Hey all... Found this to be rather interesting reading about events in the Mid-East.
Ron
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Global Intelligence Update
Red Alert
June 22, 1998
U.S. Search for Rapprochement with Iran Becomes Public
We have been tracking what we have called the realignment of the Middle
East for about a year. Last September, following an Iranian air strike on
Mujahadin bases inside the no-fly zone in Iraq, we came to the conclusion
that intense, back-channel discussions were taking place between Washington
and Tehran. During the recent U.S.-Iraqi confrontation, it was our view
that the critical subtext of that crisis was an emerging entente between
the United States and Iran. It has been obvious to us for quite a while
that the United States has been increasingly interested in improving
relations with Tehran and that Tehran has been using U.S. desires to
enhance its political and strategic position in the region. Iran has been
carrying out a brilliant foreign policy, manipulating U.S. fears of losing
influence to increase its own regional influence.
Last week, the obvious became official. First, Madeleine Albright publicly
declared that the United States was interested in improving relations with
Iran. Then, President Clinton confirmed this policy shift, changing
tentative explorations of possibilities into a firm and public foreign
policy initiative. Tehran, as one might expect, responded coolly, thereby
maintaining maximum flexibility in order to extract maximum concessions
from the United States. In order to understand the unfolding story, it is
essential to pause and consider American motives in this reversal of twenty
years of policy toward Iran.
We need to begin by considering the fairly dramatic shifts that have taken
place in the region since the liberation of Kuwait from Iraq. Ever since
the oil embargo of 1973, Saudi Arabia has been one of the main pillars of
U.S. policy in the region. Saudi wealth served as a powerful counterweight
to Arab radicalism. Saudi money helped stabilize the region at a time when
it appeared that radical, secular forces were going to sweep away both
conservative regimes and American influence. Saudi money helped contain
Arab radicals with a stream of cash, which ultimately served to marginalize
the most radical and intractable elements. In addition, Saudi Arabia
helped secure the western littoral of the Persian Gulf after the Iranian
revolution. Later, Saudi Arabia served as the strategic base for the U.S.
invasion of Iraqi-occupied Kuwait. Indeed, it was Saudi Arabia that made
the U.S. policy of dual containment of both Iraq and Iran a practical
option.
It is increasingly apparent that Saudi Arabia is no longer a reliable
partner for the United States. This was driven home during the Iraqi
crisis when the Saudis not only were not prepared to allow the U.S. to use
Saudi bases for strikes against Iraq, but also seemed more open to Iranian
representations on the Iraqi question than to American initiatives. This
division between the U.S. and Saudi Arabia is visible in issues large and
small. This week, for example, the United States, in a very public show of
irritation with Saudi Arabia, ended the investigation of the bombing of
Khobar Towers, making it clear that the Saudis were being held responsible
for failing to pursue the investigation appropriately. The Saudis
responded by charging that the United States was not taking their findings
seriously. From strategy to atmospherics, the U.S.-Saudi relationship has
deteriorated to a level inconceivable just a few years ago.
The root cause of all of this is the collapse in oil prices. After two
attempts to raise the price of oil through multilateral production cuts,
the price of oil has not only failed to rise, but has actually fallen.
Saudi Arabian banks, which handle both public and private financing in the
Kingdom, are strained to the limit. The extent of the problem cannot be
judged with absolute precision, since precise financial figures from Saudi
Arabia are hard to come by. However, with oil prices down more than one-
third from projected levels this year, and with aggressive development
plans requiring major financing, it is our view that the financial base of
the Saudi Kingdom is in severe jeopardy. Projects are already being
slashed. Refinancings at unfavorable rates are taking place as the end of
the quarter approaches. We do not know how bad the situation is going to
get, save that unless oil prices rise dramatically in the near term, we
expect Saudi Arabia's financial situation to become very bad indeed.
This situation has had a serious political impact on Saudi Arabia. While
money flowed into the Kingdom, the various factions within the royal family
could be satisfied and controlled. With money drying up, the royal family,
along with the rest of the Kingdom, is encountering a very different world
than what they have become used to. Without plenty of cash to spread
around, the fundamental solvent of Saudi political tension is gone. Gone
with it is the political consensus within Saudi Arabia that held that
alignment with the United States was the wisest policy for the Kingdom. Of
course, the United States still has good friends in Saudi Arabia, but it
also has enemies. The pro-American faction could argue in the past that a
close relationship with the United States provided the security that made
Saudi prosperity possible. However, with that prosperity dissolving, the
usefulness of the U.S. security blanket is dubious. Indeed, without
prosperity, U.S. policy is likely to entangle Saudi Arabia in adventures
that increase risk without securing prosperity. Thus, the Saudis declined
the American invitation to go to war with Iraq.
There is a powerful faction inside of Saudi Arabia that argues that both
prosperity and security are to be found in a regional bloc. They see this
bloc as including Iran and perhaps even Iraq. The reasoning goes this way.
The central issue is the price of oil. At the present time, Venezuela and
other Latin American producers are setting the price of oil. These
countries, closely aligned with the United States politically and
economically, are less harmed by low prices than Saudi Arabia. Saudi
Arabia has less downstream integration than these Latin American countries,
and what integration they have is focused on Asia, a strategic error with
enormous consequences. So long as the Persian Gulf producers are
fragmented, the Latin American bloc will set the price. It follows from
this that a Persian Gulf regional bloc, including Iran, is essential.
The Iranians, of course, are interested in higher prices, but they also
have several strategic issues on the table as well. The Iranians wish to
ensure their security by becoming the dominant power in the Persian Gulf.
