A New Middle East?

 Yogi Berra "It's tough to make predictions, especially about the future.

The balance of power in the Middle East has fundamentally changed in three ways.

1) Over the past fifty years Israel has relied on military superiority and a sophisticated and remarkably capable intelligence service to confront its enemies with powerful deterrent threats, including nuclear weapons. (Israel has consistently denied having nuclear weapons since 1967. Deterrence, like beauty, lies in the eye of the beholder and everyone in the Middle East believes in Israeli nukes.) But after the brutal Hamas attacks in October 2023 Israel launched a determined effort to destroy Hamas that has resulted in the death and suffering in Gaza and increased pressure and assaults on Palestinians in the West Bank.

Even as that war in Gaza dragged on, Israel expanded it to include a major assault on Hezbollah in Lebanon demonstrating the prowess of both its conventional military and intelligence services (remember the exploding pagers?) and an air war that destroyed almost all of Iran's air defenses. That allowed Israel to undertake twelve days of systematic bombardment of Iran's ballistic missile capability, kill many nuclear scientists and top security officials, and paved the way for the United States to enter the war with 30,000 pound bunker buster bombs. Israel is now the unchallenged dominant military power in the region.

2) The United States has portrayed itself as a potential "honest broker" in Middle East conflicts. Everyone understood that the U.S. was deeply committed to Israel and was hardly an even handed mediator but there was always the hope that the U.S. could thread the needle and find a solution both Israel and the other side could live with. Beginning with the largely symbolic move of the American embassy to Jerusalem and culminating in the coordinated assault on Iran, American policy and actions have become aligned with Israel's.

3) Iran has been seriously weakened. The air war has given Israel and the U.S. unchallenged control of Iran's air space. Nuclear facilities have been damaged to an uncertain extent both by the bombings and the assassination of senior scientists. Iran's allies, including Hezbollah and Hamas have been severely damaged. The coup in Syria that chased Assad into exile in Moscow has eliminated a critical supply line for arming irregular forces in Lebanon, Iraq and Gaza.

The most important decisions that will define the new contours of Middle East politics

Even I am not foolish enough to predict the future. But I think we can identify some key decisions that will be made by the major players that will determiner the outcome.

Israel will be making the most important decisions. The current polices of using overwhelming military force against real and perceived enemies and eliminating the Palestinians as a factor is unachievable and unsustainable. The Netanyahu government is being held hostage by the most hardline extreme right wing factions in its tenuous coalition government. [The small ultra-Orthodox parties that insist on Great Israel, a strictly Jewish state in all of biblical Israel, "from the river to the sea"] And Netanyahu has been able to use the response to the Hamas attack of October 2023 as a tool to delay the corruption trial against him. The extremist cabinet ministers insist that the war in Gaza cannot end until Hamas is eliminated as both a military and political factor. The government seems enamored of Trump's idea of getting rid of all the Palestinians in Gaza and has herded some two million people into a narrow strip in the very south, from where they (perhaps) be easily transported to other countries.

But the mounting human cost of Palestinian death and suffering and Israeli casualties and the drain on Israel's economy will become an intolerable burden. The alternative would be seek accommodations with its neighbors and the Palestinians, adopt a more defensive posture, and act to preserve stability in the region. In the short run, such an abrupt change in policy could, I think, only come about through the active and persistent involvement of outside parties who could be portrayed as forcing concessions on a reluctant Israeli government.

In the longer run, I think, there are two possibilities. The first is that an aggressively militarized Israeli foreign posture in human and economic terms will trigger a countervailing movement either in Israeli politics or Middle Eastern countries like Saudi Arabia, Iran and Syria, perhaps even Egypt, who will try to form a counter balancing coalition by promoting a greater role for China as a source of weaponry and influence.

