Breaking Point in Iraq
John Mauldin's Outside the Box

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As this letter is going out on Memorial Day, our thoughts are with our military that are stationed in harm's way around the world, and especially to those who over the years have sacrificed so that we can live in liberty. In keeping with that theme, last week, I read a very prescient essay by George Friedman of George is the closest thing to a private CIA that I know of. His firm does analysis and forecasts of world-wide political and economic trends, in both global and country specific arenas. Quite simply, I think George and his team are the best at giving me a daily handle on world events.

This essay is about Iraq. As Iraq is front and center of the problems in the US, affecting much of what happens in other area of our lives, it is important that we get a balanced understanding of what is really happening.

As an aside, I had lunch with George last week. At the end of the meal, I asked him about Iran. While Iran is an issue, he thinks that it will get resolved. As he points out, if you really want to build a nuclear bomb, you do it quietly and then announce it when you have it, like Pakistan or India or North Korea. If you want to use it as a negotiating tool, you shout it to the world. The Persians have been skilled traders for 4,000 years, and they are working the West again. Where George thought we should really have some concern is Nigeria. I agree. A civil war there brings world oil supplies tumbling, and prices soaring. It is looking increasingly worse.

If you are a fund, money manager or business for whom having solid information on world events is important, or you are just an information junkie looking for the best sources, I suggest you click on the following link and consider subscribing to their service. I very seldom ever suggest you subscribe to a publication, but this is one of those times. There is a 40% discount off the regular price as a Memorial Day Special, only $199 a year, and that is a bargain!

Now, I hope you enjoy George's essay on Iraq.

John Mauldin for Outside the Box

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Break Point

By George Friedman

A government has been formed in Iraq. It is a defective government, in the sense that it does not yet have a defense or interior minister. It is an ineffective government, insofar as the ability to govern directly is at this point limited institutionally, politically and functionally. Ultimately, what exists now is less a government than a political arrangement between major elements of Iraq's three main ethnic groups. And that is what makes this agreement of potentially decisive importance: If it holds, it represents the political foundation of a regime.

If it holds.

If it holds, the rest is almost easy. If it doesn't hold, the rest is impossible. Therefore, the fate of this political arrangement will define the future of Iraq and, with that, the future of the region -- and in some ways, the future of the American position in the region. It is not hyperbole to say that everything depends on this deal.

The deal that has been shaped is about two things: power and money. First, it addresses the composition of power in Iraq -- defining the Shia as the dominant group, based on demographics, the Kurds next and the Sunnis as the smallest group. At the same time, it provides institutional and political guarantees to the Sunnis that their interests will not simply be ignored and that they will not be crushed by the Shia and Kurds. In terms of money, we are talking about oil. Iraq's oil fields are in the south, unquestionably in Shiite country, and in the north, in the borderland between Kurd and Sunni territory. One of the points of this arrangement is to assure that oil revenues will not be controlled on a simply regional basis, but will be at least partially controlled by the central government. Therefore, at least some of that money will go to the Sunnis, regardless of what arrangements are made on the ground with the Kurds.

The Sunnis got this deal for a simple reason: Their insurgency made them impossible to ignore. First, the insurgency forced the Americans to recognize that their initial inclination, de-Baathification, also meant de-Sunnification of Iraq, and that the price for that would be painful. Second, the insurgency threatened Iraq with partition and civil war. Any such partition would have made Iran the dominant power in the region, something that would be unacceptable to Saudi Arabia and the other governments in the Persian Gulf. The Saudis were no friends of the Baathists in Iraq, but the thought of partition -- and of only the United States to provide security against Iranian influence -- forced them to mobilize Arab support for the Sunnis. The insurgency was the Sunni leaders' prime bargaining chip, and they played it well.

Now there is a twofold question that must be faced. First, in response to the deal that has been made, can the Sunni political leadership move decisively to end the insurgency, or at least reduce its tempo? And second, is it willing to do so? The implications are significant: If the insurgency continues, the entire political agreement will cease to be meaningful to the Americans, who are sponsoring and, in effect, guaranteeing the deal. Moreover, if Sunni insurgents continue to target Iraqi Shia, the quietly vicious counterattacks that the Shia have carried out will surge. The Sunnis blow things up; the Shia come quietly and kill their enemies. If the sectarian violence continues, it will mean there is no political foundation, no government and no change in the situation in Iraq. In that case, the United States will have to choose between remaining and mitigating a chaotic situation, or leaving and letting events run their course -- which also means leaving an open field for Iranian ambitions. From the American point of view, this agreement has to work. And everything depends on the Sunnis.


