There must be a misprint in the title, right? Everyone knows that the Iranian regime is an implacable enemy of Israel; that Iranian leaders have expressed their determination to wipe out ‘the Zionist entity’ from the face of the earth; that Israel considers the Iranian regime to be the greatest threat not just to Israel but to world peace.
But that’s what gives us pause. That pause comes from the art of global macro. That discipline requires global macro players to ask where they might be wrong rather than be happy about being right. In fact, the more evidence they get in support of their own thesis, their disquiet increases. Because they are keenly aware of the danger in following what seems obvious to everybody. Everyone knows now that the housing and credit bubbles were unsustainable and ready to blow up in late 2007. But the overwhelming consensus at that time screamed for continuing growth prosperity and rally. There are many examples of such overwhelming consensus blinding societies & leaders to the underlying realities.
The case of a feud to the death between Iran and Israel is so overwhelmingly obvious, the evidence from both these countries is so loudly clear that it worries us. So we began thinking about where the consensus could be wrong. The thoughts below are precisely that, our thoughts and not considered opinions. Thoughts are weird things; sometimes they evolve naturally into a series of ideas & deductions as happened to us below.
For years, our central axiom has been a long term strategic fight between Iran and Saudi Arabia for primacy in the Middle East. We first wrote about this in February 2011 in Bahrain – Start of the Real Battle in the Middle East? Since then, this fight has become more intense and virulent with proxy conflicts in Syria and Lebanon. There is a real danger of this fight morphing into a region wide long term conflict between Sunni Muslims and Shia Muslims.
In our opinion, publicly intense hostility towards Israel is a tactical weapon for Iran rather than a strategic posture or religious antipathy. We think Iran has deliberately used harsh rhetoric to gain support among Sunni Arabs and to direct their anger & hostility away from Iran towards Israel. Iran can afford to do so precisely because today Israel is militarily strong and impervious to Arab hostility.
Without such an Israel in the Middle East, Iran would become the sole enemy of the entire Sunni Arab world. In other words, a strong Israel could actually be an unarticulated but core strategic interest of Iran. Conversely, Sunni hostility towards Iran lessens the pressure on Israel. This is why the Shah of Iran & Israel were semi-allies in the 1960s & 1970s. Regimes come and go but fundamental geostrategic interests remain the same.
Now what? Assuming our thoughts have validity and lead to a workable hypothesis, how could we structure a trade? Behavioral studies are becoming very useful in economics and markets. In that vein, before getting to a tactical move or a trade, we first need to think about the innate behavior of the various players.
The past decade demonstrates a strong behavioral practice of all the players to so overplay their hand, to so overreach strategically that they almost salvage defeat from victory.
- The United States shocked the world in 2003 with its fast effortless destruction of Iraq’s Army. Iran was so awed and so sure that they were next that the Iranian regime became amenable to a deal. America could have struck a favorable deal with Iran in 2003 and ensured its core objectives in post-Saddam Iraq and in turn assuaged Iranian fears about regime change in Iran. Instead, America overreached and went about building a democracy in Iraq. The rest we know.
- Iran, in turn, was at the height of its power and influence just three-four years ago. Iran dominated the new Iraqi regime. Syria had become a loyal ally of Iran and and Iranian-trained Hezbollah had become the dominant power in Lebanon. Saudi Arabia and the Sunni Arab world had become fearful of a Persian-dominated Middle East. That would have been the perfect time for Iran to signal its willingness for a deal with the USA. It would have been a great triumph for the newly elected President Obama. Iran could have obtained the assurances it needed and built a strong economy & military with such a deal. Instead, Iran overreached and now pays the price.
