Should The US Negotiate With Iran On Iraq?
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US & Iran Finally Open Talks On Iraq

The war in Iraq has gone dreadfully wrong. We all (liberals and conservatives) know that. The Bush administration was clearly unprepared for the Jihadist war and the sectarian violence that would follow after the fall of Saddam Hussein. But was the plan to oust Saddam Hussein wrong in the first place, or was it just terribly planned from the start? There are some intelligent minds on both sides of that question.

As I have written often in the past, the Bush administration initially thought they would win an easy victory in Iraq, and then position US military forces in Saddam's many military compounds. Thereafter, the long-term strategy was that our new military installations in Iraq would be used to project democracy around the Middle East.

It was arguably a good idea on paper -- to project democracy in one of the most unstable regions of the world, that just happens to control much of the global oil supply. But there was no way the Bush administration could win support for such a bold plan, so they went with the 'weapons of mass destruction' theory based on evidence that was believed -- at the time -- by both the CIA and British intelligence. Based on this evidence, even many State Department liberals signed on to the war in Iraq. Many liberals in Congress signed onto it as well. The war began in March 2003.

While Saddam Hussein was ousted quickly, the Iraq war has dragged on for over four years, and the main goals of the initial initiative have gone unaccomplished. Thousands of US soldiers have lost their lives. The failure of the Bush administration's pre-war planning has long since become clear, and public support for the war has reached new lows. Now, even many conservatives want to end the war and bring our troops home.

The question is, how do we get out and how do we somehow salvage something beneficial out of the war in Iraq? President Bush has recently succumbed to holding high-level talks with the Iranians as a last-ditch effort to find a solution to the war in Iraq. Never mind that Iran is training, arming and funding the Jihadists that are killing American soldiers in Iraq. Likewise, never mind the fact that the Irainians are intent upon acquiring nuclear weapons that the current leaders intend to target at Israel and the US.

Meanwhile, we read that there are high-level talks going on in the Defense Department and the State Department about the US mounting a new Middle East war against Iran. So, if we are to believe what we read, we are simultaneously holding diplomatic talks with the Iranians for the first time in over 25 years, while at the same time planning a potential military offensive against Iran. If this sounds confusing to you, join the crowd.

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Stratfor’s Latest Analysis Of The Situation In Iraq

As It Pertains To The Latest US & Iran Negotiations

Let's start this week with a discussion by our friends at on the latest break-through(?) in US and Iran relations in light of the latest face-to-face meeting between the US and Iran. As usual, Dr. George Freidman and his astute associates offer a very insightful overview into what is happening between the US and Iran in the following pages. They also offer a very interesting summary of the various players and groups in Iraq that will shape the negotiations between Iran and the US. After that, I will follow with some additional thoughts and analysis.


Iran, the United States and
Potential Iraq Deal-Spoilers

After 27 years of frozen relations, the United States and Iran held their first high-level direct talks in Baghdad on May 28 to negotiate a plan on how to stabilize Iraq. U.S. Ambassador to Iraq, Ryan Crocker, and his Iranian counterpart, Hassan Kazemi-Qomi, traded accusations about who was the bigger destabilizing force in Iraq. But by the end of the four-hour meeting, both described the negotiations as a positive first step in bringing the two sides together to stabilize Iraq. Kazemi-Qomi even said there probably would be a follow-up meeting within a month if he gets the OK from Tehran.

Iran and the United States evidently have come a long way since the spring of 2003, when Washington double-crossed Tehran on the two countries' original understanding that a pro-Iranian, Shiite-dominated Iraq would be allowed to emerge in exchange for Iran's help in effecting regime change in Baghdad. When the United States removed two hostile Sunni regimes from Iran's border -- the Taliban in Afghanistan and Saddam Hussein in Iraq -- the Iranians knew they had to check the United States on the regional chessboard so Washington understood any U.S. exit strategy from Iraq would have to come through Tehran. Only then, Tehran reasoned, could Iran use Iraq as a launchpad to extend Iranian influence in the Arab world.

Feeling a deep sense of betrayal, the Iranian government carried out a variety of deadly maneuvers that ultimately convinced Washington that neither the Iranians nor the Americans were going to succeed in gluing Iraq back together on their own. The negotiations are still marred by mutual distrust, but after four years of explosive negotiating tactics, Iran and the United States have reached a point at which both sides have acknowledged they cannot afford to avoid each other if they want to avoid their worst-case scenarios in Iraq.

