Persian Gulf & Middle East Military News, Reports, Data, etc.

Red lines in the Strait of Hormuz
By George Friedman

The United States reportedly sent a letter to Iran via multiple intermediaries last week warning Tehran that any attempt to close the Strait of Hormuz constituted a red line for Washington.

The same week, a chemist associated with Iran's nuclear program was killed in Tehran. In Ankara, Iranian parliamentary speaker Ali Larijani met with Turkish officials and has been floating hints of flexibility in negotiations over Iran's nuclear program.

This week, a routine rotation of United States aircraft carriers is taking place in the Middle East, with the potential for three carrier strike groups to be on station in the US Fifth Fleet's area of operations and a fourth carrier strike group based in Japan about a week's transit from the region.

Next week, General Michael Dempsey, chairman of the Joint Chiefs of Staff, will travel to Israel to meet with senior Israeli officials. And Iran is scheduling another set of war games in the Persian Gulf for February that will focus on the Islamic Revolutionary Guards Corps' irregular tactics for closing the Strait of Hormuz.

While tensions are escalating in the Persian Gulf, the financial crisis in Europe has continued, with downgrades in France's credit rating the latest blow. Meanwhile, China continued its struggle to maintain exports in the face of economic weakness among its major customers while inflation continued to increase the cost of Chinese exports.

Fundamental changes in how Europe and China work and their long-term consequences represent the major systemic shifts in the international system. In the more immediate future, however, the US-Iranian dynamic has the most serious potential consequences for the world.

The US-Iranian dynamic
The increasing tensions in the region are not unexpected. As we have argued for some time, the US invasion of Iraq and the subsequent decision to withdraw created a massive power vacuum in Iraq that Iran needed - and was able - to fill.

Iran and Iraq fought a brutal war in the 1980s that caused about 1 million Iranian casualties, and Iran's fundamental national interest is assuring that no Iraqi regime able to threaten Iranian national security re-emerges. The US invasion and withdrawal from Iraq provided Iran an opportunity to secure its western frontier, one it could not pass on.

If Iran does come to have a dominant influence in Iraq - and I don't mean Iran turning Iraq into a satellite - several things follow. Most important, the status of the Arabian Peninsula is subject to change. On paper, Iran has the most substantial conventional military force of any nation in the Persian Gulf.

Absent outside players, power on paper is not insignificant. While technologically sophisticated, the military strength of the Arabian Peninsula nations on paper is much smaller, and they lack the Iranian military's ideologically committed manpower.

But Iran's direct military power is more the backdrop than the main engine of Iranian power. It is the strength of Tehran's covert capabilities and influence that makes Iran significant. Iran's covert intelligence capability is quite good. It has spent decades building political alliances by a range of means, and not only by nefarious methods.

The Iranians have worked among the Shi'ites, but not exclusively so; they have built a network of influence among a range of classes and religious and ethnic groups. And they have systematically built alliances and relationships with significant figures to counter overt US power. With US military power departing Iraq, Iran's relationships become all the more valuable.

The withdrawal of US forces has had a profound psychological impact on the political elites of the Persian Gulf. Since the decline of British power after World War II, the United States has been the guarantor of the Arabian Peninsula's elites and therefore of the flow of oil from the region.

The foundation of that guarantee has been military power, as seen in the response to Iraq's invasion of Kuwait in 1990. The United States still has substantial military power in the Persian Gulf, and its air and naval forces could likely cope with any overt provocation by Iran.

But that's not how the Iranians operate. For all their rhetoric, they are cautious in their policies. This does not mean they are passive. It simply means that they avoid high-risk moves. They will rely on their covert capabilities and relationships. Those relationships now exist in an environment in which many reasonable Arab leaders see a shift in the balance of power, with the United States growing weaker and less predictable in the region and Iran becoming stronger.

This provides fertile soil for Iranian allies to pressure regional regimes into accommodations with Iran.

