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Dmitry Medvedev

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In an infamous 2008 article, Alexander Dugin makes the distinction between “patriotic corruption” and “comprador corruption,” or “Eurasian corruption” and “Atlanticist corruption.”

Here are the main features of “Eurasian” (patriotic) corruption:

  • Doesn’t damage Russia’s national security;
  • Concentrates the proceeds of corruption on Russian territory, or that of allied or strategically important countries;
  • Doesn’t put the corruptioneers in a state of dependency on Russia’s enemies;
  • Do not try to legitimize themselves through political lobbying and establish themselves as social norms.

And the main features of “Atlanticist” (comprador) corruption:

  • Damages Russia’s national interests;
  • Concentrates the proceeds of corruption outside Russia, in offshore havens and in countries hostile to Russia;
  • Makes the corruptioneer susceptible to blackmail from the governments and intelligence agencies of foreign Powers;
  • Attempts to create and empower lobbying structures, such as NGOs and political parties, that could legitimize the positions of Atlanticist corruptioneers in society.

Now okay, this distinction between “patriotic” and “comprador” corruption is trivially fun to make fun of. It is almost self-parodying. It is easy to ridicule whoever is making this argument, regardless of whether or not he benefits from said corruption. Dugin was endlessly ridiculed for it (even though there are no end of other, far more legitimate ways to make fun of him, such as his opposition to Hawking’s physics). No doubt I will be ridiculed for this post.

But for all that, Dugin is not wrong.

If large-scale corruption has to exist – and we know that for most countries outside North/West Europe, it must – it is doubtless better for corruptioneers to invest in their own society, like the American robber barons did in the 19th century and which the Chinese elite mostly do today, than to stash it away abroad, as was typical for Russia in the “roving bandits” era of the 1990s, when Yeltsin’s “family” was ferrying away assets in London and Switzerland like there was no tomorrow.

And the recent revelations about the network of charitable fronts that sustain Medvedev’s property empire prove that at least Russia’s political elites have embraced “patriotic” corruption.

Consider the following:

1. Of Medvedev’s $1.2 billion empire, a good 90% of investments are in Russia itself. And the 10% that is abroad – the Tuscan villa and vineyard – is in Italy, a country that does not have any particular animus towards Russia, unlike the favorite bolthole of corrupt Russian elites, Londongrad. In the 1990s, these ratios would have likely been the inverse.

2. As “stationary bandits” with some degree of interest in preserving the value of their holdings, the Russian ruling clique has a common interest in regulating corruption. Those who overstep the bounds of what is permissible, e.g. by practicing “compador” corruption, such as United Russia MP Vladimir Pekhtin with his Florida waterfront condo; or who end up stealing far too much for their station, such as the former head of Russian Railways Vladimir Yakunin and former Defense Minister Anatoly Serdyukov, are quietly dismissed. The question of whether or not Medvedev overstepped his station is now on the cards, with the systemic opposition in the Duma, such Fair Russia’s Sergey Mironov, calling on Medvedev to answer the questions raised by Navalny’s investigation.

3. The properties in question do not directly belong to Medvedev, not even to his direct relatives, but to an opaque network of charitable foundations credited with interest free loans by Russian state banks. And since what is given can be withdrawn, and – most critically – not on the whims of Western lawmakers (who in practice only target corrupt Russians who do not serve Western geopolitical interests), but on that of the dozen or so security men around Putin who rule Russia. To be sure, those “silovarchs” like to enjoy la dolce vita themselves, but at least they are not compradors themselves, i.e. they are more loyal to Russian national interests than to foreign ones.

4. “Patriotic” corruption, relative to “comprador” corruption, is closer to how political corruption tends to operate even in Western countries such as the United States. It’s an open secret that the Clinton Foundation has very little to do with charity, and a lot more to do with currying favor with one of America’s most powerful political dynasties. One critical difference, of course, is that it is not American state banks (hence, taxpayers) providing the financing, but private actors, companies, and foreign governments that expect to get some return on their investments. Now on the one hand, personally financing the lavish lifestyle of your elites is more directly insulting. On the other hand, having the likes of George Soros and Saudi Arabia do it for you is perhaps not an altogether superior alternative.

5. To end on an especially whimsical note: Although Navalny in his video criticizes Medvedev for owning Russian vineyards while also pushing for lower excise taxes on wine, one cannot judge him too harshly for it, since it would be a great boon for public health in Russia for alcohol consumption to shift from vodka to wine. To be sure, Medvedev – or rather, the charitable funds who finance the properties and vineyards he occasionally stays at – monetarily benefits from that, but then so does the life expectancy of Russians. Perhaps former Finance Minister Alexey Kudrin, one of Putin’s few confidantes who still enjoy respectability in the West, is personally less corrupt than Medvedev, but he has also gone on record calling for Russians to smoke more to benefit the Treasury; his fiscally hard-headed lack of concern for the social good was one of the reasons why he fell out with, and was eventually sacked by, Medvedev. Which of these two would be the better choice as PM for the average Russian? It is not clear that it would be Kudrin.

Well, that’s my strained defense of Russia’s corrupt thieving elites out of the way. They should pay me for the PR, or something.

 
• Category: Economics • Tags: Corruption, Dmitry Medvedev, Russia 
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With a bit less than a year left to Russia’s Presidential elections in 2018, the general contours of this cycle’s protest movement against Putin are already coalescing.

Alexey Navalny has called a march for tomorrow along Tverskaya Street, a central boulevard that leads to the Kremlin. The Moscow mayoralty refused to allow it, and Navalny in turn refused its offer of alternative venues, so the march is going to be unsanctioned. These events tend to come with a high journalist to protester ratio, because Navalny’s office plankton constituency doesn’t like events where there is a non-negligible chance they’ll be roughed up by the police. So I don’t expect much to come out of it. But we’ll see. I’ll probably go myself to observe it first hand.

As in 2011-2012, when he coined the term “The Party of Thieves and Scoundrels” to describe United Russia, the brunt of Navalny’s attacks are going to be on corruption in the Kremlin. It appears that the centerpiece this time around is going to be a massive investigation carried out by Anti-Corruption Fund on Russian PM Dmitry Medvedev, and released early this March:

In Russia, even amongst liberals, Medvedev has a reputation as a cuddly, affable, and absent-minded sort of fellow, often nodding off at meetings, but endowed with a hip, modernist outlook that will take “Russia forwards” into the clean, prosperous, sponsored content clicking future. This expresses itself in things such as appreciation for Deep Purple, support for the Skolkovo technology hub, and an obsession with hip electronic gadgets – the latter of which earned him his nickname, iPhonchik. Another of his nicknames is his diminutive, “Dimon,” which became very popular after his press secretary told Russia’s bloggers, commenters, and online trolls not to use that name: “He is not Dimon to you.” That worked on the Internet! (Not).

medvedev-scheme-simple

But according to Navalny’s investigation, which builds on earlier work by Russian journalists, the nice, professorial teddy bear is a mere mask for a deeply corrupt swindler; not so much a fan of hi-tech Apple gadgets as of big money and elite properties. Piecing together documents, his team constructed a convoluted web of charitable funds directed by Medvedev’s friends, classmates, and even relatives that don’t seem to do much in the way of genuine charity work, but do maintain a sprawling network of elite real estate for make benefit of the Prime Minister.

