Received: (qmail 15994 invoked from network); 8 Sep 2006 20:57:58 -0000 Received: from ip-64-202-189-245.secureserver.net (HELO pre-smtp19-01.prod.mesa1.secureserver.net) ([64.202.189.245]) (envelope-sender ) by smtp05-01.prod.mesa1.secureserver.net (qmail-ldap-1.03) with SMTP for ; 8 Sep 2006 20:57:58 -0000 Received: (qmail 16174 invoked from network); 8 Sep 2006 20:57:58 -0000 Received: from unknown (HELO rwcrmhc12.comcast.net) ([216.148.227.152]) (envelope-sender ) by pre-smtp19-01.prod.mesa1.secureserver.net (qmail-ldap-1.03) with SMTP for ; 8 Sep 2006 20:57:57 -0000 Received: from pc1 (c-71-198-198-112.hsd1.ca.comcast.net[71.198.198.112]) by comcast.net (rwcrmhc12) with SMTP id <20060908205755m12008ej8me>; Fri, 8 Sep 2006 20:57:55 +0000 Message-ID: <001501c6d389$6f038600$0200a8c0@PC1> Reply-To: "Pointer" From: "Pointer" To: "Pointer @LittleHornArchive.com" Subject: The Policy Dilemma - Outside the Box Special Edition Date: Fri, 8 Sep 2006 13:57:43 -0700 Organization: LittleHornArchive.com MIME-Version: 1.0 Content-Type: multipart/alternative; boundary="----=_NextPart_000_0012_01C6D34E.C1BD5B40" X-Priority: 3 X-MSMail-Priority: Normal X-Mailer: Microsoft Outlook Express 6.00.2900.2869 X-MimeOLE: Produced By Microsoft MimeOLE V6.00.2900.2962 X-Nonspam: Statistical 64% X-NAS-Classification: 0 X-NAS-MessageID: 15549 X-NAS-Validation: {90CAE177-5BA4-4FB6-A837-23BBD659225E} This is a multi-part message in MIME format. ------=_NextPart_000_0012_01C6D34E.C1BD5B40 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable =20 =20 Contact John Mauldin=20 Print Version=20 =20 Volume 2 - Special Edition September 7, 2006 Iraq: The Policy Dilemma=20 By George Friedman =20 =20 Today I am sending out a Special Edition of Outside the = Box. My good friend George Friedman, the President of Stratfor.com, has = posted a very insightful essay on the dilemma facing the U.S. on the = situation in Iraq. Contrary to many of the conflicting assessments by = politically motivated pundits, each with their own agendas, that are put = forth as "analysis," Stratfor provides reality based in-depth and = logical analysis. Again, if you are in the business of managing money = (someone else's or your own) where an eye to what is happening in the = world is critical, or you are a student of geo-politics, or both, I = strongly suggest that you stay up-to-date on the geopolitical landscape = as it can have broad implications for both investment and political = decision making.=20 As I have said in the past, Stratfor is my main and = favorite source for geo-political news and analysis. They have often = been referred to in the mainstream press as a 'private CIA,' but I would = say in Stratfor's defense that they seem to be more right than their = government counterpart.=20 A subscription to Stratfor is well worth the money as = George tells me that the renewal rates are close to 90%, which = demonstrates how valuable their readers regard the information that they = receive on a daily basis. While this essay is on Iraq, they also cover = the rest of the world, and you can get information on whatever part of = the world you are interested in on their website.=20 Once again I talked George into dropping his = subscription price to half. Click here to find out more and to signup. = And I would say I hope you enjoy the essay, but what George suggests the = new reality of Iraq to be is not actually fun reading. Iraq may be on = its way to becoming a real problem with no easy answers from a US = perspective.=20 John Mauldin, Editor =20 =20 =20 =20 =20 Iraq: The Policy Dilemma By George Friedman =20 =20 =20 U.S. President George W. Bush now has made it = clear what his policy on Iraq will be for the immediate future, = certainly until Election Day: He does not intend to change U.S. policy = in any fundamental way. U.S. troops will continue to be deployed in = Iraq, they will continue to carry out counterinsurgency operations, and = they will continue to train Iraqi troops to eventually take over the = operations. It is difficult to imagine that Bush believes there will be = any military solution to the situation in Iraq; therefore, we must try = to understand his reasoning in maintaining this position. Certainly, it = is not simply a political decision. Opinion in the United States has = turned against the war, and drawing down U.S. forces and abandoning = combat operations would appear to be the politically expedient move. = Thus, if it is not politics driving him -- and assuming that the more = lurid theories on the Internet concerning Bush's motivations are as = silly as they appear -- then we have to figure out what he is doing.=20 Let's consider the military situation first. = Bush has said that there is no civil war in Iraq. This is in large = measure a semantic debate. In our view, it would be inaccurate to call = what is going on a "civil war" simply because that term implies a degree = of coherence that simply does not exist. Calling it a free-for-all would = be more accurate. It is not simply a conflict of Shi'i versus Sunni. The = Sunnis and Shia are fighting each other, and all of them are fighting = American forces. It is not altogether clear what the Americans are = supposed to be doing.