Weekly
Geopolitical Report
By Bill O’Grady
September 22, 2014
Back to Iraq
President Obama has decided to build a
coalition to dislodge the Islamic State (IS). 1
The U.S. is leading the coalition, but
American efforts will be limited to air
power. In this report, we will offer a short
synopsis of the war plan. This analysis will
be followed by a broader discussion of U.S.
Middle East strategy, including a history of
American policy. We will move to discuss
the most likely outcome from these efforts
and conclude, as always, with market
ramifications.
The Plan
President Obama has been reluctant to
increase American involvement in the
Middle East. One of his key goals was to
end the Iraq War; another was to “pivot”
toward Asia, which would require less
involvement in the Middle East. Even a
brutal civil war in Syria didn’t prompt
strong American action. Perhaps more
interesting, Bashar Assad’s use of chemical
weapons in Syria, which crossed President
Obama’s “red line,” didn’t bring a military
response (see WGR, Syria and the Red Line,
5/6/2013). Thus, two weeks ago, when the
president declared a new offensive against
IS, it marked a major change in foreign
1
The insurgents that operate in eastern Syria and
western Iraq go by different names, including the
Islamic State of Iraq and Syria (ISIS) and the Islamic
State of Iraq and the Levant (ISIL). We have
previously used the name ISIL, but for this report we
are switching to the Islamic State name because the
U.S. action is treating it more like a state than an
insurgency. However, the names are mostly
interchangeable.
policy. However, it is a rather limited
response. The U.S. does not intend to
deploy ground troops beyond advisers and
spotters. Instead, Secretary of State Kerry is
trying to put together a coalition to destroy
IS.
The response thus far has been less than
enthusiastic. Syria is very supportive of the
program, assuming that the Assad
government approves airstrikes in its
territory. However, the regime has indicated
that any military activity not approved by
the Syrian government will be considered as
an attack on Syria. Russia has supported
Syrian’s position on airstrikes. The Assad
government would love to see the U.S. use
air power to attack all the rebels, including
IS but also other Islamic and secular groups.
The U.S. has no interest in supporting the
survival of the Assad regime but doesn’t
want to create conditions that will be worse
than the Assad government.
Turkey’s participation has been limited. IS
had held 49 Turkish government workers
hostage and fears for their safety left Turkey
reluctant to participate. However, even with
the recent release of these hostages, it
appears that Turkey is not planning a fullthrottled response to IS; it is possible the
deal that released the hostages led to this
limited action.
Egypt has also declined the invitation to join
the coalition, suggesting that it is occupied
with its own terrorist movement, the Muslim
Brotherhood (MB). This, of course, is a
direct slam against the Obama
administration, which supported the Arab
Spring that brought the MB to power in the
first place. In addition, the Obama
Weekly Geopolitical Report – September 22, 2014
administration was not very pleased with
Gen. Sisi’s ouster of the MB and his
takeover of the government.
Jordan will also remain on the sidelines,
suggesting that it has to manage Palestinian
concerns in the aftermath of the recent
conflict in Gaza between Israel and Hamas.
This position is a way of expressing
displeasure with the lack of U.S. influence
over Israeli policy. At the same time, the
U.S. has operated training camps for
friendly Syrian opposition groups in Jordan
for some time. We suspect King Abdullah
is worried about sparking an IS reaction in
Jordan and thus has demurred.
Iraq is officially supportive, although
comments from leaders suggest that support
only exists if U.S. policy doesn’t harm their
particular religious affiliations, Shiites or
Sunnis. The president did wait until Iraq
had formed a government before holding his
nationally televised address to the U.S. to
announce his policy against IS.
The Arab League offered tentative support,
prepared to assist “in many aspects” but
without specification. These nations, which
include Saudi Arabia and the Emirate States,
have two concerns. On the one hand, they
fear an IS backlash in their own nations if
the insurgency were to grow. At the same
time, IS acts as a strong proxy against
Iranian designs for the region and thus there
are reasons to support the insurgent group.
Iran isn’t part of the coalition but may be the
most important nation in the region in terms
of dealing with IS. The U.S. is negotiating
with Iran over its nuclear program and
appears to be working to normalize
relations. Confronting IS would clearly help
stabilize Iraq and support Iran. However,
opposition from Sunni states has prevented
Iran’s inclusion into the coalition fighting
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IS. This situation will reduce the odds of
success.