Today, Iran is much weaker and in probably its worst position of the past 10 years. The Assad regime in Syria, its loyal ally and the seat of Iran’s strategic expansion, is in an existential crisis. It is so weak that America and Europe have actually stopped supplying Syrian rebels with arms thus creating a stalemate of sorts. The Iraqi regime is now facing the beginning of a Sunni insurgency, the type that engulfed US forces in Iraq. Iran now faces the re-emergence of Al Qaida, its mortal enemy, in both Syria and Iraq. Within two years, Iran could face an Al Qaida/Taleban threat from Afghanistan. And its economy is terribly weakened by US sanctions. Today’s weakened Iran could be more willing to negotiate on all fronts.
The most important front for Iran is Saudi Arabia. But today Saudi Arabia is trying to overreach. It is doing so by supporting the Al-Qaida type fanatically religious Sunni fighters in Syria and Iraq. This is exactly what Saudi Arabia did in Afghanistan during the Soviet occupation. This is the same dance with the devil that NonPak-istan has played for the past 10 years. We see what that has done to NonPak*-istan. And NonPak*-istan is much more stable than Saudi Arabia. This is why a “Revolution in Riyadh” is one of Black Swan events presented by Brookings in its January 2013 Briefing Book to President Obama.
The possibility of a long term intensely religious conflict between Sunnis led by Saudi Arabia and Shiites led by Iran is a disaster for the world. We don’t see the current Saudi regime surviving this conflict and the only winners we see are local Al-Qaida type movements through out the Middle East.
A turn comes when one of the players changes its behavior. Only America has the mental agility, the power and the reach to change its behavior and stabilize the Middle East. What behavior change do we mean?
America will have to turn into 19th century Britain and play Middle Eastern players against each other the way that Britain played European powers against each other. That America will have to publicly display the charm of a James Garner while privately engaging in tactics of a Disraeli.
Such an America would talk the talk of the need for an Israeli-Palestinian agreement while making its real top priority a secret deal between Iran & Israel. An Iranian-Israeli deal is feasible if and only if both sides retain their public postures of eternal hostility.
Under such a deal, all players would get their most fervent wishes:
- US will assure Iran that it will not attempt or support a regime change in Iran, privately remove sanctions, covertly assist Iranian economy through allies and allow Iran a major anti-Taleban role in Afghanistan.
- Iran in turn will give up its nuclear program, allow American monitoring of all nuclear facilities and support America’s war against Al-Qaida t
ype movements in Middle East and Africa.
- Israel in turn will make nice to America’s public but festina lente efforts for an Israeli-Palestinian accord and gets what it wants the most – removal of Iranian nuclear threat.
Once such a secret deal is reached, Saudi Arabia will have no choice but to join. The greatest danger to the Saudi regime is from Sunni militants of the Al-Qaida type fervor. So Saudi Arabia will have to stop its dance with the jihadi Sunni fighters in Syria and Iraq. That would postpone the danger of a destabilizing Sunni-Shia conflict. This deal will give Saudi Arabia what it wants most – a stop to Iranian influence in Arab lands.
What does this rest on? The geo-strategic reality that Iran & Israel are destined to be partners and the understanding that American success in the Middle East depends on these two reaching a common goal with America. Iran and Israel have no common borders and they both face danger from the territory between their lands. So their interests are allied. And a partnership driven by mutual interests is far more stable than any friendship.
This wisdom was first written down by Vishnu-Gupt Chanakya, the first and still the most brilliant exponent of statecraft from 2nd century BCE. Any merit in our thoughts above is due to global macro discipline and the enduring brilliance of Vishnu-Gupt. Any stupidity therein in is all ours.
* The term Pak-istan means the Land of the Pak or Pure. Dalai Lama is a man you can call Pak. No sensible person would use the term “Pak” for the people who govern the regime in Islamabad. So we have begun using the term NonPak or not Pure. This is a neutral term, not a negative one like Na-Pak. Today, no Jewish person uses the official name Third Reich for the 1930s Germany. Neither do Europeans. In that same spirit, we have jettisoned the term Pakistan and replaced it with NonPak-istan, a neutral word that is a statement of fact.
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