This includes an elite estate in Moscow’s Rublevka district and a luxury ski resort in Krasnodar, each of which is valued at about $100 million; a big estate and agro holding compnay in his ancestral homeland of Kursk oblast; two yachts, both named after the Orthodox version of his wife’s name; an elite apartment in Saint-Petersburg; and even a wineyard and villa in Tuscany, Italy, bought in 2012-13 for $120 million. There is strong evidence, including from Medvedev’s Instagram account, that he has stayed at many of these properties, and partaken of his yachts.

These “charitable funds” are sponsored by a bevy of Kremlin-friendly oligarchs and state banks. For instance, one of them was funded by Novatek’s Simanovsky and Mikhelson, who contributed $500 million. The Uzbek oligarch Alisher Usmanov, who spent six years in a Soviet prison in the 1980s for financial fraud, appears to have funded the acquisition of the Rublevka property. Gazprombank is on record giving a loan of $200 million in 2007. Its Deputy Chairman at the time? Ilya Eliseev, a classmate of Medvedev’s from his time at Saint-Petersburg State University, who also happens to be listed as the current chairman of most of these charitable funds. In total, documented “contributions” run to about 70 billion rubles, or more than $1 billion.

Even a small fraction of this would sound the death knell for any politician in a country within the Hajnal Line.

In Russia, however, this is not atypical for the elites. Everybody knows that they are stealing, and if Russians didn’t move to overthrow them in 2011-12, in the aftermath of massively fraudulent elections in Moscow and at a time when Putin was at a trough in his popularity, they are certainly not going to do so now; not when Putin’s approval rating remains north of 80% in the long afterglow of the Crimea euphoria. Moreover, Navalny’s own reputation has since become tarnished, due to his own corruption scandal (which might disqualify from running for the Presidency entirely), and due to his ardent pro-Ukrainian rhetoric, which has driven off most of his former nationalist supporters.

This, at least, is my impression.

Anyhow, March 26 will be an opportunity to more directly gauge his support at the level of the streets.

 
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Editorial note: This article was first published at Arctic Progress in February 2011. In the next few weeks I will be reposting the best material from there.

The Arctic to become a pole of global economic growth? Image credit – Scenic Reflections.

Behold! Far north along the shores of the Arctic a quiver of upspringing settlements fringes the coast. Boats swarm around canning factories, smoke flutters above smelters, herds of reindeer dot the prairies… And here or there, on every street-corner, glimmer out the lights of theaters where moving-pictures entertain white people through the sunless weeks of the midwinter dancing-time, the singing-time, the laughing-time of Eskimo Land.

- Northward ho!: An account of the far North and its people.

In 2003, Goldman Sachs economist Jim O’Neill wrote the now famous paper Dreaming with BRIC’s, predicting that Brazil, Russia, India and China would overtake the developed G8 nations within a few decades and make astounding returns for faithful investors. The BRIC’s concept entered the conventional wisdom, spawning a host of related acronyms (BASIC, BRICSA, etc) – and if anything, realizing its promise well ahead of schedule. Last year, China’s real GDP possibly overtook America’s, and Russia’s approached Germany’s.

Yet for all their successes, the BRIC’s may not fulfill their expected roles as the stars of the global economy in the 21st century. The level of education is horrid in Brazil and atrocious in India; without the requisite human capital, these two countries will find it difficult to rapidly “converge” to developed world standards. China is much better off in this respect, but its high growth trajectory may in turn be disturbed by energy shortages and environmental degradation. China produces half the world’s coal, which is patently unsustainable given its limited reserves. But since coal accounts for 75% of China’s primary energy consumption and fuels the factories that keep its workforce employed, there is little it can do to mitigate this dependence. Meanwhile, China’s overpopulation, pollution and climate change predicament is so well known as to not require elaboration. Many other countries flirting around the edges of BRIC status – Indonesia, South Africa, Vietnam, etc. – face serious challenges in the form of low human capital, uncertain energy and food supplies and a rising incidence of AGW-induced droughts, floods and heatwaves.

There is one global region that may hold the key to resolving these intertwined problems – and even to become a major pole of global growth in its own right. For the most part, it is now an empty wilderness, but climate change is opening it up as potential living space. Its exploitation has the potential to halve the length of global freight transport routes while increasing their security, uncover sizable to gigantic new sources of hydrocarbons and minerals, and stabilize global food prices through the expansion of arable land. Its experience of management and conflict resolution may inspire a global model of cooperation – or it may degenerate into an economic, legal, or even military battlefield over shipping routes and sub-sea resources.

This global region is the Arctic Rim, and its adjoining ARCS: Alaska, Russia, Canada, and Scandinavia. The ARCS of Progress in the 21st century.

Arctic sea ice extent on September 1, 2010 – both the Northern Sea Route and the Northwest Passage are clearly open. Image credit – The University of Illinois Cryosphere Today.

From North Pole to Growth Pole

The core reasons behind the Arctic Rim’s bright prospects are global macro-trends: climate change; peak oil and resource nationalism; overpopulation in the South. These “push” and “pull” factors will induce a decades-long Arctic boom, starting with shipping, energy and mining, and culminating in a fundamental northwards shift of the center of the world economy. Let’s examine each of these in turn.

Breaking Ice For Shipping

Ah, for just one time I would take the Northwest Passage
To find the hand of Franklin reaching for the Beaufort Sea
Tracing one warm line through a land so wild and savage
And make a northwest passage to the sea.

- Northwest Passage song, Stan Rogers, 1981.

Typically, the cryosphere – the frozen part of the world – remains stable, because its snow and ice reflect much of the Sun’s heat, thus cooling itself. This process is called the ice-albedo feedback.

However, when the high-albedo ice melts, it leaves behind darker-hued earth, flora or sea that absorb far more heat. Local air temperatures soar and inhibit the reformation of the ice during cold seasons. From working to keep the system stable, beyond a critical threshold the ice-albedo feedback begins to reinforce a runaway dynamic of melting and warming.

The ice-albedo feedback largely explains why the Arctic is warming about twice faster than in the world as a whole.

In summer 2007, Arctic sea ice extent fell 38% below average since records began – an area the size of six Californias. The next year saw both the Northwest Passage and the Northern Sea Route clear of ice for a short period in late summer. As of December 2010, sea ice extent was the lowest for the month on satellite record, even surpassing the 2007 melt.

While the relentless fall in sea ice extent over the past three decades is remarkable enough, what’s stunning is the 55% decline in summer sea ice volume. Once the thick, multi-year ice is gone, then it’s really gone – the low albedo of the ocean water will raise local temperatures, preventing all but a thin film of sea ice from reforming during the cold winters. It is thus a near certainty that Arctic sea ice is already deep in its death spiral.

Inland, earlier snowmelts enable the ground to absorb more heat, while dark-hued shrubs and boreal forests encroach on the tundra.

Many of the effects will be negative. The polar bears will probably go extinct, either drowning for lack of sea ice, or starving, or migrating south and merging with their grizzly cousins. Invasive species from the south will drive out Arctic flora and fauna off the top of the world. Global ocean and air currents will be interrupted as the temperature differential between the Arctic and the tropics shrinks.