As the negotiations grow in intensity, so does the noise. The lead-up to the May 28 talks was punctuated by a series of interesting jabs as each side sought leverage against the other. While the United States sent nine warships with 17,000 troops into the Persian Gulf (which the U.S. military deliberately referred to as the Arabian Gulf in the official press release on the naval exercises) and stepped up threats of broadening sanctions against Tehran due to the latter's nuclear activities, Iran continued broadcasting its atomic advances and announced it had uncovered Western-run spy rings inside the Islamic republic. The United States is still holding onto five Iranian officials arrested in the northern Iraqi city of Arbil in January as bargaining chips in talks with Iran. Iran has responded with a series of arrests of Iranian-Americans affiliated with think tanks on allegations they are dissidents working to topple the clerical regime. These belligerent tactics are all part of the game, and will flare up even further as the negotiations grow more serious.

The Meat of the Matter

It now becomes all the more critical to cut to the meat of these talks: the negotiating terms put forth by Washington and Tehran over how each plans to fix Iraq.

Iran handed over a proposal to Crocker during a brief encounter at the May 5-6 Sharm el-Sheikh summit in Egypt, but also chose to unofficially publicize its terms for Iraq through the Saudi-owned, British-based daily Al Hayat. The Iranian Foreign Ministry likely chose Al Hayat, a major Arab news outlet, to make a back-channel broadcast of what concessions it is prepared to make to allay Sunni concerns in the region.

In sum, this Iranian proposal called for a non-rushed withdrawal and relocation of U.S. troops to bases inside Iraq, a rejection of all attempts to partition Iraq, a commitment by the Sunni bloc to root out the jihadists and acknowledgement by Washington that the Iranian nuclear file cannot be uncoupled from the Iraq negotiations. In return, Iran would rein in the armed Shiite militias, revise the de-Baathification law and Iraqi Constitution to double Sunni political representation, create a policy to allow for the fair distribution of oil revenues (particularly to the Sunnis) and use its regional influence to quell crises in areas such as Lebanon, Syria and the Palestinian territories.

The terms put forth by the Iranians are so close to the U.S. position on Iraq that, with little exception, they could have been printed on State Department stationary and no one would have noticed the difference. If these are the terms Washington and Tehran are in fact discussing, then we are witnessing an extraordinary turn in the Iraq war in which the U.S. and Iranian blueprints for Iraq are finally aligning. It does not surprise us, then, that Crocker said after his meeting in Baghdad that the Iranian position 'was very close to our own' at the level of policy and principle. [Emphasis added, GDH]

The Spoilers

The prospect of Washington and Tehran warming up to each other, and of the United States potentially regaining its military bandwidth in the not-too-distant future, is enough to put a number of serious actors into a frenzy. With the exception of the jihadists, most of the actors in question see an Iranian-U.S. accommodation over Iraq as inevitable, and have little choice but to strive to shape what would otherwise be an imposed reality in the coming months -- leaving substantial room for error in these negotiations. The Iraqi Sunnis and Arab states, in particular, will not necessarily sabotage the talks, but they will be working to secure Sunni interests and contain the extent to which Iran emerges as the primary beneficiary of any deal it works out with the United States over Iraq.


Within Iraq, the transnational jihadists have the most immediate concerns. A political settlement in Baghdad inevitably would involve a concerted effort by Iraq's Shia and mainstream Sunnis to uproot the jihadists and deprive them of the chaotic security conditions needed for their operations. The apex leadership of al Qaeda hiding out along the Pakistan-Afghanistan border is also betting on continued bedlam in Iraq to keep the transnational jihadist movement alive, and will not be happy to see U.S. forces beefed up in the South Asia theater once a deal is sealed in Iraq. Violence aimed at heightening sectarian tensions to derail the negotiations -- particularly attacks aimed at inflaming the Shia -- will escalate substantially over the next few weeks and months in Iraq. High-value political targets also likely will be targeted for assassination in an effort to disrupt the leadership structure of the respective factions.