=20 Counterinsurgency is unlike other warfare. In = other warfare, the goal is to defeat an enemy army, and civilian = casualties as a result of military operations are expected and = acceptable. With counterinsurgency operations in populated areas, = however, the goal is to distinguish the insurgents from civilians and = destroy them, with minimal civilian casualties. Counterinsurgency in = populated areas is more akin to police operations than to military = operations; U.S. troops are simultaneously engaging an enemy force while = trying to protect the population from both that force and U.S. = operations. Add to this the fact that the population is frequently = friendly to the insurgents and hostile to the Americans, and the = difficulty of the undertaking becomes clear.=20 Consider the following numbers. The New York = Police Department (excluding transit and park police) counts one = policeman for every 216 residents. In Iraq, there is one U.S. soldier = (not counting other coalition troops) per about 185 people. Thus, = numerically speaking, U.S. forces are in a mildly better position than = New York City cops -- but then, except for occasional Saturday nights, = New York cops are not facing anything like the U.S. military is facing = in Iraq. Given that the United States is facing not one enemy but a = series of enemy organizations -- many fighting each other as well as the = Americans -- and that the American goal is to defeat these while = defending the populace, it is obvious even from these very simplistic = numbers that the U.S. force simply isn't there to impose a settlement.=20 Expectations and a Deal Unwound=20 A military solution to the U.S. dilemma has not = been in the cards for several years. The purpose of military operations = was to set the stage for political negotiations. But the Americans had = entered Iraq with certain expectations. For one thing, they had believed = they would simply be embraced by Iraq's Shiite population. They also had = expected the Sunnis to submit to what appeared to be overwhelming = political force. What happened was very different. First, the Shia = welcomed the fall of Saddam Hussein, but they hardly embraced the = Americans -- they sought instead to translate the U.S. victory over = Hussein into a Shiite government. Second, the Sunnis, in view of the = U.S.-Shiite coalition and the dismemberment of the Sunni-dominated Iraqi = Army, saw that they were about to be squeezed out of the political = system and potentially crushed by the Shia. They saw an insurgency -- = which had been planned by Hussein -- as their only hope of forcing a = redefinition of Iraqi politics. The Americans realized that their = expectations had not been realistic.=20 Thus, the Americans went through a series of = political cycles. First, they sided with the Shia as they sought to find = their balance militarily facing the Sunnis. When they felt they had = traction against the Sunnis, following the capture of Hussein -- and = fearing Shiite hegemony -- they shifted toward a position between Sunnis = and Shia. As military operations were waged in the background, complex = repositioning occurred on all sides, with the Americans trying to hold = the swing position between Sunnis and Shia.=20 The process of creating a government for Iraq = was encapsulated in this multi-sided maneuvering. By spring 2006, the = Sunnis appeared to have committed themselves to the political process. = And in June, with the death of Abu Musab al-Zarqawi and the announcement = that the United States would reduce its force in Iraq by two brigades, = the stage seemed to be set for a political resolution that would create = a Shiite-dominated coalition that included Sunnis and Kurds. It appeared = to be a done deal -- and then the deal completely collapsed.=20 The first sign of the collapse was a sudden = outbreak of fighting among Shia in the Basra region. We assumed that = this was political positioning among Shiite factions as they prepared = for a political settlement. Then Abdel Aziz al-Hakim, the head of the = Supreme Council for Islamic Revolution in Iraq (SCIRI), traveled to = Tehran, and Muqtada al-Sadr's Mehdi Army commenced an offensive. Shiite = death squads struck out at Sunni populations, and Sunni insurgents = struck back. From nearly having a political accommodation, the situation = in Iraq fell completely apart.=20 The key was Iran. The Iranians had always wanted = an Iraqi satellite state, as protection against another Iraq-Iran war. = That was a basic national security concept for them. In order to have = this, the Iranians needed an overwhelmingly Shiite-dominated government = in Baghdad, and to have overwhelming control of the Shia. It seemed to = us that there could be a Shiite-dominated government but not an = overwhelmingly Shiite government. In other words, Iraq could be neutral = toward, but not a satellite of, Iran. In our view, Iraq's leading Shia = -- fearing a civil war and also being wary of domination by Iran -- = would accept this settlement.=20 We may have been correct on the sentiment of = leading Shia, but we were wrong about Iran's intentions. Tehran did not = see a neutral Iraq as being either in Iran's interests or necessary. = Clearly, the Iranians did not trust a neutral Iraq still under American = occupation to remain neutral. Second -- and this is the most important = -- they saw the Americans as militarily weak and incapable of either = containing a civil war in Iraq or of taking significant military action = against Iran. In other words, the Iranians didn't like the deal they had = been offered, they felt that they could do better, and they felt that = the time had come to strike.