But the new Arctic merchants will be making a killing.

Shipping routes during ice-free Arctic summer . Image credit – Laurence C. Smith.

In 2010, the Baltica became the first high-tonnage tanker to sail with petroleum products by the Northern Sea Route, steaming from Murmansk to China. This was followed by the voyage of the MV Nordic Barents, the the first vessel to sail from one non-Russian port to another through the Arctic, cutting 5,000km off the traditional Suez route. It carried 41,000 tons of iron ore from Kirkenes, Norway to feed the steel mills of China. One upping them all, the year ended with the first round-trip voyage without icebreaker assistance via the Northern Sea Route. The Norilsk Nickel-owned ship Monchegorsk carried the metal from the north Siberian port of Dudinka to Shanghai, taking just 41 days of steaming (the Suez route would have lasted as long as four months).

The opening of the Northern Sea Route and rising demand for metals and petroleum products from China and other emerging markets is set to continue spurring the development of Arctic shipping. In January 2011, a Sovcomflot executive said the Russian shipping company has already received 15 requests for icebreaker assistance in the Arctic for this year, compared to just four in 2010*. The governor of Murmansk, Dmitry Dmitriyenko, predicts that cargo transport through the Northern Sea Route will increase tenfold by 2020. This expansion will be sustained with private investment funding: both Sovcomflot and the Port of Murmansk are to be partially privatized in the coming years.

Similar trends are in play with the opening of the Northwest Passage across Canada. It has been conquered by cruise ship in 2006 and the commercial ship MV Camilla Desgagnés in 2008. Exploitation of the Northwest Passage will likely go slower than of its north Eurasian counterpart, because of lower demand and the (relative) underdevelopment of Canada’s icebreaker fleet. But there is still a wealth of opportunities there.

Black Gold or Fool’s Gold at the Top of the World?

Use it or lose it is the first principle of Arctic sovereignty.

- Speech by Canadian Prime Minister Stephen Harper, 2007.

Our first and main task is to turn the Arctic into a resource base for Russia in the 21st century.

- Speech by Russian President Medvedev in September 2008.

Global oil production has now either peaked or is close to peaking, and will now either continue on its present “undulating plateau” – or begin to decline at an accelerating pace. The specifics are intensely argued over and the debate is far too extensive to detail here. But suffice to say, the “cornucopian” position that technological ingenuity and market forces will always conjure more and more resources out of a finite planet is untenable.

Any number of factors – global production exceeding new discoveries since the mid-1980′s; the world’s inability to significantly ramp up oil production despite soaring prices for the commodity; the rising costs of oil production due to the falling EROEI of the remaining oil sources; massively inflated reserves numbers from OPEC members; growing resource nationalism – militate against a business-as-usual future of increasing production in the oil industry.

These mounting challenges are the reason the big oil majors are pushing into the deepwater drilling that produced the Horizon blowout in the Gulf of Mexico, and partnering with Russian state oil companies to develop offshore gas deposits in the Kara Sea, and sinking millions of US dollars on prospecting off Greenland despite no returns to date. They need to maintain their reserves numbers to prevent their stocks from tanking – but to do so, the oil majors are forced into taking escalating financial, environmental and political risks.

The Arctic’s natural resources. Image credit – Global Research.

In 2008, the US Geological Survey estimated that the Arctic may hold as much as 13% of the world’s undiscovered oil (90 billion barrels) and 30% of its undiscovered natural gas. Unsurprisingly, the Arctic is rapidly becoming central to oil exploration. That said, capitalizing on these resources – even assuming they are as big as estimated above – will be exceptionally difficult. For a start, some 84% of these sources are likely to be offshore. Second, according to more recent USGS calculations, developing them will be prohibitively expensive: “Assuming production costs of up to $100 per barrel, only 2.5 billion barrels of oil could be lifted… and only with a 50% probability.” For perspective, an average oil price of $92 per barrel broke the world economy in 2008.

Talk of the Arctic becoming the next Saudi Arabia is unrealistic. Its oil reserves are smaller, more dispersed, more remote, of worse quality, and far more challenging to exploit. But this isn’t to say that its black gold is fool’s gold. Technological progress on Arctic drilling, as well as a lack of better options elsewhere, will draw Western oil majors and National Oil Companies north.

The Arctic isn’t only of interest to shippers and oilmen. Confronted with inexorable rises in demand from China, the global mining industry is rushing to add metals and minerals production capacity wherever they can. Just to take a few Arctic examples, there are plans to start or expand iron ore production on Canada’s Baffin Island, Norway’s Kirkenes and the Kola Peninsula. Coal production is resuming at Svalbard. Just in case the whole oil thing doesn’t work out, Greenland is looking to exploit its potentially vast mineral resources. The Coeur d`Alene Mines Corporation recently opened a gold mine near Juneau, Alaska ahead of schedule. Though volumes remain small, this will change as depletion becomes as evident for minerals as it is now for oil.

Towards an Arctic Civilization?

… Before this century is over billions of us will die and the few breeding pairs of people that survive will be in the Arctic where the climate remains tolerable.

- James Lovelock, inventor of the Gaia hypothesis.

Beginning with the shipping and energy industries, the influence of the Arctic will eventually come to encompass the entire world. Assuming that efforts to quickly cut greenhouse gas emissions are unsuccessful, and that geoengineering is either not attempted or doesn’t work, then many of the middle regions will become too hot and dry for sustained agriculture (and maybe human survival), and masses of climate refugees will try to migrate north. The center of global economic growth, politics, and perhaps – in the far future – population, will come to rest within the Arctic Circle.

The North Pole may become the spatial center of the world. Image source – Trausti Valsson.

This process will likely be accompanied by mass upheavals, societal collapses, famines, border conflicts, maybe even bigger wars. But as usual misery contains the seeds of opportunity. It is not impossible that the farsighted individuals who are now buying up Hudson Bay territories or Siberian riverside lands are positioning themselves or their heirs for lordships and kingdoms in 2200.

But let’s focus on just the next three decades. The opening of the Arctic by various “push” factors (overpopulation, global warming) and “pull” factors (shipping routes, resources) will create demand for infrastructure, housing, associated services, etc. Buying up strategic lands, routes and infrastructure in the Arctic region offers one of the best, and most overlooked, rates of return in the world today. Take inspiration from OmniTRAX, a Colorado-based company that bought the derelict Port of Churchill and its railway from the Manitoba government for a bargain basement price of $10 in 1998. Now that Hudson Bay has become clear of sea ice during the summer, these assets are receiving tens of millions of dollars of investment from the Canadian government.

How can you benefit from the coming Arctic boom? In the coming years, Russia is going to partially privatize lucrative state assets, such as shipping company Sovcomflot and the Port of Murmansk (which handles 60% of shipping across the Northern Sea Route). New ports, roads, railways, pipelines, mines, dams, oil and gas fields, aluminium smelters, LNG plants, etc. are springing up over the entire region.