The second possibility is that Israel finally faces the existential crisis. Thomas Friedman, among others, has pointed out that the original Zionist vision was an Israel that was a Jewish state, a democracy, and occupied the biblical land of Israel, including the area conservative Israelis and evangelical Americans refer to as Judea and Samaria and the rest of us call the West Bank and Gaza. Israel could annex the West Bank and occupy Gaza but that biblical state could not be Jewish or it could not be democratic. Israel could be a democratic Jewish state only if the Palestinians had their own state in the West Bank and Gaza. Or Israel could be a democratic state in the biblical territory but it would not be a Jewish state. The history of the last 30 years and the policies of the Netanyahu government suggest that Israel is moving toward becoming an undemocratic Jewish state in the biblical borders.

The United States is clearly aligned with Israel. The Biden administration made some halfhearted attempts to affect the war in Gaza; the Trump administration has whole-heartedly backed Israel (except when the President is momentarily distracted by something he saw on TV.). The proposals it has put forth for cease fires in Lebanon, Iran and Gaza have been skewed toward Israeli demands. Trump's shifting positions on everything from the war in Ukraine to tariffs, his open admiration for dictators, disdain for America's long time allies, and his grandiose rhetoric have destroyed American credibility.*

*Trump's bluster and braggadocio are seen by his followers as brilliant negotiating tactics but making threats and promises that you do not carry out renders them useless because they are no longer credible. The TACO (Trump Always Chickens Out) meme captures the effect nicely.

The United States is not in a position to play a positive role in the emergence of a stable peaceful Middle East. It is easier to see Trump and his acolytes throwing up their hands and ending any attempts at dealing with the situation than making a powerful and enduring commitment to engineering a new order in the Middle East. But it is also possible that the very Trumpian focus on trade and investment and fascination with the ruling aristocrats in Saudi Arab and Gulf States would lead to a policy of indirectly supporting a coalition to balance Israel.

Iran There are two things that I think are quite certain. First, the current regime is not going to collapse nor will it be replaced with a pro-Western, cooperative government. Second, Iran has consistently claimed the right to enrich uranium to non-weapons levels, guaranteed in the Non-Proliferation Treaty of 1970. It has in fact never violated that provision, (despite having both the technical and, until recently, the physical capacity to produce weapons grade fuel) and has long defined its ability to fuel its own reactors as a point of national pride. The nature and extent of the damage done to nuclear facilitates by the U.S. and Israeli bombing raids of June 22 is still unclear but there is no doubt that they were not "obliterated" The question is whether it will take months or years to rebuild the crucial systems. The idea that Iran can be coerced or persuaded to give up the capacity to enrich uranium seems like sheer fantasy.

I think there are two critical choices facing Iran. The first is whether to commit to developing a nuclear weapon. Since Trump withdrew the United States from the 2015 agreement to limit Iran's nuclear capability in exchange for sanctions relief because it was "a horrible one-sided deal that should have never, ever been made" Iran has practiced strategic ambiguity: citing Supreme Leader Ali Khamenei's fatwas declaring nuclear weapons un-Islamic but enriching uranium up to 60% -- far more than civilian reactors need but less than weapons-grade, and developing both the equipment to machine enriched uranium into a nuclear warhead and ballistic missiles capable of carrying a warhead anywhere in the Middle East. The inability to prevent the sustained aerial bombardment of the so-called Twelve Day War with Israel and the U.S.,the Libyan example (Muammar Gaddafi agreed to scrap his nuclear weapons program in exchange for an end to sanctions from the West and two years later the U.S. and NATO intervened in a civil war to oust his regime), and the North Korean example (no one has even threatened to attack since Pyongyang successfully tested a nuclear weapon) would be powerful arguments for Iranian elites to commit to weapons development. The fact that Israel has nuclear weapons [Israel has flatly denied this since 1967, wink wink nudge nudge] is also an argument for going forward.

The second choice is how much effort to put into salvaging the network of allies like Hezbollah, Iraqi militias, Hamas, and some Syrian groups who have been seriously weakened by Israeli attacks. Iran could try to rebuild the network or it could pivot away from championing Shi'a minorities in these countries and the Gulf States and seek to join with Saudi Arabia in leading a coalition to counter balance Israeli dominance.

