Friday, May 19, 2006

Interesting article on the Iran nuclear issue in the National Journal

Paul Starobin authored a very interesting and long article On Mullahs and MADness in the new issue of the National Journal which asks: What happens if Iran got the Bomb? Paul interviewed me and quotes me on the topic:
How Deterrence Could Work
In thinking about a new deterrence structure, some analysts advocate a global approach in which nuclear states -- including the U.S., Britain, France, Russia and China, the five permanent members of the U.N. Security Council -- would in effect cover the greater Middle East region with a protective nuclear umbrella. The proposition would be simple: If the mullahs use or even threaten to use nukes, they would face the prospect of retaliation from these powers. "I think that would make a powerful deterrent," said a leading backer of this tack, Harlan Ullman, a defense analyst with the Center for Strategic and International Studies in Washington and a former commander of a U.S. Navy destroyer in the Persian Gulf. Perhaps even a treaty could codify the arrangement, he added.

A Middle East deterrence umbrella, enforced by a concert of outside powers, could also be adjusted to cover any others in the Middle East who might come to possess the bomb -- Sunni Arab countries such as Saudi Arabia and Egypt, for example, which might feel compelled to head in this direction, for reasons of prestige and security, should Iran's mullahs gain a "Persian Shiite" bomb. (And maybe Turkey, too.) The perpetually volatile Middle East would thus become a multilateral security responsibility.

The main hurdle, and it is a tall one, is political will. The "Perm Five," as they're known, parted ways on the Iraq intervention and so far have not been able to agree on applying economic sanctions against Tehran for its defiance of international nuclear program inspectors. Moscow and Beijing have stakes in the Middle East that in some ways collide with Washington's perception of its interests there. Is this crowd really capable of jointly operating a deterrence mechanism? Maybe not.

A variant of the Ullman plan is to put the biggest of the big powers, America, in charge of the job. The U.S., on its own, could explicitly spell out to the mullahs the consequences of any attempt to use nuclear weapons -- or to slip a "suitcase bomb" or the like to a terrorist surrogate. Such a threat, given the enormous size of America's military arsenal, nuclear and conventional, as well as America's "eyes and ears" to detect any untoward moves by Iran, could carry a high degree of credibility. Indeed, part of what restrained the mullahs after the Khobar assault, according to a Clinton administration national security source, was that Washington made it very clear that, through its intelligence, "we knew a lot of what they were doing around the world" in terms of terrorism sponsorship.

America's Persian Gulf allies, such as Kuwait, who are not major military powers and who are themselves alarmed about the prospect of a nuclear Iran, might participate as junior partners in this kind of deterrence scheme for their own reasons. Addressing the prospect of a nuclear Iran in a recent memo [PDF] to leaders at West Point, retired Army Gen. Barry McCaffrey counseled against pre-emptive warfare, arguing, "We can bankrupt and isolate the Iranians as we did the Soviet Union and create a stronger Gulf alliance that will effectively deter this menace to our security." McCaffrey toured Iraq and Kuwait during an April trip.

But for this to work, according to the Henry Kissinger maxim on deterrence, there would still have to be fail-safe communication links between Washington and Tehran -- at a minimum, something like the "hotline" between Washington and Moscow, which was installed in the wake of the Cuban missile crisis. "The greatest danger of war," Kissinger once said, "seems to me not to be in the deliberate actions of wicked men, but in the inability of harassed men to manage events that have run away with them."

The problem, of course, is that the U.S. and Iran broke off diplomatic relations at the outbreak of the Iranian revolution. Both sides nurse grievances -- for America, the seizure of hostages at its Tehran Embassy in 1979; for Iran, America's treatment of the country as a pariah, a member of President Bush's proclaimed "axis of evil."

And yet, Iran's acquisition of a bomb would probably improve the chances of the U.S. and Iran renewing a dialogue after all these years. Because the mullahs feel so strongly that, in any fresh diplomatic start with Washington, they must be treated as "equals," Eisenstadt told me, "they see acquisition of a nuclear weapon as a precondition of having talks with the U.S." As the China example suggests, the history of nuclear deterrence is replete with these kinds of paradoxes.

Israel's Deterrence Role
The most ticklish issue in the Iran deterrence equation is the role of Israel. The Jewish state is generally averse to entrusting its security to outsiders, even a close friend like America. After all, a principle of Israel, a corollary of the "never-again" ethos, is a commitment to a robust self-defense capability. Israel's last resort, defensewise, is its unacknowledged nuclear arsenal -- the fruit of a research effort launched with the country's founding in 1948. (In 1986, an Israeli nuclear technician said that the country had more than 100 atomic warheads.)

Israel's first leader, David Ben-Gurion, was worried not so much about other Middle East states gaining nuclear weapons as about the need for tiny Israel to have a potent weapon that could effectively counter the huge armies of its hostile Arab neighbors. Once the weapon was gained, Israel, for political reasons, including quiet urging from an anxious Washington, adhered to a policy of "nuclear ambiguity" under which it would neither confirm nor deny its arsenal.

But Israel could jettison nuclear ambiguity if the mullahs get the bomb -- and thus break Israel's regional monopoly. In our talk, Shai Feldman, who wrote his dissertation, in the 1980s, on the Israeli nuclear deterrent, said, "If Iran becomes nuclear, Israel would not be able to tolerate the level of uncertainties and ambiguities and room for misperceptions that exist today." Even now, some Israeli leaders are sending loaded messages to Tehran. "They want to wipe out Israel," Vice Premier Shimon Peres said of Iran's leaders in a recent interview with Reuters. "Now, when it comes to destruction, Iran, too, can be destroyed," Peres asserted.