=20 A Two-Pronged Offensive=20 When we look back through Iranian eyes, we can = now see what they saw: a golden opportunity to deal the United States a = blow, redefine the geopolitics of the Persian Gulf and reposition the = Shia in the Muslim world. Iran had, for example, been revivifying = Hezbollah in Lebanon for several months. We had seen this as a routine = response to the withdrawal of Syrian troops from Lebanon. It is now = apparent, however, that it was part of a two-pronged offensive.=20 First, in Iraq, the Iranians encouraged a = variety of factions to both resist the newly formed government and to = strike out against the Sunnis. This created an uncontainable cycle of = violence that rendered the Iraqi government impotent and the Americans = irrelevant. The tempo of operations was now in the hands of those Shiite = groups among which the Iranians had extensive influence -- and this = included some of the leading Shiite parties, such as SCIRI.=20 Second, in Lebanon, Iran encouraged Hezbollah to = launch an offensive. There is debate over whether the Israelis or = Hezbollah ignited the conflict in Lebanon. Part of this is ideological = gibberish, but part of it concerns intention. It is clear that Hezbollah = was fully deployed for combat. Its positions were manned in the south, = and its rockets were ready. The capture of two Israeli soldiers was = intended to trigger Israeli airstrikes, which were as predictable as = sunrise, and Hezbollah was ready to fire on Haifa. Once Haifa was hit, = Israel floundered in trying to deploy troops (the Golani and Givati = brigades were in the south, near Gaza). This would not have been the = case if the Israelis had planned for war with Hezbollah. Now, this = discussion has nothing to do with who to blame for what. It has = everything to do with the fact that Hezbollah was ready to fight, = triggered the fight, and came out ahead because it wasn't defeated.=20 The end result is that, suddenly, the Iranians = held the whip hand in Iraq, had dealt Israel a psychological blow, had = repositioned themselves in the Muslim world and had generally redefined = the dynamics of the region. Moreover, they had moved to the threshold of = redefining the geopolitics to the Persian Gulf.=20 This was by far their most important = achievement.=20 A New Look at the Region=20 At this point, except for the United States, = Iran has by far the most powerful military force in the Persian Gulf. = This has nothing to do with its nuclear capability, which is still years = away from realization. Its ground forces are simply more numerous and = more capable than all the forces of the Arabian Peninsula combined. = There is another aspect to this: The countries of the Arabian Peninsula = are governed by Sunnis, but many are home to substantial Shiite = populations as well. Between the Iranian military and the possibility of = unrest among Shia in the region, the situation in Saudi Arabia and the = rest of the Peninsula is uneasy, to say the least. The rise of Hezbollah = well might psychologically empower the generally quiescent Shia to = become more assertive. This is one of the reasons that the Saudis were = so angry at Hezbollah, and why they now are so anxious over events in = Iraq.=20 If Iraq were to break into three regions, the = southern region would be Shiite -- and the Iranians clearly believe that = they could dominate southern Iraq. This not only would give them control = of the Basra oil fields, but also would theoretically open the road to = Kuwait and Saudi Arabia. From a strictly military point of view, and not = including the Shiite insurgencies at all, Iran could move far down the = western littoral of the Persian Gulf if American forces were absent. Put = another way, there would be a possibility that the Iranians could seize = control of the bulk of the region's oil reserves. They could do the same = thing if Iraq were to be united as an Iranian satellite, but that would = be far more difficult to achieve and would require active U.S. = cooperation in withdrawing.=20 We can now see why Bush cannot begin withdrawing = forces. If he did that, the entire region would destabilize. The = countries of the Arabian Peninsula, seeing the withdrawal, would realize = that the Iranians were now the dominant power. Shia in the Gulf region = might act, or they might simply wait until the Americans had withdrawn = and the Iranians arrived. Israel, shaken to the core by its fight with = Hezbollah, would have neither the force nor the inclination to act. = Therefore, the United States has little choice, from Bush's perspective, = but to remain in Iraq.=20 The Iranians undoubtedly anticipated this = response. They have planned carefully. They are therefore shifting their = rhetoric somewhat to be more accommodating. They understand that to get = the United States out of Iraq -- and out of Kuwait --they will have to = engage in a complex set of negotiations. They will promise anything -- = but in the end, they will be the largest military force in the region, = and nothing else matters. Ultimately, they are counting on the Americans = to be sufficiently exhausted by their experience of Iraq to rationalize = their withdrawal -- leaving, as in Vietnam, a graceful interval for what = follows.