Iraqi Shia

The Iranians face a daunting task in whipping Iraq's Shiite bloc into shape to follow through with Tehran's commitment to quell sectarian attacks and consolidate Shiite political power in Iraq for the first time in the country's history. Factionalism is already hardwired into the structure of the Iraqi Shiite community, whose loyalties are spread among the three largest political groups -- the (newly named) Iraqi Islamic Supreme Council, Hizb al-Dawah and the al-Sadrite bloc, as well as a number of smaller Shiite groups in southern Iraq, such as the Fadhila party. The intra-Shiite rivalries within and between these groups are enough to give anyone a headache, but Iran is well aware that violence and a good deal of oil money will be needed to bring the Iraqi Shia in line and make these negotiations work. Though the main political groups are more comfortable with the idea of working with Iran, Tehran has to play its cards carefully to ensure it does not trigger nationalist Arab sentiment among the Shiite actors, who already are deeply suspicious of Iran's intentions and have the arms and access to Iraq's southern oil fields to use as tools for stirring up trouble.

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Iraqi Sunnis

Though not nearly as fractured as the Iraqi Shia, the Sunni landscape in Iraq has plenty of cracks of its own to make these negotiations troublesome. The Sunni factions in play include:


  • The existing political blocs, divided between the Islamist Iraqi Accord Front and the secular-leaning Iraqi National Dialogue Front;

  • The tribal groups, such as Anbar Salvation Council, that are actively fighting transnational jihadists to get a seat at the negotiating table;

  • The Sunni religious establishment, led by the hard-line Association of Muslim Scholars of Iraq that has close links with the insurgent groups and has become increasingly anti-Iranian in recent weeks;

  • The Sunni nationalist insurgents, who are looking for an acceptable opening into the political process, but remain distrustful of Shiite intentions.

The Iraqi Sunnis know they have to drive a hard bargain in these talks to ensure that Iraq's Sunnis are well-integrated in the state political and security apparatus to counter the Shiite majority. And they will continue to rely on explosives during the talks to make sure their demands are heard. Competing factions within the Sunni bloc and resistance from their former jihadist allies will only further complicate these negotiations, but unlike the jihadists, these Sunni groups are not opposed in principle to a deal that includes the Iranians -- they actually want negotiations.

Iraqi Kurds

By the looks of the Iranian proposal, the Kurds have plenty to worry about. Expanding Sunni political representation and changing the constitution to allow for a more 'fair' distribution of oil resources leaves the Kurdish bloc in an all-too-familiar scenario in which Kurdish interests will be sacrificed by the United States to protect the interests of Iraq's neighbors.

Thus far, the Kurds have used the distraction of Sunni-Shiite bloodletting farther south to consolidate power between the two main rival Kurdish blocs (an extremely rare occurrence) and push forward with Kurdish autonomous demands to open Iraq's northern oil fields to foreign business. Once Iraq's Shiite and Sunni blocs reach some level of a political understanding in Baghdad, their attention will soon turn to their common adversary in the north, leaving the Kurds to face familiar moves by the Iraqi government to suppress Kurdish autonomy. The Kurds will need to drive a hard bargain by pushing through a Kirkuk referendum by year's end and resisting radical changes to the constitution and pending hydrocarbons legislation that threaten to put Iraq's undeveloped fields in the north under state control. The biggest threats the Kurds could make to a U.S.-Iranian deal over Iraq would involve withdrawing Kurdish support for U.S. forces or threatening to pull out of the government. But in the end, a compromise looks inevitable simply because the Kurds have nowhere else to turn.

Ultraconservatives in Washington and Tehran

There are ultraconservative factions in both Tehran and Washington that are not nearly as enthused about a U.S.-Iran rapprochement, and could use their influence to complicate the negotiations. Rumor has it that in Iran there are major disagreements brewing between the president and other senior Iranian officials, particularly on foreign policy matters. There are also growing indications that the apex of the clerical establishment is making moves to sideline Iranian President Mahmoud Ahmadinejad and weaken the influence of his ultraconservative faction as a preventative measure to ensure progress in these talks. Though Iranian Supreme Leader Ayatollah Ali Khamenei has thus far managed the deep divisions within the Iranian establishment between the ultraconservative and pragmatic conservative factions, his ability to contain these divisions is held hostage by his failing health.

Meanwhile, hard-line elements in Washington are actively spreading information in an allegedly covert campaign signed off on by U.S. President George W. Bush to topple the clerical regime. These actors are more interested in effecting a policy of regime change rather than in a rapprochement with Iran, and they view the negotiations as little more than a smoke screen for a covert campaign to rid the Islamic republic of its ruling ayatollahs. These rumors threaten to fuel even more distrust between the two sides while the negotiations are in full swing, especially as Iran's greatest fear is that it will end up being backstabbed all over again once Washington recovers from Iraq and has enough bandwidth to entertain military options [ie- an attack on Iran's nuclear facilities and possibly even its military bases].

