Winds of War, Part II

Last summer, I made it absolutely clear that peace in the Middle East was a pipedream.

I wrote:

“If our leaders and allies still think they have the power to impose their brand of peace and freedom on the Middle East, they need to check into an insane asylum.”

Indeed, with the benefit of hindsight, we can now look back at a decade in which foreign intervention did little more than foment chaos, revolution and more wars.

For the evidence, just compare the two maps below.

The first map shows what the region looked like about five years ago when the wars of Iraq and Afghanistan were still in full swing; the U.S. was still debating withdrawal; and nearly all American citizens voted for the presidential candidate they thought could do the best job of ending the conflicts.

Click for larger version

* Libya, Egypt, Syria, Lebanon and the entire Arabian peninsula were stable (green areas in map) …

* Iraq and Afghanistan were the only theatres of war (red), and …

* Iran was the only other country where long-term stability could be seriously questioned (yellow).

So the focus of the U.S. and its NATO allies was strictly those three countries. And their only major challenge was to bring the troops home without leaving chaos in their wake.

The Palestinian-Israeli conflict was raging, as always. But in contrast to the new wars elsewhere, that six-decades-old conflict was such a known quantity, one would be hard pressed to argue that it was a significant destabilizing factor for the region.

In short, we had:

• Two, maybe three, conflicts to seriously worry about …

• Moderate impact on the major world powers …

• No broad threat to the global economy, and

• High hopes for future long-term stability.

Now, fast-forward to January 11, 2014, and look how dramatically the picture has changed:

Click for larger version

This second map, updated through January 2014, shows how the litany of woes in the region is unprecedented in modern history …

1. All the green areas (representing stability) have disappeared. In fact, the word “stability” is gone from the lexicon of any serious observer in the region; every country in the region is impacted — internally and externally … politically and socially … in terms of trade, the influx of refugees and the stirring of pre-existing conflicts.

2. Egypt, Yemen and Pakistan — are in various stages of becoming collapsed states, where the rule of law is virtually gone and chaos begins to reign.

3. Iraq’s “Arab Awakening,” largely responsible for the end of its first civil war, is dead. In its place, we’re witnessing a powerful resurgence of al Qaeda; and that resurgence has now brought the dangerous takeover of two major cities, which I wrote about last week.

4. Lebanon is sinking rapidly into a second civil war, which directly impacts Israel and other neighboring countries.

5. Turkey, a member of NATO, has been dragged into the madness, which, in turn, is exacerbating its own domestic political divisions.

6. In Libya, not only is their civil war being reignited — between the government and a plethora of militias — but it’s also spreading from Libya to the south, west, east and broadly across the African continent.

According to the Mideast Mirror, the security breakdown in Libya has been extreme: “It is no longer possible to sense any form of authority that can be relied upon and that could lead Libya to the shore of safety and rid the country and its people of the militias of various forms and allegiances that now impose their law and authority alone.

“Libya … is now hostage to outlaw forces, armed groups, thieves, and arms and human smugglers. These have transformed the country into a safe haven for terrorism, assassinations, intimidation, killings, and random extra-legal detentions.”

Worst of all, the sum of each of these mostly internal conflicts has now transformed the region into …

The Balkans of the 21st Century

You see, until recently, most of the conflicts were primarily domestic. The threads of cross-cutting alliances were often tangled.  Direct support by regional and world powers was either limited or hidden. So the danger of a great Middle East war was not an immediate concern.

Now it is.

And overlaid onto the geopolitical and economic rivalries is the most powerful mobilizing force of all in Muslim world — the millennial split between Shia and Sunni, dating back to the death of Muhammad in the year 632:

On the Shia side of the conflict are the regimes of Iran, Iraq and Syria plus Hezbollah in Lebanon and the Mahdi Army in Iraq.

On the Sunni side are Saudi Arabia, Egypt, Turkey, Al Qaeda and its many affiliates I listed here last week.

And right now, the central — but certainly not the only — battlefields of the conflict are Syria, Lebanon and Iraq.

Former German foreign minister Joschka Fischer puts it this way:

“What makes Syria’s civil war so dangerous is that the players on the ground are no longer its driving forces. Rather, the war has become a struggle for regional dominance between Iran on one side and Saudi Arabia, Qatar and Turkey on the other. As a result, the Middle East is at risk of becoming the Balkans of the 21st century …”

But anyone who still thinks there’s a wall surrounding the region which can contain such a broad regional conflict needs to check into the same institution as those who think they can fix it.

Iran and Saudi Arabia are more than just regional powers — they control massive resources that help power the global economy. All five permanent members of the UN Security Council — the U.S., the U.K.,  France, China and Russia — are heavily involved in the region.

But unlike the conflicts of five years ago, the major world powers have drawn a line in the sand — U.S. and its NATO allies vs. Russia and China.

Unlike any time in the past, we’ve seen U.S. and Russian battleships move into the area.

And unlike any time in the past, the ECONOMIC consequences of the NEXT phase of this regional war are boundless, raising urgent questions for investors:

How will it impact U.S. relations with Iran, Saudi Arabia and Israel?

To what degree will it drive scared money into U.S. markets?

When will that money also start flowing into safe havens like gold?

What impact will it have on energy prices?

Go to my blog and give me your feedback.

Good luck and God bless!

Martin