A powerful limiting factor in Iran's future is the combination of serious economic hardship and waning revolutionary fervor that undermines the regime's legitimacy and long term prospects for survival.

That Was Then, This is Now

The Hamas attack of October 2023 and the Israeli response fundamentally changed the politics of the Middle East. In the old system Israel relied on deterrence and occasional punitive attacks to keep its enemies in check. In the old system most of Israel's neighbors tacitly accepted Israel's existence and some were ready to normalize relations to capitalize on ecomic gains through the Abraham Accords. The status of the Palestinians in the West Bank and Gaza was not a stumbling block for the oil rich Gulf States and not a major convener for Iran, Lebanon or Syria, nor for the United States and Western Europe. And Israel had a deep well of support in public opinion in the U.S. and Europe.

Now Israel is seen as a potential threat by its immediate neighbors, there is a real danger that Iran may try for a nuclear weapon and Saudi Arabia may be tempted down that path. The United States cannot play an in effective role in managing or resolving conflicts and Western Europe is not longer reflexively sympathetic to Israeli positions. The Palestinians are front and center of international attention and any Middle Eastern government that seemed to be accommodating Israel at all would face a powerful backlash from its citizens.

There are powerful forces at play and it will take some time for a new equilibrium to emerge.

A Quick Look at the Origins of the Islamic Republic of Iran

 

For Iranians, the relationship with the U.S. began in 1952 when the CIA cooperated with the British in instigating a military coup that overthrew the democratically elected government of Prime Minister Mohammad Mosaddegh and transformed Shah Rez Pahlevi from a largely symbolic figure into a powerful ruling monarch. The new regime played heavily on Iranian nationalism rooted in the glorious heritage of 2500 years of the Persian Empire. The Shah was determined to modernize Iran economically and socially while suppressing any political development. Particularly in the cities, oil revenue was used to create a more balanced economy, a wealthy aristocracy, and an increasingly well educated and westernized middle class. Resentment over the abandonment of traditional social and religious values (westoxification*) in the rural areas and among recent migrants to cities and over the harsh repression of any political dissent among the growing middle class led to widespread unrest and resistance in 1979 and when the military and security forces deserted the regime, the Shah and the regime collapsed.

*a term coined by an Iranian intellectual critical of his countrymen's fascination with Western culture and society and dismissal of traditional values

Much of the opposition was led by religious clergy; Shi'a mullahs have a long tradition of providing secular as well as religious leadership. Shi'a clergy (mullahs) played a leading role in channeling popular discontent with the regime. Capitalizing on the Shah's failing health and disarray among the ruling elite, the mullahs launched a revolution that called for a return to traditional religious values. The new regime emphasized Persian identity as opposed to minority groups, with a central, charismatic figure (the Supreme Leader) and strongly authoritarian style. Ayatollah Khomeini could have dubbed his movement MIGA, making Iran great again.

The foreign policy of the new regime stressed the importance of coming to the aid of oppressed Shi'a minorities in majority Sunni Arab regimes*, combating global imperialism (exemplified by the United States) and combating Israel (a Jewish outpost of Western colonialism in the very heartland of Islam.) Iran damned the United States as "The Great Satan" and the U.S. responded by defining Iran as an enemy.

*Shi'a Islam emerged during a conflict over who was Mohamed's rightful successor. The conflict had more to do with secular issues of Arab versus non-Arab communities than it did with theological questions or the details of prayer. Iran is the only country in the Middle East with a Shi'a majority; elsewhere Shi'a communities were discriminated against.

