Feb 2006
Picture it: You are a top-level security adviser to the president of the United States. The issue at hand is whether or not to attack Iran, by military means or otherwise, in a last-ditch effort to prevent Tehran from obtaining nuclear weapons if United Nations channels fail (which they almost certainly will). Your fellow advisers are divided, leaving you to break the tie.
If you decide to attack, brute force is not the only choice—there is also an indirect option. The first action you can take is attempting to cripple Tehran by cutting off its supply of refined petroleum products, i.e., gasoline. (Ironically, while Iran is a major crude oil exporter, it does not have the necessary refinery capacity to meet internal demand for finished product.) If you choose to cut off Iran's access to gasoline, this would in essence be a game of economic chicken: Either you cripple the regime and take away the mullah's popular support by forcing economic implosion, or they hang on and cripple you first by cutting off crude oil exports... a matter of who cries uncle first.
You are aware that if you attack Iran, the consequences could be dire no matter what happens. Along with the long-anticipated "super spike" that takes oil into triple digits, there could be the ramifications of an economic unraveling in Asia to contend with. China's totalitarian leaders are dependent on rapid economic growth to maintain civil stability, and the central bankers of the region collectively hold $1 trillion-plus in dollar denominated assets.
In short, if China implodes, it would not be a stretch to see the United States sucked into the vortex as the chain reaction leads to massive financial backlash. There is too much riding on the vendor-finance relationship, and the extreme amounts of leverage within the system (credit default swaps, mortgage-backed securities, excess dollar balances in central bank accounts), have rendered the system fragile and unstable. China's leaders know all this, of course; if worst comes to worst, they can pull down the pillars of the temple. It would not be at all surprising for Beijing to have an unspoken understanding with Washington: "If we go down, you go down… our survival is your burden too."
Another option, of course, is conventional warfare—hitting Iran hard with military force. Such a course of action raises the stakes even higher. But the nuclear workshops cannot be taken out through air strikes alone; the mullahs have had too much time to "harden" their targets (make them tougher to destroy), and the facilities are anyway too dispersed and too well hidden to uncover without boots on the ground.
Stretched as thin as the United States already is, physical invasion hardly seems an option at all. Nor does this take into account the potential backlash of the Islamic world any military efforts would bring about. We have seen a frightening preview of Muslim anger in the fury of the Danish cartoon row; giving the West such a preview, in fact, may have been the logic behind such orchestrated outbursts in the first place.
The name of the game Tehran plays, then, is "How Crazy Are We… and Do You Really Want to Find Out?" Strategists seem to be of two minds on the subject. The first camp argues we should take Mahmoud Ahmadinejad at his frightening word, and assume he really is driven by madman visions of ushering in a 12th Imam. The second camp argues that Iran is still a rational actor at heart, spewing out the fire-and-brimstone stuff for show.
If the first camp's assessment is correct, invasion could theoretically be warranted no matter the short-term cost, because the stakes are just as high as they could possibly be. If the second camp's assessment is correct, coolheaded pressure and a firm backbone in the face of bluster—the equivalent of JFK staring down Khrushchev—is clearly the best course of action.
Then there is the option of doing nothing, putting off the risks for another day... and virtually ensuring the proliferation of nuclear weapons across the Middle East. If Iran becomes a bona fide nuclear power, Saudi Arabia will follow, as will Egypt, Syria and so on. It has been pointed out that Iran has roughly 20 years worth of energy reserves left; in this, it is like an oil major spending down reserves (without the ability to replace them). The mullahs cannot sit idly by as their source of strength dwindles. At some point down the road, fiscal implosion awaits. Thus, nuclear capability could come in quite handy when it comes time for Iran to appropriate assets from one of its weaker neighbors. (How would the first Gulf War have turned out against a nuclear-armed Saddam? Not a pleasant thought.)
The assumption that Israel alone could neutralize Tehran problem is similarly wishful thinking. Once again, air strikes would not do the trick alone, and Israel does not have the capability of initiating a full-scale ground invasion. A halfhearted strike would only incite greater desire for vengeance; even if Israel pulled off the impossible, dismantling all facilities and neutralizing the mullahcracy, there would still be the rest of the Middle East to deal with. It is about as close to a no-win situation as one can get.
One of the remarkable elements of this grave situation is how effectively the broad market has managed to ignore it, even though energy issues address the very core of modern life. The truly ugly what-if scenarios are no longer found at the tail end of an accidental chain of events; they are increasingly tied to a deliberate series of provocations, which increases the probability of their occurrence significantly. It could be said that the price of gold and oil reflects this reality —which is perhaps why the price of crude continues to bump along below $70 and why gold is near multi-decade highs.
In large part we are still riding the global liquidity wave; the bluebird is on Mr. Market's shoulder, with few, if any, worries in sight. In most cases, it is probably a good thing that Wall Street is so resilient… a tribute to the strength of capitalism that Mr. Market can shrug off painful or uncomfortable events. Toil we shall, shop we must, life soldiers on and so forth. Resilience in the face of hardship, though, is a different animal than recklessness in the face of risk.