=20 Options=20 Iran will do everything it can, of course, to = assure that the Americans are as exhausted as possible. The Iranians = have no incentive to allow the chaos to wind down, until at least a = political settlement with the United States is achieved. The United = States cannot permit Iranian hegemony over the Persian Gulf, nor can it = sustain its forces in Iraq indefinitely under these circumstances.=20 The United States has four choices, apart from = the status quo:=20 1. Reach a political accommodation that cedes = the status of regional hegemon to Iran, and withdraw from Iraq.=20 2. Withdraw forces from Iraq and maintain a = presence in Kuwait and Saudi Arabia -- something the Saudis would hate = but would have little choice about -- while remembering that an American = military presence is highly offensive to many Muslims and was a = significant factor in the rise of al Qaeda.=20 3. Halt counterinsurgency operations in Iraq and = redeploy its forces in the south (west of Kuwait), to block any Iranian = moves in the region.=20 4. Assume that Iran relies solely on its = psychological pre-eminence to force a regional realignment and, thus, = use Sunni proxies such as Saudi Arabia and Kuwait in attempts to = outmaneuver Tehran.=20 None of these are attractive choices. Each cedes = much of Iraq to Shiite and Iranian power and represents some degree of a = psychological defeat for the United States, or else rests on a risky = assumption. While No. 3 might be the most attractive, it would leave = U.S. forces in highly exposed, dangerous and difficult-to-sustain = postures.=20 Iran has set a clever trap, and the United = States has walked into it. Rather than a functioning government in Iraq, = it has chaos and a triumphant Shiite community. The Americans cannot = contain the chaos, and they cannot simply withdraw. Therefore, we can = understand why Bush insists on holding his position indefinitely. He has = been maneuvered in such a manner that he -- or a successor -- has no = real alternatives.=20 There is one counter to this: a massive American = buildup, including a major buildup of ground forces that requires a = large expansion of the Army, geared for the invasion of Iran and = destruction of its military force. The idea that this could readily be = done through air power has evaporated, we would think, with the Israeli = air force's failure in Lebanon. An invasion of Iran would be enormously = expensive, take a very long time and create a problem of occupation that = would dwarf the problem faced in Iraq. But it is the other option. It = would stabilize the geopolitics of the Arabian Peninsula and drain = American military power for a generation.=20 Sometimes there are no good choices. For the = United States, the options are to negotiate a settlement that is = acceptable to Iran and live with the consequences, raise a massive army = and invade Iran, or live in the current twilight world between Iranian = hegemony and war with Iran. Bush appears to be choosing an indecisive = twilight. Given the options, it is understandable why. =20 =20 =20 =20 =20 =20 You can send questions or comments on this article to = analysis@stratfor.com and or to me (John) and I will forward them on. = And to subscribe for 50% off you can click on this link.=20 Your not liking this picture analyst, John F. Mauldin johnmauldin@investorsinsight.com =20 =20 =20 =20 Reproductions. If you would like to reproduce any of = John Mauldin's E-Letters or commentary, you must include the source of = your quote and the following email address: = JohnMauldin@InvestorsInsight.com. Please write to = Reproductions@InvestorsInsight.com and inform us of any reproductions = including where and when the copy will be reproduced. For advertising inquires please contact = adsales@investorsinsight.com=20 =20 -------------------------------------------------------------- John Mauldin is president of Millennium Wave Advisors, = LLC, a registered investment advisor. All material presented herein is = believed to be reliable but we cannot attest to its accuracy. Investment = recommendations may change and readers are urged to check with their = investment counselors before making any investment decisions. Opinions expressed in these reports may change without = prior notice. John Mauldin and/or the staffs at Millennium Wave = Advisors, LLC and InvestorsInsight Publishing, Inc. ("InvestorsInsight") = may or may not have investments in any funds, programs or companies = cited above.=20 PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. = THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING = IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING = HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT = SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE = INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN = BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION = INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS = IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME = REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN = MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN = ONLY TO THE INVESTMENT MANAGER. Communications from InvestorsInsight are intended = solely for informational purposes. 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InvestorsInsight Publishing, Inc. -- 14900 Landmark = Blvd #350, Dallas, Texas 75254 =A9 InvestorsInsight Publishing, Inc. 2006 ALL RIGHTS = RESERVED =20 =20 =20 =20 =20 ------=_NextPart_000_0012_01C6D34E.C1BD5B40 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable

=





Contact=20 John Mauldin
Print=20 Version
Volume 2 - = Special=20 Edition
September 7,=20 2006



Iraq: The = Policy=20 Dilemma
By George=20 Friedman
Today I am sending out a = Special=20 Edition of Outside the Box. My good friend George = Friedman,=20 the President of Stratfor.com, has posted a very = insightful=20 essay on the dilemma facing the U.S. on the situation = in Iraq.=20 Contrary to many of the conflicting assessments by = politically=20 motivated pundits, each with their own agendas, that = are put=20 forth as "analysis," Stratfor provides reality based = in-depth=20 and logical analysis. Again, if you are in the = business of=20 managing money (someone else's or your own) where an = eye to=20 what is happening in the world is critical, or you are = a=20 student of geo-politics, or both, I strongly suggest = that you=20 stay up-to-date on the geopolitical landscape as it = can have=20 broad implications for both investment and political = decision=20 making.

As I have said in the past, Stratfor = is my=20 main and favorite source for geo-political news and = analysis.=20 They have often been referred to in the mainstream = press as a=20 'private CIA,' but I would say in Stratfor's defense = that they=20 seem to be more right than their government = counterpart.=20

A subscription to Stratfor is well worth the = money as=20 George tells me that the renewal rates are close to = 90%, which=20 demonstrates how valuable their readers regard the = information=20 that they receive on a daily basis. While this essay = is on=20 Iraq, they also cover the rest of the world, and you = can get=20 information on whatever part of the world you are = interested=20 in on their website.

Once again I talked = George into=20 dropping his subscription price to half. Click here to find out more and to = signup.=20 And I would say I hope you enjoy the essay, but what = George=20 suggests the new reality of Iraq to be is not actually = fun=20 reading. Iraq may be on its way to becoming a real = problem=20 with no easy answers from a US perspective. =

John=20 Mauldin, Editor

Iraq: The Policy=20 Dilemma
By George Friedman
U.S. President George W. Bush now = has made it=20 clear what his policy on Iraq will be for the = immediate=20 future, certainly until Election Day: He does = not intend=20 to change U.S. policy in any fundamental way. = U.S.=20 troops will continue to be deployed in Iraq, = they will=20 continue to carry out counterinsurgency = operations, and=20 they will continue to train Iraqi troops to = eventually=20 take over the operations. It is difficult to = imagine=20 that Bush believes there will be any military = solution=20 to the situation in Iraq; therefore, we must try = to=20 understand his reasoning in maintaining this = position.=20 Certainly, it is not simply a political = decision.=20 Opinion in the United States has turned against = the war,=20 and drawing down U.S. forces and abandoning = combat=20 operations would appear to be the politically = expedient=20 move. Thus, if it is not politics driving him -- = and=20 assuming that the more lurid theories on the = Internet=20 concerning Bush's motivations are as silly as = they=20 appear -- then we have to figure out what he is = doing.=20

Let's consider the military situation = first.=20 Bush has said that there is no civil war in = Iraq. This=20 is in large measure a semantic debate. In our = view, it=20 would be inaccurate to call what is going on a = "civil=20 war" simply because that term implies a degree = of=20 coherence that simply does not exist. Calling it = a=20 free-for-all would be more accurate. It is not = simply a=20 conflict of Shi'i versus Sunni. The Sunnis and = Shia are=20 fighting each other, and all of them are = fighting=20 American forces. It is not altogether clear what = the=20 Americans are supposed to be doing.=20

Counterinsurgency is unlike other = warfare. In=20 other warfare, the goal is to defeat an enemy = army, and=20 civilian casualties as a result of military = operations=20 are expected and acceptable. With = counterinsurgency=20 operations in populated areas, however, the goal = is to=20 distinguish the insurgents from civilians and = destroy=20 them, with minimal civilian casualties.=20 Counterinsurgency in populated areas is more = akin to=20 police operations than to military operations; = U.S.=20 troops are simultaneously engaging an enemy = force while=20 trying to protect the population from both that = force=20 and U.S. operations. Add to this the fact that = the=20 population is frequently friendly to the = insurgents and=20 hostile to the Americans, and the difficulty of = the=20 undertaking becomes clear.