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Core Assumptions and Brass Tacks

Insurgencies don't simply float in the air. It isn't a question of just loading a car with explosives or setting up an improvised explosive device. Someone has to obtain, store and distribute explosives. Someone has to train people to build the device. Someone has to communicate with others without getting caught. Someone has to recruit new insurgents without being detected, and without allowing enemy agents to slip in. Someone has to provide security. And all of this has to happen somewhere, in a geographic space.

That space has been, for the most part, the villages and urban neighborhoods of the Sunni Triangle. The insurgency has been rooted there, the insurgents are known and their presence is protected in those neighborhoods. They are provided with food and shelter, and the village and neighborhood network warns them of enemy approaches. Mao Zedong said once that revolutionaries must be to the people as the tongue is to the teeth: If the support of the population is withdrawn, the revolution collapses.

At the heart of this political settlement, then, is the expectation that -- in return for political and financial concessions -- the Sunni leadership will order the insurgents they do control to cease attacks, and will order the population to withdraw support from the insurgents they don't control. In other words, the Baathist and nationalist insurgents who are linked to the Sunni leadership would halt operations, while the jihadists led by Abu Musab al-Zarqawi -- who have their own set of needs and goals in the region -- would either halt operations themselves or have the shield of the Sunni community withdrawn. The insurgency would not just end suddenly, but would decline fairly rapidly as recalcitrant troops were squeezed out of the Sunni region.

Given this dynamic, we would expect a surge of violence from elements who oppose the political agreement in Baghdad and see themselves being squeezed out. Their hope will be that the violence, particularly against the Shia, will trigger a Shiite response and cause the settlement to collapse. But the success or failure of that gamble will hinge on the answer to the core question: To what extent does the Sunni leadership control the insurgents? We assume that it is not total control, and we assume that there are elements among the Sunni leadership who oppose the political deal.

But the central assumption is that the bulk of the leadership has bought into the deal and, therefore, that the bulk of the insurgents will follow their lead. There also is an assumption that the bulk of the Sunni population will follow these leaders and withdraw support for remaining insurgents. Now, these insurgents could enjoy some lingering support among the public, and they could coerce others into protecting them. This would lead to a short but intense struggle within the Sunni community that, given the correlation of forces, ultimately would result in the defeat of the diehards. They would hang on -- waging a campaign that would be painful but not decisive, increasingly marginalized and ineffective.

This is the likely path, but it assumes two things. The first is that the political wing that has negotiated this agreement is able to assert control over the bulk of the Sunni population. In other words, one assumes that the Americans and Shia have been negotiating with the right people. If not, then the political settlement will not end the insurgency, and the violence will continue. We do not see this as the likely problem, however: The leadership ought to be able to deliver the bulk of the Sunni community and therefore reduce the fighting, if they want to.

The real question is whether they want to. As we said before, the insurgency is the only bargaining chip the Sunnis have. It was because of the insurgency that the Sunnis were not completely bypassed by the Americans and Shia. If they stand down but retain the ability to resume their offensive, the political deal can hold. But if, by standing down, the Sunnis demoralize their forces or permit intelligence on the location of weapons caches and personnel to diffuse to the Americans or Shia over time, the Sunnis could find themselves in a position from which they no longer can enforce the agreement.

So the key calculation for the Sunnis is this: If they stand down, can they maintain a credible force that is ready to serve their political purposes?

The demand that Iraq's various militias disarm has been focused on the Shiite militias. But at the end of the day, the Shia are the dominant force in the Iraqi government: If their militias were integrated into the military and security structures, they still would be available to serve Shiite political purposes. If, on the other hand, the Sunni militias were disarmed or integrated into the Iraqi military and security structures, they would lose their force and their leverage.

Obviously, this is why the defense and interior ministers have not yet been designated. It is not really about the individuals to be named, as their power will be circumscribed by the Cabinet. The issue is not the ministers themselves, but how the ministries will be run. More accurately, since it is these ministries that will control Iraq's military and internal security forces, the question that must be answered is how these forces will be configured. The Shia do not need guarantees. The Sunnis do. So the architecture of these ministries -- and the constitution of military and police units -- has everything to do with Sunni security.

