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Thursday, August 10, 2006

Breakpoint in Iraq: What went Wrong

Investors Insight Publishing


Today I am sending out a Special Edition of Outside the Box. My good
friend George Friedman at has posted a very powerful essay
on the new situation in Iraq. I must warn you, it is disturbing for
those who, like myself, want a positive and peaceful outcome in Iraq.
But since our thinking and investing should reflect reality and not
wishful thinking, I suggest you take the time to read this piece.

As I have said in the past, Stratfor is my main and favorite source for
geo-political news and analysis. They have often been referred to in the
mainstream press as a 'private CIA,' but I would say in Stratfor's
defense that they seem to be more right than their government counterpart.

Again, if you are in the business of managing money where an eye to what
is happening in the world is critical, or you are a student of
geo-politics, or both, I strongly suggest you get your own subscription
to Stratfor. George tells me that the renewal rates are close to 90%,
which demonstrates how valuable their readers regard the information
that they receive on a daily basis. While this essay is on Iraq, they
also cover the rest of the world, and you can get information on
whatever part of the world you are interested in on their website.

Once again I talked George into dropping his subscription price to half.
Click here to find out more and to signup
And I would say I hope you enjoy the essay, but what George suggests is
that reality is not actually fun reading. Iraq may be on its way to
becoming a real problem with no good answers from a US perspective.

John Mauldin, Editor

*Breakpoint: What went Wrong*

By George Friedman

On May 23, we published a Geopolitical Intelligence Report titled "Break
In that article, we wrote: "It is now nearly Memorial Day. The violence
in Iraq will surge, but by July 4 there either will be clear signs that
the Sunnis are controlling the insurgency -- or there won't. If they are
controlling the insurgency, the United States will begin withdrawing
troops in earnest. If they are not controlling the insurgency, the
United States will begin withdrawing troops in earnest. Regardless of
whether the [political settlement] holds, the U.S. war in Iraq is going
to end: U.S. troops either will not be needed, or will not be useful.
Thus, we are at a break point -- at least for the Americans."

In our view, the fundamental question was whether the Sunnis would buy
into the political process in Iraq. We expected a sign, and we got it in
June, when Abu Musab al-Zarqawi was killed -- in our view, through
intelligence provided by the Sunni leadership. The same night al-Zarqawi
was killed, the Iraqis announced the completion of the Cabinet: As part
of a deal that finalized the three security positions (defense, interior
and national security), the defense ministry went to a Sunni. The United
States followed that move by announcing a drawdown of U.S. forces from
Iraq, starting with two brigades. All that was needed was a similar
signal of buy-in from the Shia -- meaning they would place controls on
the Shiite militias that were attacking Sunnis. The break point seemed
very much to favor a political resolution in Iraq.

It never happened. The Shia, instead of reciprocating the Sunni and
American gestures, went into a deep internal crisis. Shiite groups in
Basra battled over oil fields. They fought in Baghdad. We expected that
the mainstream militias under the Supreme Council for Islamic Revolution
in Iraq (SCIRI) would gain control of the dissidents and then turn to
political deal-making. Instead, the internal Shiite struggle resolved
itself in a way we did not expect: Rather than reciprocating with a
meaningful political gesture, the Shia intensified their attacks on the
Sunnis. The Sunnis, clearly expecting this phase to end, held back --
and then cut loose with their own retaliations. The result was, rather
than a political settlement, civil war. The break point had broken away
from a resolution.

Part of the explanation is undoubtedly to be found in Iraq itself. The
prospect of a centralized government, even if dominated by the majority
Shia, does not seem to have been as attractive to Iraqi Shia as absolute
regional control, which would guarantee them all of the revenues from
the southern oil fields, rather than just most. That is why SCIRI leader
Abdel Aziz al-Hakim has been pushing for the creation of a federal zone
in the south, similar to that established for the Kurdistan region in
the north. The growing closeness between the United States and some
Sunnis undoubtedly left the Shia feeling uneasy. The Sunnis may have
made a down payment by delivering up al-Zarqawi, but it was far from
clear that they would be in a position to make further payments. The
Shia reciprocated partially by offering an amnesty for militants, but
they also linked the dissolution of sectarian militias to the future
role of Baathists in the government, which they seek to prevent.
Clearly, there were factions within the Shiite community that were
pulling in different directions.