The Syrian angle
Events in Syria compound this situation. The purported imminent collapse of Syrian President Bashar al-Assad's regime in Syria has proved less imminent than many in the West imagined. At the same time, the isolation of the Assad regime by the West - and more important, by other Arab countries - has created a situation where the regime is more dependent than ever on Iran.

Should the Assad regime - or the Syrian regime without al Assad - survive, Iran would therefore enjoy tremendous influence with Syria, as well as with Hezbollah in Lebanon. The current course in Iraq coupled with the survival of an Alawite regime in Syria would create an Iranian sphere of influence stretching from western Afghanistan to the Mediterranean.

This would represent a fundamental shift in the regional balance of power and probably would redefine Iranian relations with the Arabian Peninsula. This is obviously in Iran's interest. It is not in the interests of the United States, however.

The United States has sought to head this off via a twofold response. Clandestinely, it has engaged in an active campaign of sabotage and assassination targeting Iran's nuclear efforts. Publicly, it has created a sanctions regime against Iran, most recently targeting Iran's oil exports. However, the latter effort faces many challenges.

Japan, the number two buyer of Iranian crude, has pledged its support but has not outlined concrete plans to reduce its purchases. The Chinese and Indians - Iran's number one and three buyers of crude, respectively - will continue to buy from Iran despite increased US pressure.

Despite US Treasury Secretary Timothy Geithner's visit last week, the Chinese are not prepared to impose sanctions, and the Russians are not likely to enforce sanctions even if they agreed to them. Turkey is unwilling to create a confrontation with Iran and is trying to remain a vital trade conduit for the Iranians regardless of sanctions.

At the same time, while the Europeans seem prepared to participate in harder-hitting sanctions on Iranian oil, they already have delayed action on these sanctions and certainly are in no position politically or otherwise to participate in military action. The European economic crisis is at root a political crisis, so even if the Europeans could add significant military weight, which they generally lack, concerted action of any sort is unlikely.

Neither, for that matter, does the United States have the ability to do much militarily. Invading Iran is out of the question. The mountainous geography of Iran, a nation of about 70 million people, makes direct occupation impossible given available American forces.
Air operations against Iran are an option, but they could not be confined to nuclear facilities. Iran still doesn't have nuclear weapons, and while nuclear weapons would compound the strategic problem, the problem would still exist without them. The center of gravity of Iran's power is the relative strength of its conventional forces in the region. Absent those, Iran would be less capable of wielding covert power, as the psychological matrix would shift.

An air campaign against Iran's conventional forces would play to American military strengths, but it has two problems. First, it would be an extended campaign, one lasting months. Iran's capabilities are large and dispersed, and as seen in Desert Storm and Kosovo against weaker opponents, such operations take a long time and are not guaranteed to be effective.

Second, the Iranians have counters. One is the Strait of Hormuz. The second is the use of its special operations forces and allies in and out of the region to conduct terrorist attacks. An extended air campaign coupled with terrorist attacks could increase distrust of American power rather than increase it among US allies, to say nothing of the question of whether Washington could sustain political support in a coalition or within the United States itself.

The covert option
The United States and Israel both have covert options as well. They have networks of influence in the region and highly capable covert forces, which they have said publicly that they would use to limit Iran's acquisition of nuclear weapons without resorting to overt force.

We assume, though we lack evidence, that the assassination of the Iranian chemist associated with the country's nuclear program last week was either a US or Israeli operation or some combination of the two. Not only did it eliminate a scientist, it also bred insecurity and morale problems among those working on the program. It also signaled the region that the United States and Israel have options inside Iran.

The US desire to support an Iranian anti-government movement generally has failed. Tehran showed in 2009 that it could suppress demonstrations, and it was obvious that the demonstrators did not have the widespread support needed to overcome such repression.

