In a remarkable example of historical irony, a scowling, black-turbaned Shia ayatollah has emerged from obscurity for the second time in a quarter century to vex and confound America’s plans for the Mideast.

Twenty-four years ago, the U.S. encouraged Iraq’s ruler, Saddam Hussein, to invade Iran and overthrow the new revolutionary Islamic government of Grand Ayatollah Ruhollah Khomeini. The U.S. and Britain secretly aided Iraq with arms, finance, chemical and biological weapons, intelligence, military advisors, and diplomatic support in its bloody war against Iran that lasted eight years and caused one million casualties. But when Saddam Hussein grew too big for his boots, his former U.S. and British patrons brought him down. Now, over two decades later, another powerful Muslim cleric, Grand Ayatollah Ali el-Sistani, is challenging America’s Mideast Raj, and Washington has reacted to this perfectly predictable event with deep consternation and confusion.

The Bush administration was assured by the neoconservatives who engineered the Iraq War that a co-operative, turban-free regime of pro-U.S. Iraqis would quickly be installed in Baghdad, led by convicted swindler Ahmad Chalabi. However, if Chalabi and his Iraqi National Congress cronies failed, so much the better, went neocon thinking. Their primary objective was to destroy Iraq, not to rebuild it; for Iraq, once the Arab world’s best educated, most industrialized nation, had to be expunged as a potential military and strategic challenge to Israel. So now the U.S. has its own West Bank in Iraq. In the 1920s, Zionist leader Vladimir Jabotinsky called for Israel to rule “from the Nile to the Euphrates,” as the famous slogan went, by smashing the fragile mosaic of its Arab neighbors into ethnic fragments, then seizing the oil riches of Arabia. So Israel’s far Right and its American neocon fellow travelers are perfectly happy to see Iraq divided de facto into its three component ethnic parts: Shia, Sunni Arab, and Kurd. Better a feeble Iraq broken into weak cantons, like post-1975 Lebanon, than a nation united, even under a U.S.-run regime. But while Likudniks rejoice at the destruction of their ancient enemy, the United States faces the conundrum of how to forge a seemingly democratic government in Iraq in the face of the nation’s impossible ethnic-religious calculus. Installing a brutal general to run Iraq would be far more convenient. But having found no weapons of mass destruction, the embarrassed Bush administration is now touting creation of democracy as its casus belli and so must go through the motions of democratization.

Enter Grand Ayatollah Sistani. After his rival, Ayatollah Hakim al-Bakr, was blown to bits by a huge bomb, Sistani emerged as the leading voice of Iraq’s Shia. He has so far played a cautious game, urging elections but rejecting calls by his followers for a more overtly anti-American line or armed resistance. Any fair election will give power to Iraq’s Shia, who are 60 percent of the population. If this does not happen, there will be a possible recourse to arms.

Washington has now inherited the identical problem faced by imperial Britain when, in order to control the region’s recently discovered oil, it stitched together three disparate Ottoman vilyats to create the Frankenstein state of Iraq.

Britain, following its usual colonial practice of putting compliant ethnic or religious minorities in power, filled the army, police, and government with Sunni Arabs, who made up only 20 percent of the population. Sunnis ruled Iraq from the 1920s until the U.S. overthrew the regime of Saddam Hussein.

Shia were repressed, often savagely, and economically deprived. Iraq’s ever-rebellious Kurds were kept under control by frequent punitive expeditions and regular bombing of insurgents by the RAF from its main base at Habibanyah. Iraq’s post-1958 regimes followed this practice. Today, U.S. occupation forces in Iraq are also conducting air pacification, this time against rebellious Sunni Arabs.

Interestingly, Britain’s arch-imperialist, Winston Churchill, authorized the RAF to drop poison gas on “primitive tribesmen,” meaning Iraq’s Kurds and Afghanistan’s Pashtun, a fact conveniently forgotten by Tony Blair and George W. Bush when they excoriated Saddam Hussein for “gassing his own people.”

Having been excluded from political power, Iraq’s well-organized Shia are understandably clamoring for empowerment. Most, though not all, appear to desire what they call Islamic democracy: an Iranian-style combination of elective and consultative assemblies with strong checks and balances, overseen by a supreme religious leader—Grand Ayatollah Sistani.

For Washington, which seeks to run Iraq through a small group of handpicked satraps, an Islamic government is anathema. But the Bush administration is very eager to proclaim some sort of “democratic” Iraqi government after a “handover of power” next June—in time for U.S. fall elections.

U.S. proconsul Paul Bremer’s attempt to cobble together a Rube Goldberg system of political caucuses designed to check Shia power, assure Sunni, Kurd, and Turkoman minority rights, and keep the regime under U.S. control, has failed. Ayatollah Sistani has rejected this clumsy, unworkable plan and calls for direct elections as soon as possible. UN advisors, brought in by the U.S. in an effort to paper over differences with the Shia, have backed Sistani’s call for direct elections. Ironically, after proclaiming the dawn of democracy in Iraq, the U.S. is now trying to block direct elections, thwart any form of Islamic government, and deny office to Iraqis opposed to U.S. occupation.