There is a chicken-or-egg problem. The Sunnis do not want to begin standing down their forces until structural guarantees are in place. The Shia -- and in this case, the Americans -- are not going to give those guarantees until they see that the Sunnis can and will control the insurgents. They will not both confirm the Sunni position in the ministries and continue to endure the insurgency. They want to see steps toward the insurgency being controlled. The naming of the ministers is more symbolic than real, but the ministries themselves are very real. The Sunnis cannot be both in the army and making policy and still be waging an insurgency.

Other Considerations

There also is a real question as to whether the Shia want the agreement to work. Certainly the Iranians would like another go-around in order to increase not only the power of the Shia in general, but of those Iraqi Shia who are close to the Iranians. A civil war would increase Shiite dependence on the Iranians, since they would need weapons and political support. The Iraqi Shia do not seem to have much appetite for Iranian ambitions at the moment. They will dominate the government; they do not need to obliterate the Sunnis at the cost of a long civil war. They have most of what they want. Still, there are those in the Shiite community who are ambitious to displace the current power structure, and who see civil war as the way to achieve this. They are the ones who will continue with operations against the Sunni community, hoping to prevent a stand-down by the insurgents. The Shiite leaders, therefore, have a similar (though smaller) problem to the Sunnis'. They can contain the more aggressive and ambitious Shia. But Iran's ability to destabilize their community is the wild card.

This points up another dynamic as well. The United States and Iran have been engaged in a seemingly incomprehensible round of meetings, non-meetings, threats, offers of accommodation and so on over Iraq and nuclear weapons. Each side has made strange noises, given contemptuous shrugs and pulled fierce faces at the other. One would think that war was imminent. In fact, the opposite is true: Each is trying to avoid war by appearing fearsome and slightly nuts. The Americans want to scare the Iranians away from destabilizing Iraq's Shiite community. The Iranians want to make one last run at the Americans to maximize the power of the Shia -- and particularly that of their allies -- in the Iraqi government.

The Americans obviously want a settlement. And the Iraqi Shia want one. They are less dependent on Tehran than it might appear, and it seems they are prepared to follow through. The Sunnis, all doubts and worries aside, have every reason to want a settlement, and it is unlikely that they will get a better one. Certainly there are Sunnis who don't want a settlement, but it seems to us that they can be dealt with if the Sunni leaders want to deal with them. At this point, the only alternative to this settlement is civil war -- and it is hard to see a major player who benefits from a civil war, even if plenty of minor ones might.

For the Americans, the deal at hand is the exit strategy from the war. As violence declines, the United States can draw down its forces and begin concentrating on the question of what it plans to do in Afghanistan, the next item on the agenda. On the other hand, if the agreement in Baghdad blows apart, there is little point in American forces remaining in Iraq. With 130,000 troops, the United States could not contain a civil war; the forces could only take casualties, while achieving nothing. The ideal outcome would be a drawdown culminating in a residual force of, say, 40,000 troops based outside of heavily populated regions.

This goal is not unreachable at this point. It is possible to recoup the poorly played American hand, to some extent. But the fate of the political deal is not within U.S. control. The outcome depends, first, on the Sunni leadership and its desire and ability to suppress the insurgency. It depends, second, on the Iraqi Shiite leaders' ability to dominate their community and resist destabilization by Iran. And it depends, finally, on the Iranians accepting the current situation without surging forces covertly into Iraq.

In other words, the United States has become, to a great extent, a bystander. Washington can make whatever guarantees it wants, but the calculus by all sides now is whether they can secure their interests with their own resources. At this point, the United States is growing less and less relevant to the outcome in Iraq, though it remains urgently interested in what that outcome will be.

If we had to guess, we would say that the political arrangement should work, more or less. But we don't have to guess. It is now nearly Memorial Day. The violence in Iraq will surge, but by July 4 there either will be clear signs that the Sunnis are controlling the insurgency -- or there won't. If they are controlling the insurgency, the United States will begin withdrawing troops in earnest. If they are not controlling the insurgency, the United States will begin withdrawing troops in earnest. Regardless of whether the deal holds, the U.S. war in Iraq is going to end: U.S. troops either will not be needed, or will not be useful.

Thus, we are at a break point -- at least for the Americans.

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Your pausing for a moment to remember analyst,

John F. Mauldin


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.

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Posted 05-29-2006 9:46 PM by John Mauldin


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