Sunni Regional Powers

Saudi Arabia and the Gulf Arab states are extraordinarily nervous about the idea of having the United States and Iran conduct exclusive meetings over a matter that directly concerns their national security interests. As the leader of the Sunni Arabs, the Saudis believe they have every right to be part of the formal negotiating process, but they also see the inevitability of the United States and Iran working toward an Iraq settlement. With the most at stake, the Saudi government normally would be screeching in protest during these U.S.-Iranian bilateral meetings, but instead it is keeping quiet. For now, the Saudis have to rely on the United States to ensure their demands for Sunni representation and Iranian containment are heard.

Meanwhile, the Iranians evidently are working to allay Sunni Arab fears by publicizing Tehran's Iraq proposal (with considerable concessions to Iraq's Sunnis) in the mainstream Arab press and stepping up diplomatic engagements with Iran's Sunni neighbors in the Gulf. But the more the Iranians speak of arming and training the Iraqi army, the more the Saudis have to worry about. The House of Saud does not want to be looking at a scenario down the road in which U.S. troops have withdrawn from Iraq while Iran uses its militant proxies there to create an excuse to intervene militarily, putting Iranian troops within sight of Saudi Arabia's oil- and Shiite-rich Eastern province. The Saudis are also not looking forward to the day when war-hardened Saudi jihadist veterans in Iraq return home to wage attacks in the kingdom. Though the Saudis might see an Iran-U.S. deal as inevitable, they will keep their ties to the full spectrum of Sunni militants to use as their main deal-breaker should an Iraq settlement fail to address their interests.


Syrian President Bashar al Assad also probably is lying awake at night over these U.S.-Iran talks. The Alawite-Baathist regime in Syria loved the idea of its allies in Tehran expanding Shiite influence while the United States remained far too militarily occupied in Iraq to bother with Syria. The insurgency in Iraq also provided Syria with a vital pressure release valve for Sunni militants in the country. Like Riyadh, the regime in Damascus does not want to see jihadists returning home from Iraq to carry out attacks on native soil.

Despite these concerns, the Syrians are hoping their alliance with Tehran will pay off and result in serious recognition and security assurances from the United States. For this to happen, Syria has to prove it is an integral piece of this Iraq deal by showing it possesses the ability to clamp down on insurgent traffic (by funneling jihadists into Lebanon for now). While Syria offers limited cooperation over Iraq to show its powers, the al Assad regime will become further emboldened to secure its interests in Lebanon, where Syria's priorities are rooted.


But the player with perhaps the most to lose is not even located in the Middle East. That player is Russia. At first glance, Russia is an odd party to even be involved in the Iraqi imbroglio. It has no troops in country and, no matter what happens to Iraq in the long run, Baghdad has no impact on anything Russian. Certainly Moscow was friendly with the previous government, but not to the degree that Saddam Hussein's fall appreciably impacted Russian political or economic interests. Russia does, however, have two horses in this race.

The first relates to the Iranian nuclear program, which lists the Russian-built Bushehr power plant as its crown jewel. Despite Iranian protestations to the contrary, Tehran's nuclear program is largely a result of Russian technology sharing. And, should the Russians walk away, the Iranian program will have suffered a monumental setback. Similarly, so long as Russia has not finished the reactor at Bushehr, the West cannot ignore Moscow's ability to function as an interlocutor in Tehran. So long as the facility is 'under construction,' Russia has leverage over both parties. As soon as Russia's technicians finish, however, that leverage evaporates.

Second, and far more important: So long as the bulk of the United States' and Iran's political and military attention is absorbed in Iraq, neither has any bandwidth to deal with other issues. Iran has deep and lasting interests in Azerbaijan and Turkmenistan -- states of critical interest to Moscow -- yet Iran's preoccupation with Iraq has prevented Tehran from capitalizing on recent opportunities. Similarly, the United States has faced no foe more challenging than the Soviet Union and its Russian successor. In that vein, there is no country more desirous of challenging Russia's ongoing efforts to rewire European security arrangements in its own favor than the United States. But that requires a Washington not consumed by the black hole Iraq has become.

A Rough Road Ahead

It took four years of heavy-handed negotiating tactics to bring U.S.-Iranian dealings over Iraq out of the back channels and into the public view. That was half the battle.