A good example of the convergence of those themes is Hezbollah which originated as an armed oppositon group in Lebanon's shi'a community. Lebanon's Christian and Sunni Arab elites have historically not only dominated the country but more or less actively excluded the Shi'a minority. When Hezbollah emerged as a powerful counterweight to a pro-Western government. dominated by Christians and Sunni Muslims and willing to cooperate with Israel, Iran saw a natural ally to be supported and encouraged. It is intellectually lazy and very misleading to reduce Hezbollah, Hamas, the Houthis in Yemen and other Iranian-backed groups to mere proxies or tools of Teheran. They are indigenous groups with local issues and grievances who are allies, not puppets, of Iran.

The JCPOA

The new Islamic Republic's hostility to modernity led to an early exodus of professionals who had trained in the U.S. or Western Europe. In addiditon,the purge of the Shah's supporters in government and business spurred an exodus of the wealthy upper class. In the face of crippling economic sanctions from the West, the regime came to embrace the remaining engineers and scientists who could develop Iranian technology and manufacturing systems. The nuclear energy sector, perhaps ironically in an oil rich nation, became not only a point of pride in Iranian know-how but an increasingly important component of electricity generation.

Thirty years after the revolution, perspectives among decision makers in the United States and Western Europe had shifted enough to make it possible to contemplate negotiating with Iran to forestall nuclear weapons. (Russia and China did not regard Iran as an enemy but were not happy with the idea of a nuclear armed Islamic Republic.) After a number of false starts, increasing western sanction and credible evidence that Iran was developing a nuclear industry that could develop the resources to create a nuclear weapon, a new round of talks started in 2013 The result was an interesting mix of interlocutors (the U.S., the UK, France, Germany, Russia, China and the European Union) who negotiated the Joint Comprehensive Plan Of Action (JCPOA) with Iran. The JCOPA offered Iran significant relief from crippling economic sanctions in return for limits on nuclear technology and a srict inspection regime. (Back in the day I tried for a more thorough analysis of the JCOPA negotiations. See https://www.blogger.com/u/2/blog/post/edit/4398193451691859469/6127416897469986096 and https://www.blogger.com/u/2/blog/post/edit/4398193451691859469/6127416897469986096)

Supporters of the agreement either accepted Iranian assurances that there was no intent to produce weapons or believed that the inspection and limitations regime would delay an actual weapon for years. Opponents argued that Iran could not be trusted to live up to any agreements and its increasingly sophisticated ballistic missile systems and bad behavior causing terror and chaos around the world made it an existential threat to Israel and a major threat to the Untied States and Western Europe. The skeptics won out when Trump replaced Obama in the White House and loudly and proudly withdrew from the agreement,replacing JCPOA with "maximum pressure" on Iran. I think it is fair to say that in the seven years since the U.S. withdrew, Iran has gone from being a few years away from a full weapons capability to a few months before the recent bombing. Except for the triumphalists in the Trump administration, very few observers believe that Iran's nuclear capabilities have been "obliterated." Assessing the damage is very difficult without physical inspections of a large number of sites but some speculative estimates see delays of as little as a few months while others think Iran is now several years away from a nuclear weapon.

Regime Change?

Israeli politicians and analysts have been very clear in their belief that the Iranian regime must be replaced because its core ideology includes the destruction of Israel. The U.S. policy makers who negotiated the JCPOA believed that Iran could be contained and the regime would ultimately either morph into a "normal" regime or be replaced by internal forces. The Iran hawks who blasted Obama for pursuing the JCPOA and urged Trump to withdraw from it want regime change to be the primary goal of U.S. policy.

The regime is increasingly unpopular. The economy is suffering from the effects of U.S. and European Union sanctions. The excesses of the religious police and the level of repression from the security forces have sparked protests. And the ideology underlying the Islamic Revolution of 45 years ago has become stale and irrelevant in a country where over half the population was not even born then. Regardless of how noble and inspiring the ideology that underlies a regime (including liberal democracies) sooner or later the question becomes, "What have you done for me lately?

But bombing campaigns by hostile powers are notoriously ineffective in undermining support for a government or forcing a surrender. Instead of people thinking that their suffering is due to the policies their government is pursuing, bombing victims blame the (bleeping) foreigners who are dropping the bombs. The Israeli and U.S. assault has resulted in an upsurge of Iranian nationalism and anger and at least short run support for the regime.