Enter the ARCS of Progress: Why Alaska, Russia, Canada, and Scandinavia are Positioned to Dominate the Polar-Centric World

Идут на Север срока огромные,
Кого ни спросишь – у всех указ…
Взгляни, взгляни
В глаза мои суровые,
Взгляни, быть может, в последний раз.

- Soviet GULAG song, 1947.

O Canada!

Our home and native land!
True patriot love in all thy sons command.
With glowing hearts we see thee rise,
The True North strong and free!

- National Anthem of Canada.

Watching the economic news these days is a sure path route to depression. Anywhere you seem to look in the developed world there are awning budget deficits, soaring debts, depressed output, and stagnation. We’ve established that putting your money into the PIGS (Portugal, Italy, Greece, Spain) isn’t such a good idea. But the US is the “safe haven,” right? Unfortunately, its fiscal sustainability indicators are actually worse than the PIGS average. In 2009, the US got $0.6 in tax revenue for every $1 of outlays, or a receipt-to-outlay ratio of 0.6; the equivalent ratio for the PIGS was 0.78. Maybe Japan? With a 0.52 receipt-to-outlay ratio, it makes the US look like a paragon of fiscal discipline.

But within all that mess there’s a few, sparkling gems. Not only are they at the heart of the opening Arctic, but they are all excellent investment destinations on their own merits. They are the ARCS countries: Alaska, Russia, Canada, and Scandinavia.

Alaska

In contrast to the rest of the US, Alaska was barely dented by the economic crisis, its GDP declining by just 0.3% in 2009 and recovering 0.6% in 2010. Employment is lower than the US average. While states like California and Illinois flirt with state bankruptcy, Alaska has accumulated $40 billion in its Permanent Fund. Finally, it is – along with Greenland – the most demographically vigorous of the Arctic states, with a total fertility rate of 2.32 children per woman in 2006. It won’t be afflicted by the First World’s looming aging crises any time soon. Alaska is well set to fulfill its motto: “North to the Future!”

Russia

Though the poorest of the ARCS, Russia is also its fastest growing one, with 5% annual GDP growth during 2001-2010. Its high level of human capital (around 70% of Russians continue to higher education, a First World rate), vast resource wealth and decent macroeconomic management set it on a promising path to convergence with developed countries.

Additionally, Russia has a predominant population, economic and military presence in the Arctic. The Murmansk region by itself has more people than all of Alaska, while the Russian Northern Fleet is by far the strongest Arctic force. State policy is to transform the Arctic into Russia’s “strategic resource base” within the next decade.

Criticisms of Russia’s prospects typically center on allusions to its “Zaire with permafrost”-like corruption levels, plummeting population, crumbling infrastructure, “legal nihilism” and Putinist authoritarianism. While each of these has a grain of truth, taking them as gospel fundamentally misrepresents the country. For a start, if Russia really was more corrupt than Nigeria or Zimbabwe – as implied by Transparency International’s Corruption Perceptions Index – then it would still be deep in debt as in the late 1990′s, and its $480 billion foreign currency reserves would be in Cayman Islands accounts instead of the Central Bank’s vaults.

What about Russia’s demographic “death spiral”? A quick glance at Rosstat will show that its population grew in 2009, and that its total fertility rate, at 1.6 children per woman, is now higher than the European average.

One can spend pages upon pages unraveling the double standards, misrepresentations and outright lies which the Western media and political class use to attack Russia. But if you’re unconvinced, and refuse to buy into Russia’s undervalued market on principle, it’s your loss.

As t he professional Russia investor Eric Kraus wrote in Business Week in July 2010, “Russian markets are fashion victims, and are currently both unfashionable and cheap. You can own them now, or wait and buy the next time they surge back into vogue. And I will be selling out just about then.” I’d trust him – that’s exactly what he did in 2008!

Canada

Canada combines the American spirit of free enterprise, with a greater safety net and social mobility. It is also on far better fiscal footing. In 2010, its cyclically adjusted primary budget deficit was -2.7% of GDP (US: -7.0%), and its net debt was 32.7% of GDP (US: 65.2%; Japan: 104.6%). Possessing huge energy, mineral and freshwater reserves, as well as a well-educated and growing population, it is surely one of the better investment bets in the developed world.

Scandinavia (and Nordic)

The Nordic region is one of the richest, most educated and socially cohesive on Earth, frequently coming at or near the top in any global index of freedom, social mobility, environmental sustainability, and technological modernity.

In 2010, Sweden’s GDP grew the fastest in Europe at a blistering 5.2%, while maintaining a balanced budget throughout the crisis. Norway’s fortunes are far more directly tied to its oil industry, but peak oil, excellent state management of reserves and a low population make for bright prospects. Norway is the second richest European country after the banking center of Luxembourg.

Even apparent basketcases like Iceland may be a good investment to buy up on the cheap. While its international banking career might be over, it still has massive freshwater and geothermal energy reserves, that make it an attractive center for energy-intensive industries such as aluminium smelters.

Finally, contrary to right-wing depictions of social democracies as retirement homes full of effete, aging liberals, all the Nordic states have fertility rates that preclude major aging crises (they range from 1.8 children per woman in Finland to 2.2 in Greenland).

The Arctic when all the ice melts.

From an Ultimate Dim Thule…

By a route obscure and lonely,
Haunted by ill angels only,
Where an Eidolon, named Night,
On a black throne reigns upright,
I have reached these lands but newly
From an ultimate dim Thule —
From a wild weird clime, that lieth, sublime,
Out of Space — out of Time.

- Dreamland by Edgar Allen Poe.

Even in our day, science suspects beyond the Polar seas, at the very circle of the Arctic Pole, the existence of a sea which never freezes and a continent which is ever green.

- The mystic H. P. Blavatsky.

Before the rise of the world economy, spatial perspectives were local, at most extending to the boundaries of their cultural sphere or world-empire: The Ecumene for the Ancient Greeks and Romans; Dar al-Islam for the Muslims; Christendom for the Franks; the Great Wall for the Chinese. Medieval European geographers referred to any lands beyond the borders of the known world as Ultima Thule.

Globalization from the 19th century bound the entire world together, for the first time in history, but its flows and links of labor, capital and commodities passed the Arctic by. Unattractive to sustained private investment, the region’s development was always fitful and unbalanced, from the Yukon Gold Rush that petered out almost as suddenly as it flared up; to the penal camps, subsidized settlements and military bases of the Soviet Arctic, now decaying away except where hydrocarbons extraction has thrown them a lifeline.

But now the world is changing. No longer will opening the Arctic have to be a hubristic project, as with the chiliastic visions of Soviet planners; or a costly and unprofitable strategic necessity, as with the Cold War submarine patrols beneath the Arctic sea ice or the bomber flights over it. Today, it is global macro-trends such as global warming, resource depletion and overpopulation that will ensure the rapid but organic development of the Arctic.

With the growing human presence, the Arctic will inevitably begin to lose its luster of mysticism, foreboding and darkness. As the years turn into decades, and 2050 approaches, the polar-centric view of the world will become increasingly central to human spatial consciousness. The world’s trade, energy and capital flows will have been largely rerouted north.