But there was also another factor that appears to have been more
decisive: Iran. It is apparent that Iran not only made a decision not to
support a political settlement in Iraq, but a broader decision to
support Hezbollah in its war with Israel. In a larger sense, Iran
decided to simultaneously confront the United States and its ally Israel
on multiple fronts -- and to use that as a means of challenging Sunnis
and, particularly, Sunni Arab states.

*The Iranian Logic*

This is actually a significant shift in Iran's national strategy. Iran
had been relatively cooperative with the United States between 2001 and
2004 -- supporting the United States in Afghanistan in a variety of ways
and encouraging Washington to depose Saddam Hussein. This relationship
was not without tensions during those years, but it was far from
confrontational. Similarly, Iran had always had tensions with the Sunni
world, but until last year or so, as we can see in Iraq, these had not
been venomous.

Two key things have to be borne in mind to begin to understand this
shift. First, until the emergence of al Qaeda, the Islamic Republic of
Iran had seen itself -- and had been seen by others -- as being the
vanguard of the Islamist renaissance. It was Iran that had confronted
the United States, and it was Iran's creation, Hezbollah, that had
pioneered suicide bombings, hostage-takings and the like in Lebanon and
around the world. But on Sept. 11, 2001, al Qaeda -- a Sunni group --
had surged ahead of Iran as the embodiment of radical Islam. Indeed, it
had left Iran in the role of appearing to be a collaborator with the
United States. Iran had no use for al Qaeda but did not want to
surrender its position to the Sunni entity.

The second factor that must be considered is Iran's goal in Iraq. The
Iranians, who hated Hussein as a result of the eight-year war and dearly
wanted him destroyed, had supported the U.S. invasion of Iraq. And they
had helped the United States with intelligence prior to the war. Indeed,
it could be argued that Iran had provided exactly the intelligence that
would provoke the U.S. attack in a way most advantageous to Iran -- by
indicating that the occupation of Iraq would not be as difficult as
might be imagined, particularly if the United States destroyed the Baath
Party and all of its institutions. U.S. leaders were hearing what they
wanted to hear anyway, but Iran made certain they heard this much more

Iran had a simple goal: to dominate a post-war Iraq. Iran's Shiite
allies in Iraq comprised the majority, the Shia had not resisted the
American invasion and the Iranians had provided appropriate support.
Therefore, they expected that they would inherit Iraq -- at least in the
sense that it would fall into Tehran's sphere of influence. For their
part, the Americans thought they could impose a regime in Iraq
regardless of Iran's wishes, and they had no desire to create an Iranian
surrogate in Baghdad. Therefore, though they may have encouraged Iranian
beliefs, the goal of the Americans was to create a coalition government
that would include all factions. The Shia could be the dominant group,
but they would not hold absolute power -- and, indeed, the United States
manipulated Iraqi Shia to split them further.

We had believed that the Iranians would, in the end, accept a neutral
Iraq with a coalition government that guaranteed Iran's interests. There
is a chance that this might be true in the end, but the Iranians clearly
decided to force a final confrontation with the United States. Tehran
used its influence among some Iraqi groups to reject the Sunni overture
symbolized in al-Zarqawi's death and to instead press forward with
attacks against the Sunni community. It goes beyond this, inasmuch as
Iran also has been forging closer ties with some Sunni groups, who are
responding to Iranian money and a sense of the inevitability of Iran's
ascent in the region.

Iran could have had two thoughts on its mind in pressing the sectarian
offensive. The first was that the United States, lacking forces to
contain a civil war, would be forced to withdraw, or at least to reduce
its presence in populated areas, if a civil war broke out. This would
leave the majority Shia in a position to impose their own government --
and, in fact, place pro-Iranian Shia, who had led the battle, in a
dominant position among the Shiite community.