The aligning of the U.S. and Iranian proposals for Iraq marks a significant inflection point in the war, but we still question whether the three big players negotiating this deal -- Washington, Tehran and Riyadh -- can trust each other enough and carry enough sway among Iraq's state actors to get them to cooperate and actually produce results on the ground. Once you throw the spoilers into this equation, along with a centuries-old Arab-Persian rivalry centered on containing the very rise that Iran is anticipating this deal will yield, the prospect of a U.S.-Iranian accommodation over Iraq coming to fruition does not look so good. Our hopes are not completely dashed, but we do see a bumpy road ahead. END QUOTE

** As always, my thanks to Dr. George Friedman and the gang at Stratfor for allowing me to reprint their insightful analysis from time to time. I highly recommend their services. Take a look at

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Conclusions - Are There Any?

If we listen to the vile rhetoric of Iran's lunatic president Mahmoud Ahmadinejad, we would certainly conclude that there is no chance for a diplomatic solution with Iran regarding Iraq, and that Iran will continue training and supplying terrorists to kill US troops in Iraq. However, it appears that some senior Iranian officials and some influential clerics want to reach a deal with the US. As Stratfor has noted above, not only have Iranian and US negotiators met face-to-face for the first time in 27 years, the demands on both sides are apparently not that far apart.

But with so many players involved, not only within Iraq, but also among its neighbors, and with the stakes so high, the odds for a meaningful US/Iran agreement over Iraq are not good -- unless, of course, the Bush administration is so desperate to get out of Iraq that it gives away the farm, which unfortunately cannot be ruled out.

Stratfor mentioned it only briefly in the analysis above, but there are many who believe the Bush administration and the Defense Department are planning a military attack on Iran as soon as the situation in Iraq improves. If you go to Google and search for "war with Iran," you will find all sorts of information (much of which is not true, I suspect). This discussion would more than fill an entire E-Letter, and space does not permit this week.

Of course, there is also the possibility that Israel would undertake a major air campaign to destroy Iran's nuclear facilities on its own. Middle East expert Daniel Pipes recently wrote an analysis of a study conducted by two MIT professors which concludes that Israel does have the capability to take out Iran's nuclear facilities. They do not, however, speculate on what would happen in the aftermath of such an attempt -- whether successful or not.

The Middle East is a tinderbox just waiting to explode, especially with the latest Hamas terrorist takeover of Gaza. Hamas, by the way, is supported by Iran. The violence, killing and chaos we've witnessed in Gaza in the last week is probably very indicative of what will happen in Iraq if the US pulls out (vis-à-vis some terrible agreement with Iran), or if Congress cuts off funding for our troops.

Obviously, no one knows just what lies ahead in the Middle East, but the odds are it will not be good. The implications for oil are ominous. If oil prices were to skyrocket even further, it will be bad for the world economy and US and global stock prices.

This is just one more very important reason why I have most of my equity portfolio managed by professionals that have the ability to get out of the market or "hedge" their positions should major surprises send stocks into the tank.

Best regards,

Gary D. Halbert

Gary Halbert is the president and CEO of ProFutures, Inc. which produces this E-Letter. Mr. Halbert is also president and CEO of Halbert Wealth Management, Inc., an affiliate of ProFutures, Inc. Both firms are located in Austin, Texas. Halbert Wealth Management is a Registered Investment Advisor that offers professional investment management services to a nationwide base of clients, and specializes in risk-managed investments and its recommended programs include mutual funds, managed accounts with professional Investment Advisors and alternative investments. For more information about the programs offered, call 800-348-3601.


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Forecasts & Trends is published by ProFutures, Inc., and Gary D. Halbert is the editor of this publication. Information contained herein is taken from sources believed to be reliable, but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgment of Gary D. Halbert and may change at any time without written notice, and ProFutures assumes no duty to update you regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Any references to products offered by Halbert Wealth Management are not a solicitation for any investment. Such offer or solicitation can only be made by way of Halbert Wealth Management’s Form ADV Part II, complete disclosures regarding the product and otherwise in accordance with applicable securities laws. Readers are urged to check with their investment counselors and review all disclosures before making a decision to invest. This electronic newsletter does not constitute an offer of sales of any securities. Gary D. Halbert, ProFutures, Inc. and all affiliated companies, InvestorsInsight, their officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Securities trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results.

Posted 06-19-2007 4:43 AM by Gary D. Halbert