The ARCS of Progress, their numbers swelled by climate refugees, and their economies bolstered by a flood of capital investment, will be amongst the leading Powers in the world. This assumes they retain their present political configurations. For instance, could an independent Greenland, with just 56,000 people today, retain its own national identity? Facing resource shortages and droughts in the south, would China encroach on the Russian Far East? Would the US try to assimilate Canada?

Whatever the answers to these questions, one thing is near certain. The vision of a northern Ultima Thule is dissipating, and will soon dissolve altogether (thought teh concept may be resurrected to describe a desolate, uninhabitable South many hundreds of years into an extreme AGW future). In its place there will emerge a polar world-economy of open seas, farms and growing cities by 2050.

There will arise an Arctic ecumene.

* According to more recent data, there were 34 transits of the Northern Sea Route in 2011, up from just 4 in 2010; with 820,000 tons of goods transported relative to 111,000 tons in 2010. Volumes are predicted to double again this year. This goes in tandem with record breaking sea ice melt in 2012.

Edit Jan 28, 2013: There were a record-breaking 46 vessels making the transit through the NSR this year.

(Republished from AKarlin.com by permission of author or representative)
 
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This is the second article of a three-part series about the Iranian Question – that is, the question of how the world is going to deal with the Islamic regime’s pursuit of a nuclear bomb, which is likely to be one of the defining processes of global geopolitics in the next five years. The first part, The Approach of the Next Persian Empire, attempted to paint a picture of the internal structure, trends and divisions within the country. This article will analyze the geopolitics of the region from the perspectives of the key players (Iran, the US, Israel and Russia) in greater depth and will try to assess the chances of dissuading Iran from going nuclear. This effort will likely fail, in which case Israel will probably decide it has no choice but to strike against Iran’s nuclear facilities. The consequences of this, which will draw in the US into a full-fledged aeronaval war with Iran, will be explored in the third part. Read the Conclusions at the bottom if you don’t want to slog through this rather quickly and poorly-written text.

The Iranian Regime and Its Strategic Culture

To recap from the first article, the most important things to know about the Iranian political system is the following: a) it is “a unique hybrid of Velayat-e Faqih (rule by Islamic jurists) and modern parliamentary democracy”, b) it is deep, murky and highly factionalized along the following lines: The old, corrupt clerical elites centered around Rafsanjani (chairman of the Assembly of Experts), the conservative technocrats represented by Larijani (Majlis speaker), and the Islamist hardliners represented by President Ahmadinejad, to whom answer the Armed Forces (Artesh) and the Islamic Revolutionary Guards Corps (IRGC) paramilitary / militia / intelligence service, c) these factions are supposed to be balanced by the Supreme Leader, Ayatollah Khamenei, but his sympathies clearly tilt towards the hardliners – which partly explains why they have been in the ascendant since Ahmadinejad’s electoral win in 2005, d) this ascendancy was reinforced by the state’s paranoia over the abortive “Green Revolution” in support of the defeated Mousavi in 2009, who is Rafsanjani’s creature and e) pro-Western liberals have next to no backing or popular support, media hype to the contrary – though Rafsanjani’s and Larijani’s cliques are more enthusiastic about reaching an accommodation with the US, all political forces strongly support the development of an indigenous nuclear infrastructure and pushing Israel into the sea (so to speak). As such, an understanding with Israel is almost certainly out of the question.

[The dense, complex labyrinth of power in Iran. Source: Stratfor]

Iran’s strategic culture – the sum of beliefs and assumptions shared and used by its political elite uses to formulate a foreign policy – can be defined by the following elements: a need for a strong centralized state with competent security forces to preempt ethnic separatism, the conception of Shia Islam as bedrock of the national identity, belief in Iran as a leader of Islamic civilization against Western encroachment (at times verging on the millenarian), a striving for regional hegemony and an acute sense of vulnerability and encirclement by the US (which has troops in Iraq, Afghanistan, and the Gulf States) – which gives Iran an incentive to exaggerate its real military strength to dissuade an attack. This sense of vulnerability is especially acute because Iran is not a monolithic state – though its internal, Persian heartlands, walled in by mountains from all sides, are secure, it has three potential chinks in its armor.

The above map shows Iran’s nationalities and Sunni minorities. Though Persians constitute the majority at around 55-65% of the population and occupy the heartlands of Iran’s mountain fortress, there are potential flashpoints of separatist unrest in Balochistan (Balochs), Khuzestan (Arabs) and the northwest (Kurds). And although the Azeris are tightly integrated into the Iranian nation-state – the Supreme Leader, Khamenei, is himself half-Azeri, as was the failed 2009 Presidential candidate Mousavi – they still make up 20-25% of the population, occupy a geographically coherent position bordering Azerbaijan (whose pan-Turkic elements look up to Turkey), and have a moderately different political outlook (in the recent elections, the race between Mousavi and Ahmadinejad was much closer in majority-Azeri areas than it was in majority-Persian). In the case of a full democratization and rejection of its Islamist legacy, it is perhaps not unlikely to expect a “velvet divorce” between the Persians and Azeris in Iran. (It should also be noted that tellingly, all Iran’s major nuclear facilities are within the Persian heartlands, just like the USSR tended to concentrate WMD development within Russian or at least Slavic areas).

Iran’s Pursuit of the Nuclear Bomb

There are credible reports that the US has tried to stir up ethnic insurrections against Tehran since the Islamic Revolution, including by providing them with weapons and intelligence, and rumors that its intelligence services use Azerbaijan as a base to stir up Azeri dissent within Iran. In this secret war, Iran counters by maintaining powerful internal security and intelligence forces, assassinating perceived traitors abroad and maintaining a siege mentality. This starts a circle of confrontation with the US – from manipulating religious and ethnic fault lines in Iraq to force the US to the defensive (though not eschewing cooperation on shared interests like defeating the Taleban), to the ultimate bone of contention – Iran’s pursuit of an indigenous nuclear weapons production capacity and delivery systems. If it is successful in this, then it will severely undermine the US position in the strategically-critical Persian Gulf region since a) the moderate Arab states will observe the American lack of resolve and will move to guarantee their own security through self-help – perhaps ditching the US in the process or swapping it for other partners, and b) it will make Iran near strategically invulnerable to military attack because of the threat of nuclear retaliation. For this reason, it is hard to see the US – not to even mention Israel – ever allowing an Iranian bomb.

[Blue diamonds = uranium mining, read diamonds = nuclear research facilities]

Unlike Iraq’s or Syria’s nuclear weapons programs, which are / were relatively simple and limited, Iran seems to be pursuing the bomb on a larger scale, aiming to develop an indigenous capability over the entire nuclear fuel cycle and maintaining redundant, hardened nuclear facilities. It should be noted that developing nuclear weapons is rather hard, since they have to be robust, reliable, miniatured and married to delivery systems (gravity bombs, cruise missiles or ballistic missiles launched from platforms ranging from truck beds to nuclear subs). Iran has been having problems with mastering the nuclear fuel cycle, and most current estimates indicate it is still around five years from acquiring its first nuclear weapon.