YOU CAN'T TELL THE PLAYERS WITHOUT A PROGRAM: THE MOST IMPORTANT INTERNATIONAL FINANCIAL GROUPS

 

In the past month three significant international groups have met: the G7, G20 and BRICS. For most of us the "G this and the G that" " could just as easily be Gee Whiz and Gee Willikers and BRICS might as well be the Pink Floyd lyric, "all in all, you're just another BRICS in the wall." But these groups actually do matter because they affect the international economic system and over time can affect the prices we pay for everyday goods and the jobs of many Americans.

In this blog I'll focus on who these groups are and what they are trying to do. In another entry I'l try to shed light on the structure of the international economic system and the forces that may lead to major changes in the next decade or so.

 

T he Group of Seven  (a short enough name you'd think they wouldn't really need an acronym) is the "Big Rich Guys" club -- the seven largest advanced capitalist economies: Canada, France, Gernany, Italy, Japan, the UK and the United States -- and the European Union as a "non-enumerated member." Since 1975 the G7 has held two meetings a year, one with heads of state, and the other with finance ministers. The major goal is to coordinate economic policies to try to stabilize the international, economic system. It has been a major force supporting economic liberalization, the spread of open markets and liberal democratic values. For example, the G7 played a major role in preventing the 2008 international financial crisis from becoming a global depression. The G7 members (other than Japan and the non-enumerated EU)) were present at the creation of the contemporary international order and remain its strongest advocates.

The G7 accounts for over half of global net worth, 35-40% of Gross World Product, and 10% of the world's population.

 

In the 1980's and 1990's sustained economic development fueled in part by international borrowing moved several large countries from the ranks of the less developed into middle income status. But the reliance on loans to kick start growth led to problems that threatened not just the debtor countries but the wealthy G7 group. The problems of excess debt and sporadic economic crises led to the creation of an organization that included both the very rich and large middle income countries in hopes of coordinating policies and stabilizing the global economy. The group started with 19 countries and the European Union in 1999 and then added the African Union (perhaps because all the stationary and business cards and email accounts said "G20" it seemed easier to leave it at that rather than re-brand everything as the G21.)

The G20 meets once a year in a three day session featuring heads of state and finance ministers. The emphasis of the meetings has typically been reforms to the international economic system to improve terms of trade and access to international finance for the middle income members of the group. Recent meetings have also addressed climate change and some global political issues. The meetings have typically ended with a consensus joint communique that more often than not offers lip service to shared values and goals but no concrete commitments to specific changes. This year's meeting chaired by India's Prime Minister Modi was more contentious than most, in part because of the Russian invasion of the Ukraine. The 2022 joint communique condemned the invasion and expressed support for Ukraine but this time Russia and China strongly opposed any statement and several members, including host India, Turkey and the African Union were ambivalent. This year's final communique avoided explicitly criticizing Russia while proclaiming support for territorial integrity of states and expressing a desire for peaceful resolution of conflicts.

The G20 accounts for 80% of the Gross World Product, 75% of international trade and two-thirds of the world population

 

Was initiated by diplomats from Brazil, Russia, India and China who met during the UN General Assembly session in 2006, taking its name from an article by an American economist about large emerging economies. It held its first summit in 2009 and added South Africa (making BRIC into BRICS) the following year. BRICS countries account for about 27% of the Gross World Product and 42% of the world's population. The group has become increasingly tight knit and aspires to serve as an alternative to the dominant international financial institutions like the IMF and the World Bank which are seen as biased against them as well as the rest of the global South.

Using "North" to refer to the advanced capitalist countries-- all of whom are in the northern hemisphere -- and 'South" to refer to everyone else, or sometimes just the leas developed countries, not all of whom are in the southern hemisphere, is more of a rhetorical device implying good guys and bad guys than a useful categorization of stages of economic development.

