Don't know if any of you have seen this, certainly, Craig has. In the darkness and cobwebs...
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(C) Stratfor
STRATFOR's Forecast for Second Quarter 1998
The first quarter of 1998 was highlighted by four intersecting phenomena,
which will affect events in the second quarter:
* For the first time since the end of the Cold War, an international
coalition blocked a major American politico-military initiative, an air
campaign against Iraq.
* The Asian crisis continued to lurch along, destabilizing Indonesia and
Korea and wreaking havoc on the key economies in the region -- Japan and
China.
* Global oil prices fell to their lowest level in real terms since prior
to the 1973 Arab oil embargo.
* The Russian government fell, with future plans and policies left in
doubt.
Each of these events are part of the process, which we named in our annual
forecast (http://www.stratfor.com/services/gintel/estimate/annual/), The
Year of Logical Consequences.
In our 1998 forecast we wrote that: "To the rest of the world, the United
States appears simultaneously arrogant and indecisive. . The growing sense
of frustration with the Untied States is global. It is not yet matched to
a growing sense of power. However, in Asia, Russia, The Middle East and
Europe, the ongoing, increasingly open conversation consists of plans to
block or supercede American power."
This anti-American coalition broke into the open during the recent American
adventure in Iraq. A broad-based coalition, including Russia, China,
France and Saudi Arabia, formed to block the United States from striking
against Iraq. The United States, of course, had other considerations in
deciding not to strike at Iraq. Nevertheless, the event was historic in
the sense that, for the first time since the end of the Cold War, the
United States was not only unable to organize a coalition in support of its
policies, but an effective and open anti-American coalition was formed.
This is not a passing phenomenon. As we have noted, the international
system tends toward a balance of power in the same way that markets tend
toward price equilibrium. As powerful as the United States is, the
counterweight to the United States must be broad. Except for Britain and
Germany, no major power supported U.S. policy.
We expect this global coalition of France, Russia and China to continue to
act to thwart U.S. politico-military adventures. Indeed, we expect this
coalition to gradually move toward a more formal expression. Each of these
nations has their own motivation in resisting the United States. The
Chinese see the Americans as trying to contain the expansion of Chinese
influence in Asia, while at the same time being behind the failure of
efforts to stabilize the economic situation. The Russians are increasingly
concerned with reasserting their geopolitical hegemony within the former
Soviet Union's borders as well as with traditional allies, particularly
those in the Middle East. They see American policy as deliberately designed
to thwart them in this effort, both in expanding NATO and increasing their
influence in Central Asia. France, with a long tradition of resisting U.S.
hegemony, sees itself with emerging interests in the Middle East,
particularly in the area of energy development, and sees the United States
as an obstacle.
These three powers, taken together, cannot match American economic or
military power. But they do bring with them a host of other countries.
The United States retains the ability to act in opposition to their wishes,
but what this coalition has done is to raise the political price of such
actions beyond what the United States is rationally prepared to pay. The
United States could have struck against Saddam regardless of what this
tripartite alignment had in mind, but the price would have been
disproportional. We expect to see this alignment playing an increasing
role in trying to bring the international system into balance.
At the same time, we must understand that the American decision not to
strike at Saddam had other reasons behind it. STRATFOR's Global
Intelligence Updates chronicled the crisis from its beginnings. It has been
our consistent view that American fear of Iranian participation in the
Greco-Syrian-Iraqi entente forced the United States to seek an
accommodation with Iran. That process of accommodation, which we have
tracked since September, continues to intensify. It has been our view
that, to a large extent, American bellicosity toward Iraq was part of an
attempt by the United States to convince the Iranians that the United
States is committed to bringing down Saddam and to rectifying the outcome
of the Iraq-Iran War.
The last quarter has seen Iran provide a tour de force of diplomacy.
Tehran simultaneously manipulated the United States into courting it, while
enhancing its relations with Russia, China and France. Most important,
Iran has managed to dramatically increase its influence within the Persian
Gulf region. The extended visit of former Iranian President Rafsanjani to
Saudi Arabia resulted both in heightened tensions within Saudi Arabia's
Royal Family between pro and anti-American factions, as well as a serious
consideration by Saudi Arabia of what would have been unthinkable only a
year ago: Saudi participation in an Iranian sponsored regional entity
designed to replace the United States as regional policeman. With Iranian
President Khatami planning to visit Saudi Arabia following the end of the
current Islamic Hajj period, we expect the Iranian diplomatic offensive to
continue unabated, and with a very real chance of success.
Driving this process is an unprecedented lever: the collapse of oil prices
to levels not seen since before 1973. One of the consequences of this
decline is that Saudi Arabia has been placed in an extraordinarily
difficult position. Saudi Arabia has concentrated on production, with some
refining and little downstream operations. It also bet heavily on the
growth of the Asian market and developed strong relations there. The
collapse of Asia has dealt Saudi Arabia a terrific blow, while its failure
to develop effective vertical integration has left it extremely exposed to
price declines. We feel that Saudi Aramco is heavily exposed financially
at this point. It is already cutting back on several development projects,
but we also feel that it will be facing serious debt problems by this
summer and fall if prices don't rise.