Uranium nuclear fuel enrichment consists of four main steps. The first involves extracting uranium ore and processing (also known as milling) it into uranium oxide, commonly known as yellowcake. Second, most enrichment efforts — including Iran’s — then subject the yellowcake to a series of chemical reactions to create toxic uranium hexafluoride (UF6), which is useful for a variety of enrichment techniques. Third, in many cases — again including Iran’s — the UF6 then is run through “cascades” of centrifuges, or long chains of individual centrifuges connected together in a vacuum in gaseous form. Through this process, the percentage of the fissile isotope uranium 235 is increased to the point where the uranium can be used for power production. (Iran reportedly has aimed for an enrichment level of 3.5%, which is considered low-enriched uranium.) Fourth and last, once the uranium has been enriched to the desired level, it is then converted into fuel rods or pellets for use in a reactor.

It is important to note that low-enriched uranium is not the same thing as highly enriched uranium (which is considered to be greater than 20%) — or uranium enriched to levels of 80-90% uranium 235 — which is considered sufficient for use in a crude nuclear device. Producing highly enriched uranium is not simply a matter of running the cascade cycle describe above over and over again. As the uranium becomes more enriched, the technology becomes increasingly delicate. Fine separation of the UF6 molecules and the minute calibration of the centrifuges necessary to carry this out, is required for this, and it is not clear that Iran’s centrifuges are of sufficient quality to attain these high levels of enrichment.

One of the advantages of uranium is that it is easier to build a working bomb with it, since it can do with a simple gun-type explosion to create a critical mass of fissile material needed to produce a nuclear blast – but as written above, acquiring Highly-Enriched Uranium (HEU) is difficult. That is not so much the case for plutonium, a byproduct of nuclear reactors whose enrichment can be accomplished through a simpler chemical reaction (instead of very precise calibration of centrifuges). However, there are two problems in this direction: a) you need a near perfectly symmetrical implosion to compress plutonium core to supercritical mass, necessitating “the precise “lensing” of high-grade explosives” – unlike for HEU, which can do with a simple gun-type design, and b) even though Iran has got the reactor at Bushehr up and running, producing plutonium as a byproduct, it is supposed to be repatriated back to Russia and be subjected to international monitoring – diverting part of the flow will be tricky.

Iran continues to have problems in mastering the nuclear fuel cycle, relying on the 600 tons of yellowcake it bought from S. Africa three decades ago (now 75% depleted) and Russian deliveries of low-enriched uranium (subject to disruptions and even full cessation depending on the status of Russian-American relations). Iran is hobbled by poor-quality uranium reserves – its mine at Saghand contains 3000-5000 tons of uranium oxide at a density of just 500 ppm, well below the 750 ppm usually thought to be the limits of commercial viability, and there has been a slowdown in both yellowcake conversion into UF6 at Isfahan and centrifuge installation at Natanz. There have been reports that the slowdown is partly attributable to Iran’s loss of high-quality bearings imports for its centrifuges under US pressure on the suppliers, forcing it to rely on lower-quality domestic ones.

On the other hand, there are many sources saying that Iran’s activities are at a more advanced stage than generally believed:

…Ahmadinejad announced that Iran had 6,000 centrifuges operating at its uranium enrichment facility at the underground Natanz facility, double the number operating less than a year ago, a worrisome development that shows the progress Iran has made toward developing a nuclear weapon (Washington Post, July 26, 2008). The August 2009 IAEA report said the number of centrifuges had grown to 8,300 (Haaretz, August 31, 2009). El Baradei, the director general of the IAEA, told the group’s 35-nation board that Iran had not stopped enriching uranium or answered lingering questions about its nuclear program (New York Times, September 7, 2009).

In September 2008, IAEA officials reported that enough enriched uranium to make six atom bombs (if processed to weapons grade level) disappeared from the main production facility at Isfahan. The officials suspect the material may have been moved to one of the installations spotted by American spy satellites, which intelligence officials believe are being used for covert research (Telegraph, September 12, 2008). …

David Albright of the Institute for Science and International Security said in 2008 that Iran has solved many of the problems it had with its centrifuges and they are now “running at approximately 85% of their stated target capacity, a significant increase over previous rates.” The IAEA’s 2008 report said Iran has produced nearly 1,000 pounds of low-enriched uranium; Albright says it needs a minimum of 1,500-pounds for a simple nuclear bomb, a figure it could reach in six months to two years (AP, September 24, 2008). …

The IAEA reported on November 19, 2008, that Iran had produced 1,390 pounds of low-enriched uranium suitable for nuclear fuel. That milestone is enough to produce a single nuclear weapon, about the size of the bomb dropped by the U.S. on Nagasaki according to Thomas B. Cochrane of the Natural Resources Defense Council. He noted, however, that they still needed the technological knowhow to purify the fuel and produce a warhead (New York Times, November 19, 2008). …

On September 25, 2009, it was disclosed that it had a second fuel enrichment plant. The United States was apparently aware of the facility, but it was hidden from weapons inspectors (Jerusalem Post, September 25, 2009). Meanwhile, Iran’s exiled opposition movement reported the day before that it had learned of two previously unknown sites in and near Tehran that it says are being used to build nuclear warheads (Agence France-Presse, September 25, 2009).

Separating the truth from the spin is amazingly hard, considering that Iran has motives for both exaggerating (to dissuade Israel / the US from attacking it if they know that they will fail to destroy its nuclear program anyway) and concealing (to not invite an attack, duh!, and to give propaganda ammunition to its defenders) its true strength.

The American Strategic Dilemma

As mentioned previously, the US has no intention of allowing Iran to get the bomb. If that were to happen, the new Persian empire would soon displace the US as the regional hegemon in the Middle East – the keystone of the global oil system whose cheap, liquid energy flows underwrite the trinity of globalization, US military predominance and Pax Americana. The moderate Arab states will be spooked into either setting up their own nuclear programs (permanently dooming the anti-proliferation system) or bandwagoning with the new power. Iran will be strategically invulnerable as rarely before, protected not only by its mountain walls but by the threat of nuclear retaliation – this will allow it to meddle in the affairs of its neighbors far more aggressively than it had previously dared (by supporting Hezbollah and Shia militants around the Gulf) and suborn a vulnerable Iraq to its will.

However, bombing Iran will not solve problems either. First, its nuclear program is built around deception, redundancy and hardening. Like the recent revelation of a second enrichment built under a mountain on a military base at Qom, Iran only admits to covert efforts at nuclear weaponization when it realizes its cover has been blown. Speaking of which, the facility at Qom also illustrates another feature – the amount of redundancy in its nuclear program. Since the US knew of Natanz, having a second site would have also made sense (and perhaps a third, and fourth, etc, whose existence has not yet been revealed). That way, limited bombing sorties of the sort that crippled the nuclear programs of nations like Syria or Iraq would not work in Iran. They make sure to harden these facilities against US bunker-busters, allowing a margin of safety to account for any black US capabilities. However, in the final analysis the main issue relates to how good US intelligence is on the Iranian nuclear program – if you don’t know the precise coordinated of an underground, hardened target, then no bunker-buster is strong enough to destroy it. Though the US has excellent space-based reconnaissance capabilities, they cannot pick up everything, since “research and development associated with a limited, clandestine nuclear weaponization effort can be smaller and better concealed than industrial-scale facilities for nuclear-power generation”. That would require a sophisticated human intelligence effort in Iran itself, in which the US is rather weak and relies on Mossad. Besides, the Iranians have a plethora of experienced intelligence agencies and are proficient at anti-espionage.