Consider the=20 following numbers. The New York Police = Department=20 (excluding transit and park police) counts one = policeman=20 for every 216 residents. In Iraq, there is one = U.S.=20 soldier (not counting other coalition troops) = per about=20 185 people. Thus, numerically speaking, U.S. = forces are=20 in a mildly better position than New York City = cops --=20 but then, except for occasional Saturday nights, = New=20 York cops are not facing anything like the U.S. = military=20 is facing in Iraq. Given that the United States = is=20 facing not one enemy but a series of enemy = organizations=20 -- many fighting each other as well as the = Americans --=20 and that the American goal is to defeat these = while=20 defending the populace, it is obvious even from = these=20 very simplistic numbers that the U.S. force = simply isn't=20 there to impose a settlement. =

Expectations=20 and a Deal Unwound

A military = solution to=20 the U.S. dilemma has not been in the cards for = several=20 years. The purpose of military operations was to = set the=20 stage for political negotiations. But the = Americans had=20 entered Iraq with certain expectations. For one = thing,=20 they had believed they would simply be embraced = by=20 Iraq's Shiite population. They also had expected = the=20 Sunnis to submit to what appeared to be = overwhelming=20 political force. What happened was very = different.=20 First, the Shia welcomed the fall of Saddam = Hussein, but=20 they hardly embraced the Americans -- they = sought=20 instead to translate the U.S. victory over = Hussein into=20 a Shiite government. Second, the Sunnis, in view = of the=20 U.S.-Shiite coalition and the dismemberment of = the=20 Sunni-dominated Iraqi Army, saw that they were = about to=20 be squeezed out of the political system and = potentially=20 crushed by the Shia. They saw an insurgency -- = which had=20 been planned by Hussein -- as their only hope of = forcing=20 a redefinition of Iraqi politics. The Americans = realized=20 that their expectations had not been realistic.=20

Thus, the Americans went through a = series of=20 political cycles. First, they sided with the = Shia as=20 they sought to find their balance militarily = facing the=20 Sunnis. When they felt they had traction against = the=20 Sunnis, following the capture of Hussein -- and = fearing=20 Shiite hegemony -- they shifted toward a = position=20 between Sunnis and Shia. As military operations = were=20 waged in the background, complex repositioning = occurred=20 on all sides, with the Americans trying to hold = the=20 swing position between Sunnis and Shia. =

The=20 process of creating a government for Iraq was=20 encapsulated in this multi-sided maneuvering. By = spring=20 2006, the Sunnis appeared to have committed = themselves=20 to the political process. And in June, with the = death of=20 Abu Musab al-Zarqawi and the announcement that = the=20 United States would reduce its force in Iraq by = two=20 brigades, the stage seemed to be set for a = political=20 resolution that would create a Shiite-dominated=20 coalition that included Sunnis and Kurds. It = appeared to=20 be a done deal -- and then the deal completely=20 collapsed.

The first sign of the = collapse was a=20 sudden outbreak of fighting among Shia in the = Basra=20 region. We assumed that this was political = positioning=20 among Shiite factions as they prepared for a = political=20 settlement. Then Abdel Aziz al-Hakim, the head = of the=20 Supreme Council for Islamic Revolution in Iraq = (SCIRI),=20 traveled to Tehran, and Muqtada al-Sadr's Mehdi = Army=20 commenced an offensive. Shiite death squads = struck out=20 at Sunni populations, and Sunni insurgents = struck back.=20 From nearly having a political accommodation, = the=20 situation in Iraq fell completely apart. =

The key=20 was Iran. The Iranians had always wanted an = Iraqi=20 satellite state, as protection against another = Iraq-Iran=20 war. That was a basic national security concept = for=20 them. In order to have this, the Iranians needed = an=20 overwhelmingly Shiite-dominated government in = Baghdad,=20 and to have overwhelming control of the Shia. It = seemed=20 to us that there could be a Shiite-dominated = government=20 but not an overwhelmingly Shiite government. In = other=20 words, Iraq could be neutral toward, but not a = satellite=20 of, Iran. In our view, Iraq's leading Shia -- = fearing a=20 civil war and also being wary of domination by = Iran --=20 would accept this settlement.