Although the U.S. invited NATO to join the
coalition, only the U.K., Germany and
France have expressed interest thus far.
None would be expected to make a major
contribution.
There is clearly a lack of enthusiasm for this
mission. The difficulty in creating a strong
coalition is due mostly to divisions within
the region. We view the primary division as
sectarian. The Sunnis and Shiites are in
opposition across the region and are trying
to woo the U.S. into “tipping the scales”
against the other. For example, airstrikes
that keep the Assad regime in power will be
opposed by the Sunni states and supported
by the Shiites. Both sides use non-state
proxies to undermine the other, although it is
rather obvious that the Iranian-backed
Shiites are generally better organized.
Hezbollah, the primary Iranian proxy, is
better controlled than the Sunni jihadists,
who have a history of turning against the
authoritarian Sunni regimes in the region.
Still, the Sunni states support various
jihadist groups simply because they are
useful in combatting Shiite influence.
U.S. Strategy in the Middle East:
A History
America’s primary interest in the Middle
East is to ensure that the West has access to
the region’s oil. During the Cold War,
preventing the Soviets from gaining control
of these key oil flows was critical. Since the
end of the Cold War, the U.S. wants to
ensure that no regional power dominates the
area. Ideally, the U.S. wants to stand as a
balancing power. When properly executed,
the powers in the region are balanced
against each other and a type of armed peace
exists. When one power becomes dominant,
the U.S. will generally intervene. The U.S.
Weekly Geopolitical Report – September 22, 2014
was willing to allow Iran and Iraq to fight a
bloody, eight-year war to a stalemate; by
fighting each other, the U.S. was able to
maintain order at a relatively low cost.
During the war, the U.S. aided both sides on
several occasions.
Maintaining balance is why the U.S.
intervened to oust Saddam Hussein’s forces
from Kuwait in 1991. Allowing Iraq to
absorb Kuwait would have changed the
balance of power in the region and could
have led to further belligerence from the
Iraqi leader. At the same time, President
Bush refrained from ousting Hussein for fear
of creating a power vacuum and upsetting
the balance of power in the region.
For the most part, one could argue that the
U.S. was serving the interests of the Sunni
states during the Cold War. Relations with
Iran were completely broken by the hostage
crisis and remain so today despite ongoing
nuclear talks. However, in the aftermath of
the first Gulf War, belligerent behavior from
Saddam Hussein against ethnic and sectarian
opponents, the Kurds and the Shiites, led the
U.S. to establish “no-fly” zones. Although
this action did not help the Shiites
significantly, it allowed the Kurds to build a
nearly autonomous region protected by U.S.
airpower. In addition, harsh economic
sanctions crippled the Iraqi economy.
Regional Sunni powers were concerned
about the deterioration of Iraq but the
Clinton administration decided that
maintaining these restrictions were justified.
President Bush’s decision to oust Saddam
Hussein in 2003 led to a major disruption in
the balance of power in the region that
continues to the present. Removing Hussein
unleashed a power vacuum that has led to
the de facto partition of Iraq into Kurdish
and Shiite regions. IS has created a protostate that includes western Iraq and eastern
Page 3
Syria. It has been successful in creating this
proto-state because former Iraqi PM Maliki
so alienated the Sunnis in Iraq that they were
willing to accept IS and its brutality as an
alternative to the Shiite-dominated Iraqi
government. Although the new leadership
under PM al-Abadi promises more
inclusion, we fear that Iran wants Shiite
dominance and won’t tolerate a broad-based
Iraqi government.
The Problem of American Policy
In analyzing U.S. foreign policy, we rely
heavily on Walter Russell Mead’s
archetypes (see WGR, The Archetypes of
American Foreign Policy, 1/9/2012). In
general, we believe that Americans want
leaders to have a moral compass; they are
comfortable with Wilsonians (idealists) who
seek to spread American values abroad.
However, in practice, these leaders tend to
lead the U.S. into wars that are either not
key to American interests or have no clear
end. Vietnam, Kosovo and Iraq are all
examples of such conflicts. On the other
hand, leaders who are obviously
Hamiltonians (realists) tend to be more
effective foreign policy leaders but their
policies are usually disliked by the public.
And so, the ideal politician talks like a
Wilsonian but acts like a Hamiltonian. This
may have been one of President Reagan’s
strongest attributes. His calls for the Soviets
to “tear down this [Berlin] Wall” raised
hopes of the free world. However, he
rapidly withdrew from Lebanon in 1983
after a suspected Hezbollah attack killed 241
American servicemen, acknowledging that
America had no compelling interest in that
particular conflict.