The second thought could have been that even if U.S. forces did not
withdraw, Iran would be better off with a partitioned Iraq -- in which
the various regions were at war with each other, or at least focused on
each other, and incapable of posing a strategic threat to Iran.
Moreover, if partition meant that Iran dominated the southern part of
Iraq, then the strategic route to the western littoral of the Persian
Gulf would be wide open, with no Arab army in a position to resist the
Iranians. Their dream of dominating the Persian Gulf would still be in
reach, while the security of their western border would be guaranteed.
So, if U.S. forces did not withdraw from Iraq, Iran would still be able
not only to impose a penalty on the Americans but also to pursue its own
strategic interests.

This line of thinking also extends to pressures that Iran now is
exerting against Saudi Arabia, which has again become a key ally of the
United States. For example, a member of the Iranian Majlis recently
called for Muslim states to enact political and economic sanctions
against Saudi Arabia -- which has condemned Hezbollah's actions in the
war against Israel. In the larger scheme, it was apparent to the
Iranians that they could not achieve their goals in Iraq without
directly challenging Saudi interests -- and that meant mounting a
general challenge to Sunnis. A partial challenge would make no sense: It
would create hostility and conflict without a conclusive outcome. Thus,
the Iranians decided to broaden their challenge.

*The Significance of Hezbollah*

Hezbollah is a Shiite movement that was created by Iran out of its own
needs for a Tehran-controlled, anti-Israel force. Hezbollah was
extremely active through the 1980s and had exercised economic and
political power in Lebanon in the 1990s, as a representative of Shiite
interests. In this, Hezbollah had collaborated with Syria -- a
predominantly Sunni country run by a minority Shiite sect, the Alawites
-- as well as Iran. Iran and Syria are enormously different countries,
with many different interests. Syria's interest was the domination and
economic exploitation of Lebanon. But when the United States forced the
Syrians out of Lebanon -- following the assassination of former Prime
Minister Rafik al-Hariri in February 2005 -- any interest Syria had in
restraining Hezbollah disappeared. Meanwhile, as Iran shifted its
strategy, its interest in reactivating Hezbollah -- which had been
somewhat dormant in relation to Israel -- increased.

Hezbollah's interest in being reactivated in this way was less clear.
Hezbollah's leaders had aged well: Violent and radical in the 1980s,
they had become Lebanese businessmen in the 1990s. They became part of
the establishment. But they still were who they were, and the younger
generation of Hezbollah members was even more radical. Hezbollah
militants had been operating in southern Lebanon for years and, however
relatively restrained they might have been, they clearly had prepared
for conventional war against the Israelis.

With the current conflict, Hezbollah now has achieved an important
milestone: It has fought better and longer than any other Arab army
against Israel. The Egyptians and Syrians launched brilliant attacks in
1973, but their forces were shattered before the war ended. Hezbollah
has fought and clearly has not been shattered. Whether, in the end, it
wins or loses, Hezbollah will have achieved a massive improvement of its
standing in the Muslim world by slugging it out with Israel in a
conventional war. If, at the end of this war, Hezbollah remains intact
as a fighting force -- regardless of the outcome of the campaign in
southern Lebanon -- its prestige will be enormous.

Within the region, this outcome would shift focus way from the Sunni
Hamas or secular Fatah to the Shiite Hezbollah. If this happens
simultaneously with the United States losing complete control of the
situation in Iraq, the entire balance of power in the region would be
perceived to have shifted away from the U.S.-Israeli coalition (the
appearance is different from reality, but it is still far from trivial)
-- and the leadership of the Islamist renaissance would have shifted
away from the Sunnis to the Shia, at least in the Middle East.


It is not clear that the Iranians expected all of this to have gone
quite as well as it has. In the early days of the war, when the Saudis
and other Arabs were condemning Hezbollah and it appeared that Israel
was going to launch one of its classic lightning campaigns in Lebanon,
Tehran seemed to back away -- calling for a cease-fire and indicating it
was prepared to negotiate on issues like uranium enrichment. Then
international criticism shifted to Israel, and Israeli forces seemed
bogged down. Iran's rhetoric shifted. Now the Saudis are back to
condemning Hezbollah, and the Iranians appear more confident than ever.
 From their point of view, they have achieved substantial psychological
success based on real military achievements. They have the United States
on the defensive in Iraq, and the Israelis are having to fight hard to
make any headway in Lebanon.