We may = have been=20 correct on the sentiment of leading Shia, but we = were=20 wrong about Iran's intentions. Tehran did not = see a=20 neutral Iraq as being either in Iran's interests = or=20 necessary. Clearly, the Iranians did not trust a = neutral=20 Iraq still under American occupation to remain = neutral.=20 Second -- and this is the most important -- they = saw the=20 Americans as militarily weak and incapable of = either=20 containing a civil war in Iraq or of taking = significant=20 military action against Iran. In other words, = the=20 Iranians didn't like the deal they had been = offered,=20 they felt that they could do better, and they = felt that=20 the time had come to strike.

A = Two-Pronged=20 Offensive

When we look back through = Iranian=20 eyes, we can now see what they saw: a golden = opportunity=20 to deal the United States a blow, redefine the=20 geopolitics of the Persian Gulf and reposition = the Shia=20 in the Muslim world. Iran had, for example, been = revivifying Hezbollah in Lebanon for several = months. We=20 had seen this as a routine response to the = withdrawal of=20 Syrian troops from Lebanon. It is now apparent, = however,=20 that it was part of a two-pronged offensive.=20

First, in Iraq, the Iranians encouraged = a=20 variety of factions to both resist the newly = formed=20 government and to strike out against the Sunnis. = This=20 created an uncontainable cycle of violence that = rendered=20 the Iraqi government impotent and the Americans=20 irrelevant. The tempo of operations was now in = the hands=20 of those Shiite groups among which the Iranians = had=20 extensive influence -- and this included some of = the=20 leading Shiite parties, such as SCIRI. =

Second,=20 in Lebanon, Iran encouraged Hezbollah to launch = an=20 offensive. There is debate over whether the = Israelis or=20 Hezbollah ignited the conflict in Lebanon. Part = of this=20 is ideological gibberish, but part of it = concerns=20 intention. It is clear that Hezbollah was fully = deployed=20 for combat. Its positions were manned in the = south, and=20 its rockets were ready. The capture of two = Israeli=20 soldiers was intended to trigger Israeli = airstrikes,=20 which were as predictable as sunrise, and = Hezbollah was=20 ready to fire on Haifa. Once Haifa was hit, = Israel=20 floundered in trying to deploy troops (the = Golani and=20 Givati brigades were in the south, near Gaza). = This=20 would not have been the case if the Israelis had = planned=20 for war with Hezbollah. Now, this discussion has = nothing=20 to do with who to blame for what. It has = everything to=20 do with the fact that Hezbollah was ready to = fight,=20 triggered the fight, and came out ahead because = it=20 wasn't defeated.

The end result is that, = suddenly, the Iranians held the whip hand in = Iraq, had=20 dealt Israel a psychological blow, had = repositioned=20 themselves in the Muslim world and had generally = redefined the dynamics of the region. Moreover, = they had=20 moved to the threshold of redefining the = geopolitics to=20 the Persian Gulf.

This was by far their = most=20 important achievement.

A New Look at = the=20 Region

At this point, except for the = United=20 States, Iran has by far the most powerful = military force=20 in the Persian Gulf. This has nothing to do with = its=20 nuclear capability, which is still years away = from=20 realization. Its ground forces are simply more = numerous=20 and more capable than all the forces of the = Arabian=20 Peninsula combined. There is another aspect to = this: The=20 countries of the Arabian Peninsula are governed = by=20 Sunnis, but many are home to substantial Shiite=20 populations as well. Between the Iranian = military and=20 the possibility of unrest among Shia in the = region, the=20 situation in Saudi Arabia and the rest of the = Peninsula=20 is uneasy, to say the least. The rise of = Hezbollah well=20 might psychologically empower the generally = quiescent=20 Shia to become more assertive. This is one of = the=20 reasons that the Saudis were so angry at = Hezbollah, and=20 why they now are so anxious over events in Iraq. =

If Iraq were to break into three = regions, the=20 southern region would be Shiite -- and the = Iranians=20 clearly believe that they could dominate = southern Iraq.=20 This not only would give them control of the = Basra oil=20 fields, but also would theoretically open the = road to=20 Kuwait and Saudi Arabia. From a strictly = military point=20 of view, and not including the Shiite = insurgencies at=20 all, Iran could move far down the western = littoral of=20 the Persian Gulf if American forces were absent. = Put=20 another way, there would be a possibility that = the=20 Iranians could seize control of the bulk of the = region's=20 oil reserves. They could do the same thing if = Iraq were=20 to be united as an Iranian satellite, but that = would be=20 far more difficult to achieve and would require = active=20 U.S. cooperation in withdrawing.