Second – and much more important – are the tools of retaliation at Iran’s disposal. This includes destabilizing Iraq through the use of Shia proxies, activating Shia sleeper cells in Saudi Arabia to attack its oil exporting infrastructure, missile attacks against US military bases and Gulf oil infrastructure, coordinating renewed attacks on Israel by Hezbollah, and most importantly blockading the Strait of Hormuz by anti-ship missile batteries and having its big fleet of patrol boats lay down mines. Iran’s production of 3mn barrels per day will vanish overnight, and even a few successful attacks on the 20 oil supertankers leaving the Gulf per day could in effect cut the flow of oil out of the Gulf by dramatically raising insurance rates. Considering that 17mn barrels per day, or 40% of the world’s oil exports pass through the Strait – a figure that accounts for 20% of world oil consumption – even small disruptions will be catastrophic.

Not surprisingly, Washington would prefer to first try everything possible to reach a diplomatic solution. The initial signs were seen during the past year, when Obama tried reaching out to Iran and Muslims in general (Cairo speech), but like all idealistic projects there have been no real, positive effects. If anything, Iran’s hostility hardened after what the hardliners perceived as the Western-incited unrest following Ahmadinejad’s summer electoral victory. Having failed in getting the Iranians around him in a circle singing Kumbaya (although Obama did create an impression of benign moderation (liberals) or weakness (conservatives)), things are now going to get more serious.

This will be on display in the P5 + 1 (UN Security Council and Germany) talks with Iran in Geneva from 1 October. If the Iranians refuse to budge on the nuclear issue, the US plans to impose “crippling” gasoline sanctions, for which it has been laying the framework for the last several months. It is believed this will put pressure on the Iranian regime, which massively subsidizes gasoline (to the huge detriment of its public finances) and whose automobile ownership has exploded in the past decade. However, the argument could be made that this would just reinforce Iran’s siege mentality and make it more aggressive.

Alternatively, the sanctions can be rendered ineffective. Russia appreciated the US giving up on its ABM plans for Poland, but realized it for the symbolic concession it really is and has no desire to reciprocate by handing over its leverage over Iran by cooperating with Washington on sanctions. To ditch Iran, Russia will need more concrete moves like Washington dropping support for Ukraine’s and Georgia’s membership in NATO, halting its plans for Polish military modernization and informally acknowledging Russia’s sphere of influence over the post-Soviet space. As long as these conditions aren’t met, Russia can easily supply Iran’s gasoline needs by pressuring Turkmenistan and Azerbaijan.

Similarly, China is unimpressed with rising US protectionism (e.g. recently introduced import tariffs on tires) and also has the spare refining capacity to help bust gasoline sanctions on Iran. Even France has recently voiced reservation after a flurry of high-level meetings between the two, a surprising twist given that France has moved much closer to Washington since 2007 under Sarkozy – though given France’s hardline anti-Iranian position, this may simply be showing its displeasure over Obama’s lack of resolve.

Then there is also the question of Afghanistan and Israel. The Taleban have a deep-rooted presence in Afghanistan and are convinced the Americans will have to leave eventually, just like the Greeks, British and Soviets before them. The idea that this place could be pacified and built into a model liberal democracy is nonsensical to say the least. Meanwhile, it is a drain on US military and fiscal resources that benefits Russia and Iran before anyone else, and one that is going to increase as NATO pulls out and if the US increases its troops there. Continuing the campaign in Afghanistan is a strategic blunder and after a face-saving surge the US will likely begin to pull out.

The Centrality of Israel

First, even as Obama superficially tried to improve relations with the Muslim world by pressuring Israel on halting the expansion of settlements in the West Bank, he made some in Israel question the strength of the US commitment to Israel’s security (despite the fact that this issue has little bearing on it). Second, Israel cannot and will not accept an Iranian bomb, not even if it leads to a clash with the US – to the US, it would be a major annoyance; to Israel, an existential risk, even despite its strengths in ABM. If Iran continues to progress on its nuclear and missile development, an Israeli strike is almost certain. And who can blame them?

If a day comes when the world of Islam is duly equipped with the arms Israel has in possession, the strategy of colonialism would face a stalemate because application of an atomic bomb would not leave any thing in Israel but the same thing would just produce damages in the Muslim world… in the future it will be the interests of colonialism that will determine existence or non-existence of Israel… Jews shall expect to be once again scattered and wandering around the globe the day when this appendix is extracted from the region and the Muslim world.

Not Ahmadinejad (he of the Holocaust denial) or Khamenei. Rafsanjani, 2003 (chairman of Assembly of Experts and main supporter of Mousavi).

Israel doesn’t care if Russia regains hegemony over the former Soviet. It doesn’t care if East-Central Europe becomes Finlandized. And though it faces the prospect of attacking Iran and facing retaliation from Hezbollah, spiking oil prices and renewing its status as an object of hatred in the Islamic world with trepidation, all that is nonetheless dwarfed by the prospect of Iran attaining a nuclear bomb.

Most commentators believe Iran is around three to five years behind the bomb, which allows Israel time to stay quiet and let the US indulge in diplomacy and arm-twisting. But this will not be the case indefinitely. There will come a critical point when it judges the Iranian program to be too far advanced already, based on information conveyed by Israel’s extensive human intelligence apparatus in Iran. And it will make the decision to strike, unilaterally if need be, but preferably involving the US at the earliest possible date to a) maximize the damage to Iran’s military infrastructure and hence constrict its ability to close the Strait and b) to more thoroughly damage Iran’s nuclear program. In any case the Israelis will have to fly over Iraqi airspace controlled by the US, and since it’s not exactly going to shoot them down, the world will believe the US was complicit in the strike on Iran anyway whatever it does. Hence the rational American response would be to coordinate the attack with Israel from the very start. It’s entirely possible this will be preceded by false-flag operations against American military or even civilian targets that will be blamed on Iran.

This gives the impression that the US is going to be prodded into this by Israel, but the reality is that by the early 2010′s its intentions may well have shifted in favor of an attack on Iran by themselves due to domestic unrest (economic problems, Obama’s “socialism”, etc), continuing Iranian intransigence (pursuit of a bomb, closer relations with Russia), Russia’s resurgence (probably) and Chinese expansionism (perhaps). At this point, it will become clear that the optimal strategy for the US would be to a) ease its imperial overstretch by pulling out of Afghanistan, b) deal with the Iranian challenge for Middle East hegemony once and for all, and c) use the resulting freeing of resources to focus more attention on containing its two aforementioned peer competitors, by rerouting military assets to East-Central Europe / the Black Sea region to counter Russia or reinforcing its presence in East Asia to counter China – whichever is perceived to be the more pressing threat to US interests at the time. With time, the US elites will realize the logic of this strategy, and will embrace it.