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At the same time, Iraq’s Kurds, who now have two virtually independent mini-states in the north, are determined to create an independent nation in northern Iraq that controls the rich Kirkuk oilfields. They are dead set against losing their newfound political and economic autonomy and refuse to place themselves under either Shia or Sunni Arab rule. And having waged a bloody, two-decade struggle against their own independence-seeking Kurds, the increasingly angry Turks are not about to countenance the emergence of a Kurdish state right across the border that controls major oil fields that once belonged to the Ottoman Empire. But Kurds are America’s closest allies in Iraq, and their voices ring loud in Washington. While Kurds may agree to pay lip service to some powerless national body in Baghdad, they are unlikely to cede political rights or control of customs and oil revenues or to cease driving ethnic Arabs from the northern regions. They may also fall to tribal feuding at any time, as so often in their past.

This leaves the Sunni Arabs, who are waging a robust insurgency against occupation forces. A new cadre of Sunni Arab nationalist leaders is emerging in the anti-U.S. underground, in tandem with small but lethal numbers of militant Islamic jihadists. They, not the old, discredited Ba’ath Party, will challenge U.S. rule of Iraq. If the insurgency continues—and it shows no signs of abating—Iraq could become a second Afghanistan, an incubator for a new generation of anti-Western militants from across the Muslim World.

A resolution to Iraq’s ethnic problems defies easy answers. A Swiss-style system, with a weak central government and powerful cantons, is probably the best solution. But long-term, Iraq’s dissolution into three nations may be inevitable.

Meanwhile, the Bush administration is faced with a basic contradiction between its claims of forging a truly democratic Iraq and U.S. strategic ambitions in the region. A free vote in Iraq will produce a Shia-dominated government sympathetic to neighboring Iran. And the ultimate test of any genuine democracy in Iraq will be its ability to order U.S. forces out of Iraq, something the Bush administration will not allow.

The Pentagon plans three major military bases in Iraq from which to control the oil-producing Mideast and to protect the new “Imperial Lifeline,” the pipelines bringing crude westward from the Caspian Basin. Britain used Iraq for the same purpose. In all but name, the U.S. has become heir of the old British Empire.

Washington wants a compliant regime of Iraqi yes-men, what Algerians used to call, “beni oui-ouis,” running internal affairs under the stern gaze of American garrison troops, who will intervene, like the British imperialists, whenever the locals get out of hand or Iraqi politicians grow too independent-minded.

But Ayatollah Sistani and the Shia will not accept a Vichy Iraqi government that excludes them from running Iraq’s foreign and domestic affairs, though that is precisely what Washington plans in June when it “hands over power to Iraqis”—most likely by expanding the existing U.S.-appointed Governing Council of Iraqi collaborators or by staging a rigged national tribal assembly, as was done in Afghanistan. Unfortunately for the Bush administration, it has not yet located in Iraq a glib figurehead like former CIA “asset” in Afghanistan, Hamid Karzai.

So Iraq’s Shia will likely find themselves on a collision course with the U.S. occupation. Younger Shi’ites may disregard their elders’ calls for caution and, not to be outdone by their Sunni rivals, take up arms. If this happens, the current insurgency in the Sunni Triangle (actually a rectangle) will appear modest by comparison. In fact, as Shia anger and frustration surge, Iraq is increasingly resembling Lebanon during its long civil war, and there appears an inexorable slide towards both a wider insurgency and inter-ethnic strife.

What should the U.S. do? The most sensible course: hand Iraq to the UN and pull out. This would produce intense neocon wailing about loss of credibility and giving in to terrorism. But in fact, the longer the U.S. stays in Iraq, the more credibility it loses, and the more it stokes terrorism.

If a total pullout is not in the cards, then the best option is to co-operate with Iraq’s Shia majority and show that the U.S. can work fruitfully with an Islamic regime. Co-operation with Islamists in Baghdad opens the way to good relations with Tehran and a major lessening of anti-American feelings across the Muslim World. But of course, the neocons will do their best to thwart such détente.The United States has not enough men, treasure, nor intellectual energy to struggle through the morass of Mesopotamian politics and ethnic strife. Governments can usually only think of two or three things at a time, and the mess in Iraq should not be one of them. Otherwise, it will come to bedevil us and sap our energies, just as Iran did in the late 1970s and ’80s. Unless we learn from our errors and work to co-operate with the latest problematic mullah, Ayatollah Sistani, he could well be come the nemesis his predecessor, Imam Khomeini, did just two decades ago.

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Eric S. Margolis is the author of War at the Top of the World: The Struggle for Afghanistan and Asia and a columnist, commentator, and war correspondent.