We can = now see=20 why Bush cannot begin withdrawing forces. If he = did=20 that, the entire region would destabilize. The = countries=20 of the Arabian Peninsula, seeing the withdrawal, = would=20 realize that the Iranians were now the dominant = power.=20 Shia in the Gulf region might act, or they might = simply=20 wait until the Americans had withdrawn and the = Iranians=20 arrived. Israel, shaken to the core by its fight = with=20 Hezbollah, would have neither the force nor the=20 inclination to act. Therefore, the United States = has=20 little choice, from Bush's perspective, but to = remain in=20 Iraq.

The Iranians undoubtedly = anticipated this=20 response. They have planned carefully. They are=20 therefore shifting their rhetoric somewhat to be = more=20 accommodating. They understand that to get the = United=20 States out of Iraq -- and out of Kuwait --they = will have=20 to engage in a complex set of negotiations. They = will=20 promise anything -- but in the end, they will be = the=20 largest military force in the region, and = nothing else=20 matters. Ultimately, they are counting on the = Americans=20 to be sufficiently exhausted by their experience = of Iraq=20 to rationalize their withdrawal -- leaving, as = in=20 Vietnam, a graceful interval for what follows.=20

Options

Iran will do = everything=20 it can, of course, to assure that the Americans = are as=20 exhausted as possible. The Iranians have no = incentive to=20 allow the chaos to wind down, until at least a = political=20 settlement with the United States is achieved. = The=20 United States cannot permit Iranian hegemony = over the=20 Persian Gulf, nor can it sustain its forces in = Iraq=20 indefinitely under these circumstances. =

The=20 United States has four choices, apart from the = status=20 quo:

1. Reach a political accommodation = that=20 cedes the status of regional hegemon to Iran, = and=20 withdraw from Iraq.

2. Withdraw forces = from Iraq=20 and maintain a presence in Kuwait and Saudi = Arabia --=20 something the Saudis would hate but would have = little=20 choice about -- while remembering that an = American=20 military presence is highly offensive to many = Muslims=20 and was a significant factor in the rise of al = Qaeda.=20

3. Halt counterinsurgency operations in = Iraq and=20 redeploy its forces in the south (west of = Kuwait), to=20 block any Iranian moves in the region. =

4. Assume=20 that Iran relies solely on its psychological=20 pre-eminence to force a regional realignment = and, thus,=20 use Sunni proxies such as Saudi Arabia and = Kuwait in=20 attempts to outmaneuver Tehran.

None of = these=20 are attractive choices. Each cedes much of Iraq = to=20 Shiite and Iranian power and represents some = degree of a=20 psychological defeat for the United States, or = else=20 rests on a risky assumption. While No. 3 might = be the=20 most attractive, it would leave U.S. forces in = highly=20 exposed, dangerous and difficult-to-sustain = postures.=20

Iran has set a clever trap, and the = United=20 States has walked into it. Rather than a = functioning=20 government in Iraq, it has chaos and a = triumphant Shiite=20 community. The Americans cannot contain the = chaos, and=20 they cannot simply withdraw. Therefore, we can=20 understand why Bush insists on holding his = position=20 indefinitely. He has been maneuvered in such a = manner=20 that he -- or a successor -- has no real = alternatives.=20

There is one counter to this: a massive = American=20 buildup, including a major buildup of ground = forces that=20 requires a large expansion of the Army, geared = for the=20 invasion of Iran and destruction of its military = force.=20 The idea that this could readily be done through = air=20 power has evaporated, we would think, with the = Israeli=20 air force's failure in Lebanon. An invasion of = Iran=20 would be enormously expensive, take a very long = time and=20 create a problem of occupation that would dwarf = the=20 problem faced in Iraq. But it is the other = option. It=20 would stabilize the geopolitics of the Arabian = Peninsula=20 and drain American military power for a = generation.=20

Sometimes there are no good choices. For = the=20 United States, the options are to negotiate a = settlement=20 that is acceptable to Iran and live with the=20 consequences, raise a massive army and invade = Iran, or=20 live in the current twilight world between = Iranian=20 hegemony and war with Iran. Bush appears to be = choosing=20 an indecisive twilight. Given the options, it is = understandable why.

You can send = questions or=20 comments on this article to analysis@stratfor.com=20 and or to me=20 (John) and I will forward them on. And to = subscribe for=20 50% off you can click on this link.

Your = not liking=20 this picture analyst,


John F. Mauldin
johnmauldin@investorsins= ight.com

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