In order for this to happen, the United States must leave the Persian Gulf.
But if the United States leaves the Gulf, the Iranians must deal with the
Iraqis, whom they neither trust nor are completely confident they can
defeat. Thus, their ideal scenario would be a U.S. engineered collapse of
the Baghdad regime, replacing it with a regime more to their liking,
followed by U.S. withdrawal from the region. If Saddam fell, they would
expect the Saudis to heavily influence the successor regime. Thus, they
are extremely interested in close relations with the Saudis both on the oil
price issue and the strategic issue. Thus, the desperate Saudi interest in
higher oil prices and the Iranian interest in a regional politico-military
bloc have served to dissolve tensions between the two countries, leaving
the United States increasingly out in the cold.
The question of Iraq is, of course, on everyone's mind. The Iranians will
not forget Iraqi aggression against Iran during their long war. The Saudis
will not forget that Iraqi oil could destroy whatever chances there are for
higher prices. It is therefore interesting that right after the U.S.
opening to Iran this week, an Iranian Ayatollah, Mirza Ali Gharavi, was
shot and killed along with his son-in-law and a driver inside of Iraq, on
the road to a Shiite holy place south of Baghdad. This is the second
recent killing of a Shiite cleric from Iran in Iraq, the first having taken
place on April 21. It is not clear who killed Gharavi, but the Iranian
government protested to Baghdad immediately, and Iraqi Shiites charged the
Iraqi government with the crime. Thus, tensions are rising with Iraq at
the same moment that the U.S. is reaching out to Iran. Regardless of who
shot Gharavi, the Iranians now have an option for creating a crisis with
Iraq should they choose to, at the same time that they are considering
their response to the United States.
Iraq is the point on which the U.S. and Iranians both agree. Both want to
see Saddam gone, and each is intrigued by the idea of dismembering Iraq.
But that is where the agreement ends. Iran genuinely wants the U.S. out of
the Gulf and the U.S. has no intention of obliging. Nevertheless, with the
Saudis increasingly responding to Iran rather than the United States, the
U.S. has little choice but to reach out to Iran. The question is this:
What does the United States have to offer Iran, if it is not prepared to
withdraw from the Gulf?
One answer, investment, is possible. The Iranians listed 20 new projects
available for funding this weekend. But with energy prices where they are,
investing in Iranian energy related projects is not an exciting prospect.
Moreover, there are plenty of French and other European firms ready to
invest in Iran. The Iranians don't really need the United States for that.
So again the question: What does the United States have to offer Iran?
Another possible answer lies to the north, with Iran's traditional nemesis,
Russia. Russian foreign policy is awakening. One of the first items on
the Russian agenda is reasserting hegemony over the Central Asian republics
that broke off from the Soviet Union. These republics also happen to be
full of oil, oil that no current producer wants to see flooding the market
uncontrolled. American oil companies have billions of dollars invested in
these Asian oil fields. They dread the return of Russian power. The last
thing that Iran wants is the Russian Army back in force on its frontier.
They also don't want uncontrolled pumping from those fields.
Thus a glimmer of a deal appears to exist. The United States would accept
Iranian preeminence in the Gulf. With the world awash with oil and
Venezuela and Mexico setting the price, the Gulf's strategic significance
declines anyway. Iran and the United States work together to contain or
depose Saddam. Iran works with the United States to keep Russia out of
Central Asia, thereby protecting U.S. investment in the region. The United
States works with Iran to make certain that the flow of oil from Central
Asia doesn't swamp the world oil market in coming years.
We are not clear that this is what Albright had in mind. She must
certainly understand that any deal with Iran must include a solution to the
Iraqi problem. She must also be aware that a satisfactory solution will
leave Iran in an extremely powerful position in the region. In part, it
may simply be a matter of the U.S. accommodating itself to the inevitable,
since the Saudi condition facilitates Iranian ascendance. But with Iranian
ascendence increasingly inevitable, it is not clear that Tehran needs
Washington's help. That is, until Iran looks north. None of this is
obvious, but alliances have been based on weaker reeds.
The point is that Washington is trying very hard to find a solution to a
strategic problem that has largely been Washington's doing. In studied
indifference to the consequences of lower oil prices on the regional
balance, the Clinton administration has acted as if strategy was
independent of economics, assuming that a relatively poor Saudi Arabia will
have the same foreign policy as a wealthy Saudi Arabia. In casting about
for an alternative pillar in the region, Washington turns once again to a
historic ally, Iran, hoping that the same fear that moved the Shah, Russia,
would move the Iranians to make peace with the United States and accept
American presence in the Persian Gulf. We are not confident that this will
happen. We are not even confident that the U.S. is playing this card. We
are confident that, without this card, Iran has little if any reason to
work with the United States.
Iran will undoubtedly respond to Washington's opening this week. Iran is,
of course, in the middle of a massive internal power struggle between the
Ayatollah Khamenei and President Khatami. It is not clear whether the
American opening will strengthen Khatami's hand, as Albright undoubtedly
hopes it will, or will undermine his position, making him appear a
collaborator with the Great Satan. Indeed, the offer might just bring the
struggle to a cataclysmic culmination. Whatever happens, and the shape of
that answer is truly unclear, and this process that has now broken into the
open will have a dramatic effect on the region and the international
system. The focus of attention should be on Iran this week, which is, of
course, exactly how the Iranians like it. Once again, we marvel at the
diplomatic skill shown by Iran, constantly maneuvering the United States
into difficult and vulnerable positions.
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