The most straightforward option would be for Israel officially to declare itself a nuclear power and, as the U.S. and France have done, to make public essential aspects of its nuclear-deterrence capabilities. Israel could also seek a direct dialogue with Iran, so each country's leaders could gain a clear understanding of the others' capabilities and intentions.

This would amount to a kind of regional deterrence system -- the approximate parallel would be India-Pakistan, both of which gained the bomb in 1998. Having fought three major wars before then, the first in 1947-48, those two nations have not waged a big one since, and they have regular, if sometimes heated communications. Lacking a land border, which in the India-Pakistan case has helped keep the pot simmering, Israel and Iran arguably would find it easier to maintain a cold stalemate, argues Leon Hadar, a native Israeli and a former U.N. bureau chief for The Jerusalem Post who is the author of Sandstorm, a 2005 book on the security climate in the Middle East. Hadar is currently a research fellow at the Cato Institute in Washington.

But Israeli leaders could face a request from Washington to, in effect, sit still, maintain nuclear ambiguity, and accept a U.S. pledge of protection from a nuclear Iran under a broad American deterrence umbrella. Why would Washington make such a request? The game-theory-like reasoning among strategists goes like this: If Iran goes nuclear, the chances that Arab powers like Egypt and Saudi Arabia will feel bound to follow suit will be lower if Israel keeps quiet. A public Israeli nuclear declaration would be like a face slap, forcing the hand of Arab leaders who have cynically made anti-Zionism a part of their rule and would thus have to call their own bluff.

Such reasoning may lie behind President Bush's recent vow "to defend Israel" from an attack by Iran. Many have seen Bush's comment as a blunt warning to Iran's hothead president, Ahmadinejad. But his warning may also represent something more subtle -- a signal for Israel to stay its hand, to keep the Middle East from being further roiled. Whether Israel would agree to do so if Iran gains nukes is one of the great unknowns of the Iran deterrence debate. "I don't think anyone knows how that will turn out," Feldman told me. (read more)

On the declining U.S. dollar

My commentary on the issue that was published in the Business Times of Singapore:

Business Times - 19 May 2006

DECLINING dollar reflects US policy failure


THE conventional wisdom in Washington is that President George W Bush hasn't been rewarded politically for a mostly booming US economy. Indeed, his approval rating in the public opinion polls is now somewhere in the low 20s, despite the fact that the indicators reflecting the resilience of the US economy - inflation (low), interest rates (relatively low), consumer spending (relatively high), unemployment (relatively low) - should have helped transform the current White House occupant into a popular president.

Most pundits explain that paradox by suggesting that Mr Bush's policy failures in Iraq and in dealing with Hurricane Katrina, a series of scandals involving officials and Republican lawmakers, and recent rising energy costs have counteracted any positive effect that the booming economy should have had on his standing in polls. But pollsters also point out that notwithstanding the good economic news, most Americans are uneasy about their long-term prosperity as a nation.

In a way, the anxiety among Americans reflects concerns over the continuing effects of globalisation on the American economy and society - the slow erosion in the US manufacturing base as a result of technological changes and competition from emerging economies; the dramatic demographic changes that have been produced by rising illegal (and legal) immigration; and the financial and human costs involved in maintaining the pre-eminent US global military position.

There is, however, another indicator that may explain why Americans seem so irritable these days. That has to do with the value of the US dollar falling 28 per cent against other currencies between 2002 and 2004. It then bounced back slightly, only to fall again against the euro and the yen in recent weeks. Representative Ron Paul, a Republican, who is the leading 'goldbug' on Capitol Hill, traces today's financial problems back to the removal of gold backing from global currencies. He argues that the real measure of just how far the US dollar has fallen can be found in the price of gold, which has reached a 25-year high of more than US$700 per ounce.

'It's much more accurate to measure the dollar against a stable store of value like gold, rather than against other fiat currencies,' Mr Paul writes in, a web site affiliated with the Misses Institute.

According to him, the declining US dollar as measured by the rising value of gold will continue 'until the American people demand an end to deficit spending by Congress and unrestrained creation of new dollars by the Federal Reserve and Treasury department'.

Or to put it differently, 'voting' for gold is a vote of no confidence in the ability of the Administration and Congress to control the budget and trade deficit, the Fed's ability to control the money supply, and by extension, the ability of Washington to pursue its hegemonic policy in the Middle East and elsewhere.

Most investors recognise that the federal government's huge debt and deficit spending will continue to grow as the costs of US military intervention abroad will rise and make the American economy more dependent on foreign governments and central bankers.

Indeed, in 2005, America's current account deficit with the rest of the world exceeded US$800 billion or about 6.5 per cent of GDP. As any economist will tell you, at some point Americans will have to start repaying what they borrowed abroad or they would face a world that refuses to lend them more money. Such a repayment of debt would have to be linked up to a big drop in the value of the US dollar.

Michael Mussa, former director of the International Monetary Fund (IMF) told John Maggs of the Washington-based National Journal that the value of the US dollar would have to drop by 25 per cent to have any impact on the US current account deficit. In turn, a lower US dollar will force higher interest rates, which will slow economic growth.

It's not inconceivable that foreign investors will decide at some point that the risk of investing their capital in the US outweighs the benefits and shift their investments to other currencies. According to Mr Mussa, the worst-case scenario would be a 'dollar crash' which could take place if speculators bet that the US dollar will continue to fall and devaluation begins to feed on itself, threatening China and other economies that tie their currencies to the US dollar.

Mr Paul believes that the world financial markets are already starting to bet against the US dollar. 'Our creditors, particularly Asian central banks, are losing their appetite for US Treasuries,' he writes. The long-term significance will sink in when Americans understand that the steady erosion of the value of the US dollar means they will all be poorer in the future.

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