The recent agreement with Venezuela and Mexico, which was confirmed at the
March 30 OPEC meeting in Vienna, has not solved the problem. The market,
which is oversold, tends to respond uncritically to news, such as the
report that China, a net importer of crude, would cut domestic production.
This indicates to us that there is now a floor under the price of crude.
However, this does not mean that the price will rise and without a rather
strong rise in the price of oil, which is not likely to happen by agreement
alone, Saudi Arabia is in serous financial trouble.
There is one clear solution to the problem. According to the International
Energy Agency, excess oil production is running about 2 million barrels a
day. Current cuts, if implemented, will be less than 2 million barrels,
which leaves a surplus and therefore is insufficient to boost prices.
There is, however, a single source of oil which if cut off would
immediately solve the problem. Iraq currently is producing about 2.3
million barrels a day. Were that oil to be taken off the market, the
entire equation of energy prices would shift.
An idee fixe of Iranian foreign policy is reversing the outcome of its war
with Iraq. Oil prices, while of some consequence to Iran, are not the
central issue that they are for Saudi Arabia. For Iran, action against
Iraq is not possible so long as the United States might intervene to
restore the balance of power. Clearly, the United States would not come in
to save Saddam, and a successful attack by Iran might bring Saddam down,
followed by an intervention on behalf of a new government. No such
intervention is possible without Saudi Arabian territory and equipment
prepositioned in Saudi Arabia. Therefore, the key for Iranian policy is to
move Saudi Arabia out of the U.S. camp. The oil price collapse has
provided Iran with the needed leverage.
We are of the opinion that there exists a substantial possibility of
unilateral Iranian action against Iraq in the coming quarter. Saudi Arabia
clearly does not want to see Iran dominating the region. On the other
hand, we think that Saudi Arabia's financial condition has become so
serious that it may be forced to agree to dangerous undertakings that hold
open the possibility of raising the price of oil. Iraq is working hard to
make such an action meaningless, by reducing the need for Turkish
intervention in the North. Turkey, which wants to see Iraqi oil flowing
through Turkish pipelines, would not be pleased with an attack. Hence,
there has been interesting cooperation between the Iraq and Turkey on the
Kurdish question. Turkey remains a problem for Iranian policy.
A final threat to Iranian plans stems from the internal struggle between
conservatives and moderates in Tehran. On Saturday, Tehran Mayor
Gholamhossein Karbaschi, a close ally of President Khatami, was arrested on
corruption charges. This is perhaps the most overt challenge to Khatami
and his reformist agenda by Iran's conservative faction to date. Should
Khamenei choose this moment to rein in Khatami, the resulting inward focus
may temporarily distract the Iranians from their foreign policy goals.
Nevertheless, we judge the possibility of a renewal of the Iran-Iraq
conflict as substantial in the coming quarter.
The resignation of the Russian government complicates matters further. We
have long expected a reversal in Russian economic and foreign policy and we
believe that this government reshuffle signifies this reversal. The most
powerful men now remaining in the government, Boris Nemtsov and Yevgenii
Primakov, represent pragmatic, moderately nationalistic perspectives.
Nemtsov is the architect of Russian energy policy while Primakov is the
architect of Russia's Middle East policies. Together, this indicates
increasing focus on regaining influence in Central Asia, lost when the
Soviet Union collapsed. Russia needs Central Asian oil and it needs
Central Asia's geography to assert its influence. In the long run, this
brings Russia into conflict with Iran. In the short run, it dovetails
Russian foreign policy with Iranian: both want the Americans out of Central
Asia.
So do the Chinese. China, on the one hand desperately trying to stave off
the Asian fever, needs the U.S. economic support. On the other hand, China
fears that the United States is feeding separatist movements in western
China, both in Tibet and Xinjiang. Thus, the Chinese would be delighted to
see the U.S. position in Central Asia dismantled. But the core concern of
China is financial, which means that its foremost concerns are with the
Asian crisis.
The region appears about to enter phase three of the crisis. The first
phase was the long, slow deterioration of the Japanese economy. The second
phase was the sudden implosion of the Korean and ASEAN economies. The
third phase will be the intensification of the Japanese crisis and its
spread to China. We have commented extensively on both of these problems.
The Japanese are finally facing the depths of their problems. The Chinese,
and Western banks and investment houses heavily invested in China, are
still in denial. However, with ASEAN imports disappearing, and China's
unwillingness to devalue its currency, China is now in an impossible
position. Because of secrecy, we will not know how bad the Chinese
situation is until it actually cracks apart, but there is no way that the
ASEAN crisis and the Japanese banking crisis have left China's economy
intact.
We therefore see the second quarter as a period of intensifying crisis. We
see the probability of an Iranian-Iraqi confrontation as quite high,
mitigated only by Turkish policy. We believe oil prices have probably
bottomed, but we don't see upside potential unless some substantial source
of crude is taken off-line. We think Iraq is the prime candidate for that
role. We believe we will be seeing an intensification of the Asian crisis,
particularly in Japan and China and believe that observers should be aware
of the political consequences. Finally, and most important, we are seeing
an intensifying relationship between France, Russia and China, less planned
than instinctive at this point, designed to limit U.S. global power.
In the meantime, the extraordinary American boom, fueled by Asian money and
extraordinary growth in productivity, continues. The strange situation in
which the U.S. floats above an increasingly unsettled world remains intact. |
