the Assad regime, including arms sales and a military base. The great game of influence continues. Syria is no Libya as regional analysts like to opine. From a Pol-Mil (political-military) perspective that is certainly true since Syria’s armed forces are much better equipped and backed by Iran. It pays to have powerful friends. A “surgical strike” on Syrian defenses and establishing an air corridor/no fly zone won’t stop old fashioned tanks from shelling concrete buildings.

Back to “The Week That Was“.

The Diplomat Article: The Rise of Global Feudalism

The Diplomat Article: The Rise of Global Feudalism

In April 2007, New Century Financial Corporation filed for what was then a little noticed bankruptcy protection. Their mortgage-backed securities had become worthless and by summer Bear Stearns began liquidating hedge funds. Come autumn, Britain’s fifth largest mortgage lender Northern Rock was on the ropes propped up by the Bank of England. The rest is well known history.

Five years on, after bank failures and bailouts, foreclosures, and rising unemployment, the crisis that started as an obscure financial scheme has led to an unusual triple failure in all three of the world’s traditional growth engines, the United States, Europe and Japan. Though boom-bust cycles are nothing new, they tended to peak and trough at different times. Germany’s early 20th century malaise was paired with America’s roaring twenties. Japan’s first lost decade of the 1990’s coincided with a western tech-driven high.

Now, industrialized nations are facing their greatest economic threat in nearly a century – a troubled middle class losing its purchasing power to drive world growth. If current trends aren’t reversed, and soon, 2012 may be the year the middle fails and a century of economic modernization grinds to a halt.

Full article on The Diplomat website.

 
Photo credit: The-Diplomat