President Obama likely falls into the
Hamiltonian/Jeffersonian camp in most
instances. Jeffersonians lean isolationist,
which can be found in the current
Weekly Geopolitical Report – September 22, 2014
president’s decisions. His refusal to become
heavily involved in Libya (until the French
and British were unable to finish what they
had started) and his reluctance to help
Ukraine are Jeffersonian in nature. At the
same time, much of his reluctance to
increase U.S. involvement seems to be
rooted in fears that there is little good the
U.S. can accomplish in many circumstances.
The aftermath in Libya supports that idea.
Still, he has put prominent Wilsonians in
key diplomatic and security positions. For
example, Samantha Powers is U.S.
Ambassador to the U.N. and Susan Rice is
National Security Advisor. Both are
considered strong Wilsonians, arguing for
U.S. intervention against genocide and
belligerent behavior against civilians. To
some extent, it appears that the president is
uncomfortable with his Hamiltonian/
Jeffersonian leanings and thus has placed
Wilsonians in key positions. These
appointments may be to provide political
cover or they may reflect personal divisions
within the president’s personality.
The president’s action in Iraq, limiting
American involvement to air power only, is
a classic compromise between the Wilsonian
and Hamiltonian archetypes. The decision
to intervene against IS is mostly being done
for humanitarian reasons. For all the
handwringing, IS is probably less of a direct
threat to the U.S. than other groups. Like
the Taliban in Afghanistan, IS appears more
concerned with creating a local nation than
attacking the U.S. In addition, it does
appear that, with only minor American help,
IS struggles against the Kurds and Shiitedominated areas. At the same time, IS is
threatening to become a permanent, hostile
power and could destabilize the region.
Thus, containing IS makes sense.
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The Projected Outcome
Given what we now know, what is the most
likely outcome from this conflict? For IS to
be defeated, the Sunnis will have to become
jaded with IS and turn on it, much like the
U.S. was able to separate out al Qaeda from
Sunni tribes during the surge in Iraq in 2007.
There is a possibility this could occur but it
will likely require the U.S. to support the
creation of a separate Sunni state in western
Iraq. We doubt the Sunnis will trust the
Shiite-dominated government in Baghdad.
So far, the Obama administration has tried to
maintain the territorial integrity of Iraq.
This stance, though understandable, is
probably no longer feasible.
Without a separate Sunni state, we fear that
a long conflict is the most likely outcome.
Air power alone won’t oust IS from the
areas it controls. We don’t see surrounding
nations inserting troops to eliminate the
threat either. The only non-U.S. militaries
that could effectively attack IS are probably
Syria and Iran. In the interests of having
Sunni states in the official coalition, these
nations are excluded. And so, we would
expect the sectarian divide to undermine
efforts to attack IS. Essentially, the
administration faces a series of difficult
decisions. It can either (a) put U.S. ground
troops into the theater,2 allowing both the
Sunni and Shiite powers to undermine the
American war effort and prolong the
conflict; (b) side with the Shiites in Iran and
Syria who could effectively fight IS but
would ensure the wrath of the Sunni states
and undermine the efforts of the Shiite
states, fearing that a victory over IS would
boost the Shiite position in the region; or (c)
2
Recently, Gen. Martin Dempsey told Congress that
allowing U.S. advisers in the theater, which currently
number around 1,600, means they could become
involved in close combat situations. Such behavior
tends to lead to “mission creep” and could slowly
increase American involvement in the conflict.
Weekly Geopolitical Report – September 22, 2014
do nothing and allow IS to establish a state.
None of these choices are appealing, which
explains why the president has opted for
limited air operations.
Ramifications
Whenever military operations commence in
an area, unexpected events can occur. For
now, we would not anticipate any
disruptions in Middle East oil supplies from
the conflict in the short run. A spike in oil
prices would be a serious risk factor to the
global economy. However, as we have seen
in many of these “small wars,” mission
creep is a major risk and thus we could see a
Page 5
situation in which American ground troops
are inserted into the conflict. We expect the
president to resist such actions but it cannot
be ruled out if circumstances change. Over
the long run, we look for conditions to
deteriorate further which is supportive for
oil prices.
Bill O’Grady
September 22, 2014
This report was prepared by Bill O’Grady of Confluence Investment Management LLC and reflects the current opinion of the
author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements
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