The International Monetary Fund (IMF) and World Bank are at the center of "the liberal international order" created by the United States and Western Europe after World War II. An analysis of the current state of the global economic institutions will have to wait for the next blog.

China and Russia have been the most vocal advocates of creating a powerful counter weight to the dominance of the G7 and Western capitalist, liberal democratic values but the other BRICS share the sentiment. In an attempt to bolster the power of BRICS, the 2023 summit in South Africa invited six emerging market group countries (Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates) to join the bloc.

So What?

The G7 has been the most successful of the three blocs in coordinating policy and actions among its members. The 2008 financial crisis could have been much worse if the G7 members had focused on their own narrow and immediate self interest. Instead they managed to coordinate their responses and avoid the worst potential damage to the global economy. In a host of more mundane and seemingly trivial ways, the G7 have synchronized and coordinated policies to prevent problems. Cooperation that prevents bad things from happening does not make news nor does it make us feel good. (An example of the broader principle that the satisfaction from a gain is less than the pain from a loss.)

The G20 has been far less successful in getting the already rich global actors and the middle income, rising powers on the same page on any key issues. That is in part because of dissatisfaction with the way the IMF, World Bank and other institutions like the World Trade Organization make decisions and in part because the non-G7 members are quite diverse and often have conflicting interests. It is nonetheless, I think, useful for two reasons. First, it provides a venue for the developing nations to articulate their interests and be heard. For example, its meetings have been an opportunity to advocate for compensation and assistance in coping with the consequences of climate change for less well off countries that have not been emitting tons and tons of CO² for the past two centuries. Secondly, it is an opportunity for national leaders to meet on the sidelines for private discussions and negotiations without the glare of publicity and extensive preparation that a state visit or summit requires.

BRICS has an ambitious long range goal of creating a set of new international financial institutions to rival the western dominated IMF, World Bank and the central position of the U.S. dollar in trade and finance. As the BRICS see it, the world today is bipolar -- the global North (the rich G7 countries) on one side and the global South (everyone else) on the other. The BRICS, particularly Russia and China, aspire to a multipolar world in which the rising middle income countries are the third side in the global economy. In particular they would like to see currencies other than the dollar used as the international standard in trade, loans for development projects that don't come with environmental or social strings, and less emphasis on capitalist and democratic values. Optimists see the addition of six more members next year as a major step toward a multipolar world, comparing it to the Bandung Conference of 1955,* Skeptics point to the great disparity of national interests, economic systems and international trading patterns that would make actually implementing a new scheme extremely difficult.

*The Bandung Conference was the first meeting of post-colonial Asia and African countries that launched the non-aligned movement as a counterweight to the Cold War US-USSR conflict. It is doubtful that the non-aligned movement had a significant impact.

The international financial system is not something we think about every day (at least I don't, perhaps you do) but it impacts our lives every day. For example, the IMF is central to world trade, using the U.S. dollar as the basis for setting prices for imports and exports. So when a store in California wants to order blouses form Bangladesh (taka), jeans from Viet Nam (dong), tv sets from Samsung (South Korean won), or Polish hams (zlotys) it does not have to worry about how much a taka or zloty is worth in "real" money or come up with a big wad of dongs to pay for the goods. The factory in Bangladesh or Korea sets its prices in dollars and accepts dollars in payment. That makes the imported goods less expensive than if buyers and sellers had to go physically exchange one currency for the other and pay an exchange fee. The impact on the price of a car, with parts produced from several countries around the world would be even more noticeable.

For us in the United States, the fact that the current system rests on the dollar as the common currency means that there is a large and consistent market for U.S. Treasury bonds which funds the national debt.

The current system does at times impose our values on other countries. The G7 countries dominate the World Bank and often insist that loans for development projects include environmental protections or promote educational or economic opportunities for women and girls.

That is not to say that this is the best of all possible worlds or that there are not some valid points raised by critics of the current system. We will try to look at some of those in a future blog post.