The Israelis have few options. They can continue to fight until they
break Hezbollah -- a process that will be long and costly, but can be
achieved. But they then risk Hezbollah shifting to guerrilla war unless
their forces immediately withdraw from Lebanon. Alternatively, they can
negotiate a cease-fire that inevitably would leave at least part of
Hezbollah's forces intact, its prestige and power in Lebanon enhanced
and Iran elevated as a power within the region and the Muslim world.
Because the Israelis are not going anywhere, they have to choose from a
limited menu.

The United States, on the other hand, is facing a situation in Iraq that
has broken decisively against it. However hopeful the situation might
have been the night al-Zarqawi died, the decision by Iran's allies in
Iraq to pursue civil war rather than a coalition government has put the
United States into a militarily untenable position. It does not have
sufficient forces to prevent a civil war. It can undertake the defense
of the Sunnis, but only at the cost of further polarization with the
Shia. The United States' military options are severely limited, and
therefore, withdrawal becomes even more difficult. The only possibility
is a negotiated settlement -- and at this point, Iran doesn't need to
negotiate. Unless Grand Ayatollah Ali al-Sistani, the top Shiite cleric
in Iraq, firmly demands a truce, the sectarian fighting will continue --
and at the moment, it is not even clear that al-Sistani could get a
truce if he wanted one.

While the United States was focused on the chimera of an Iranian nuclear
bomb -- a possibility that, assuming everything we have heard is true,
remains years away from becoming reality -- Iran has moved to redefine
the region. At the very least, civil war in Lebanon (where Christians
and Sunnis might resist Hezbollah) could match civil war in Iraq, with
the Israelis and Americans trapped in undesirable roles.

The break point has come and gone. The United States now must make an
enormously difficult decision. If it simply withdraws forces from Iraq,
it leaves the Arabian Peninsula open to Iran and loses all psychological
advantage it gained with the invasion of Iraq. If American forces stay
in Iraq, it will be as a purely symbolic gesture, without any hope for
imposing a solution. If this were 2004, the United States might have the
stomach for a massive infusion of forces -- an attempt to force a
favorable resolution. But this is 2006, and the moment for that has
passed. The United States now has no good choices; its best bet was
blown up by Iran. Going to war with Iran is not an option. In Lebanon,
we have just seen the value of air campaigns pursued in isolation, and
the United States does not have a force capable of occupying and
pacifying Iran.

As sometimes happens, obvious conclusions must be drawn.


There is not much to add. Again, if you are interested in a subscription
to Stratfor, just click here to signup

Your wondering how it can turn around analyst,

John F. Mauldin <>


John Mauldin is president of Millennium Wave Advisors, LLC, a registered
investment advisor. All material presented herein is believed to be
reliable but we cannot attest to its accuracy. Investment
recommendations may change and readers are urged to check with their
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Opinions expressed in these reports may change without prior notice.
John Mauldin and/or the staffs at Millennium Wave Advisors, LLC and
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Israel has now seized the initiative, but it is an initiative against an
enemy that cannot respond. Israel can strike where it wants, but it
still deals with an enemy that doesn't seem inclined to crumble
tactically and that lacks strategic options. Therefore, it is an enemy
that really can't be thrown off-balance. The Israelis need to figure out
how they can destabilize Hezbollah's forces. Hezbollah has to figure out
how to remain stable. At a certain level, it comes down to morale -- the
willingness of the defender to stand and fight where he is. So far,
Hezbollah has the morale that is needed. In previous wars, when Arab
armies were mobile, Israel's superior command and control allowed for a
degree of razzle-dazzle that threw the enemy off-balance, but Hezbollah
seems to have anchored itself so that its enemy can't do that here. -

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