Potential Pitfalls of a Strike

However, there are two negative factors that might end up making an attack on Iran extremely damaging for US global power. By then, Russia will be getting more paranoid about US intentions, assuming it refuses to make real concessions on granting Russia a sphere of influence over the post-Soviet states and continues arming Poland and trying to draw Ukraine, Georgia, Central Asia, etc, closer into its orbit. Russia may up the ante by helping Iran modernize its generally obsolete military equipment, even at a commercial loss, e.g. by arming Iran with modern AA systems such as upgraded S-300, which could make life difficult for all but the most advanced, stealthy and expensive US aircraft like the F-22 Raptor and B-2 bomber (Iran already has 29 Tor M-1 systems, which have a relatively limited engagement envelope but are otherwise very good), or the latest anti-ship cruise missiles, which can pose a significant threat even to the American CVBG’s Aegis defense systems (let alone lumbering oil tankers). Today, as a militarily weak nation Iran makes a show of strength to dissuade hostile powers like the US from attacking it; tomorrow, its strength may become more real than illusory.

Second, the consequences of a shutdown of the Strait of Hormuz will only deteriorate even independently of improvements in Iran’s military potential. The reason is that world oil output peaked and will decline relentless after 2011. Meanwhile, the world economy will “recover”, pulled along by the monetary torrent unleashed during the economic crisis. This will again put immense upward pressure on oil prices, which can be expected to rise back up to around 150$ by 2011 or higher (also note that the US dollar will be weakening). The world economy will not long be able to withstand such prices; a war in the Gulf may be the straw that breaks the camel’s back.

Conclusions

This is an extremely convoluted issue which revolves around the complex interactions of a number of key actors, foremost amongst them the US, Israel, Iran and Russia, whose policies are shaped by domestic trends, ingrained strategic cultures and their perceptions of the actions, words and thoughts of other actors in the Middle East arena. The idea that the more you know the less you know, and that the only true predictions is that there will be no true predictions, is especially valid in this case.

Iran is unequivocally pursuing a nuclear bomb. The military program is camouflaged by a genuine civilian endevour and is highly redundant and hardened against attack, though it faces problems and is still 3-5 years behind maturation. Iran hopes that by acquiring the bomb and mating it with reliable delivery systems (ballistic missiles), it can obviate its chronic sense of insecurity and reinforce its claim to Islamic leadership – a claim that will acquire more credence if backed by the gun.

Unlike the US, Israel sees no big difference between Iran’s factions (both viewpoints are justified – though Rafsanjani’s clique is better disposed to the US, all favor nuclear power and the end of Israel). Understandable, Israel is adamantly against the idea of an Iranian bomb, viewing it as an existential threat, and it has made it quite clear that it will strike if Iran does not cease and desist. By necessity, this will also pull in the US into a general aeronaval confrontation with Iran. Considering the threat Iran poses to the Strait of Hormuz, through which 40% of the world’s exports pass, the US sees war as the last resort; however, the prospect of a nuclear Iran is no better, because it would fatally weaken its position amongst the moderate Arab states.

Hence, the US will try its best to solve this without resorting to war. Obama’s early charm offensive, grounded in idealism, was unsuccessful and gained him approval from the Kumbaya crowd and a reputation for weakness amongst realists. Unfortunately for him, the Iranians, the Russians, and indeed all serious nations, are ruled by realists. Meanwhile, its perceived support of Iranian “reformists” in the June elections – that is of Rafsanjani’s protégé, Mousavi – enraged the revolutionary-conservative hardliners centered around Ahmadinejad and the IRGC, further reinforced their political ascendancy and drove Iran closer to Russia.

Failing to resolve these issues diplomatically, the US will now push for “crippling” sanctions on Iran’s gasoline imports, with the quiet approval of an Israel that is feeling increasingly spurned by the US on other matters (but which likewise wants to avoid war unless everything else fails). What will happen next on this front will be decided within months at the latest, and their success or lack thereof will depend on the actions of states whose interests are if not opposed, then at least orthogonal, to those of the US. The chances of success of presenting a united stance on sanctions on the part of the “international community” are minimal – too many different actors with different goals for multilateral cooperation.

The Russian President, Medvedev, in the Aesopian language typical of Russia’s rulers, said on 23 September, “sanctions rarely lead to productive results, but in some cases, sanctions are inevitable”. The irony is that Medvedev will be the one who decides, to a large extent, whether the sanctions will lead to “productive results” – however you define that. He is interested in getting the US to recognize its sphere of influence over the former USSR and back off from militarizing Poland. It is likely that Russia will agree to the sanctions in principle (to give the US the incentive to accede to Russia’s aforementioned wishes in its Near Abroad) – hence their “inevitability”, but considering that Russia believes the US is unlikely to give those concessions, it will likely end up not honoring those same sanctions it agreed to – hence his observation that sanctions “rarely lead to productive results”.

This is because, despite America’s problems and quagmires, it is unlikely in the extreme to give Russia the breathing space for recreating a Eurasian empire – a construct it spent half a century trying to contain and undermine (“though Washington is maneuvering considerably now, balancing wars in Iraq and Afghanistan, a resurgent Russia, an intransigent Iran and a global economic crisis, Poland remains a long-term priority”). As such, any US-sponsored sanctions regime will be torpedoed by Russia, which can use its influence over Turkmenistan or Azerbaijan to circumvent any sanctions – and the results of the sanctions will be productive neither for the US (Iran will still get its gasoline) nor for Russia (no fundamental reversal of US policy towards its resurgence).

Even if Russia refrains from helping out Iran and honors the sanctions, it could still realistically hope for help from China, which has enough spare gasoline refining capacity to supply Iran’s needs, or it could cut its subsidies. This would be uncomfortable for a regime that buys social stability with gasoline subsidies, amongst other things. This is unlikely to lead to revolution by itself, however – if anything, Iran will try to diminish unrest by increasing the national sense of siege and becoming more aggressive.

Whatever the result of the sanctions, Iran is unlikely to renege on its nuclear program. This is unacceptable to Israel, and it will become ever more unacceptable for the US too. The latter will have its hands more untied by the gradual removal of troops from Iraq (plans are to leave just four “superbases” behind after a decade of occupation) and from Afghanistan (if it’s rational), and increasing domestic troubles (economic, government intrusions, etc) may push Obama towards a more bellicose foreign policy to compensate. The US will come to the conclusion that the time has come to strike. And Russia would be perfectly happy to see the Gulf burn, considering that it would massively set back Iran’s acquisition of nuclear weapons (it doesn’t want that) and lead to a massive spike in oil prices (it doesn’t mind)…

The third and last blog post on the Iranian Question will be a fictionalized account of how a US-Iranian military conflict will pan out, the weapons that will be used and how they will perform, how players like Iranians, Israelis, Saudis, Americans, Russia, etc will perceive it, the decisions taken by political leaders, and its economic and geopolitical consequences.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Anatoly Karlin
About Anatoly Karlin

I am a blogger, thinker, and businessman in the SF Bay Area. I’m originally from Russia, spent many years in Britain, and studied at U.C. Berkeley.

One of my tenets is that ideologies tend to suck. As such, I hesitate about attaching labels to myself. That said, if it’s really necessary, I suppose “liberal-conservative neoreactionary” would be close enough.

Though I consider myself part of the Orthodox Church, my philosophy and spiritual views are more influenced by digital physics, Gnosticism, and Russian cosmism than anything specifically Judeo-Christian.