Though the United States has sought to support internal dissidents in Iran since 1979, it has not succeeded in producing a meaningful threat to the clerical regime. Therefore, covert operations are being aimed directly at the nuclear program with the hope that successes there might ripple through other, more immediately significant sectors.

As we have long argued, the Iranians already have a "nuclear option", namely, the prospect of blockading the Strait of Hormuz, through which roughly 35% of seaborne crude and 20% of the world's traded oil passes daily. Doing so would hurt them, too. But failing to deter an air or covert campaign, they might choose to close off the strait. Temporarily disrupting the flow of oil, even intermittently, could rapidly create a global economic crisis given the fragility of the world economy.

The United States does not want to see that. Washington will be extremely cautious in its actions unless it can act with a high degree of assurance that it can prevent such a disruption, something difficult to guarantee.

It also will restrain Israel, which might have the ability to strike at a few nuclear facilities but lacks the force to completely eliminate the program much less target Iran's conventional capability and manage the consequences of that strike in the Strait of Hormuz. Only the United States could do all that, and given the possible consequences, it will be loathe to attempt it.

The United States continues, therefore, with sanctions and covert actions while Iran continues building its covert power in Iraq and in the region.

Each will try to convince the region that its power will be supreme in a year. The region is skeptical of both, but will have to live with one of the two, or with an ongoing test of wills - an unnerving prospect.

Each side is seeking to magnify its power for psychological effect without crossing a red line that prompts the other to take extreme measures. Iran signals its willingness to attempt to close Hormuz and its development of nuclear weapons, but it doesn't cross the line to actually closing the strait or detonating a nuclear device.

The United States pressures Iran and moves forces around, but it doesn't cross the red line of commencing military actions. Thus, each avoids triggering unacceptable actions by the other.

The problem for the United States is that the status quo ultimately works against it. If Assad survives and if the situation in Iraq proceeds as it has been proceeding, then Iran is creating a reality that will define the region.

The United States does not have a broad and effective coalition, and certainly not one that would rally in the event of war. It has only Israel, and Israel is as uneasy with direct military action as the United States is. It does not want to see a failed attack and it does not want to see more instability in the Arab world.

For all its rhetoric, Israel has a weak hand to play. The only virtue of the American hand is that it is stronger - but only relatively speaking.

For the United States, preventing the expansion of an Iranian sphere of influence is a primary concern. Iraq is going to be a difficult arena to stop Iran's expansion. Syria therefore is key at present. Assad appears weak, and his replacement by a Sunni government would limit - but not destroy - any Iranian sphere of influence.

It would be a reversal for Iran, and the United States badly needs to apply one. But the problem is that the United States cannot be seen as the direct agent of regime change in Syria, and Assad is not as weak as has been claimed. Even so, Syria is where the United States can work to block Iran without crossing Iran's red lines.

The normal outcome of a situation like this one, in which neither Iran nor the United States can afford to cross the other's red lines since the consequences would be too great for each, would be some sort of negotiation toward a longer-term accommodation.

Ideology aside - and the United States negotiating with the "axis of evil" or Iran with the "Great Satan" would be tough sells to their respective domestic audiences - the problem with this is that it is difficult to see what each has to offer the other.

What Iran wants - a dominant position in the region and a redefinition of how oil revenues are allocated and distributed - would make the United States dependent on Iran. What the United States wants - an Iran that does not build a sphere of influence but instead remains within its borders - would cost Iran a historic opportunity to assert its longstanding claims.

We find ourselves in a situation in which neither side wants to force the other into extreme steps and neither side is in a position to enter into broader accommodations. And that's what makes the situation dangerous. When fundamental issues are at stake, each side is in a position to profoundly harm the other if pressed, and neither side is in a position to negotiate a broad settlement, a long game of chess ensues. And in that game of chess, the possibilities of miscalculation, of a bluff that the other side mistakes for an action, are very real.

Europe and China are redefining the way the world works. But kingdoms run on oil, as someone once said, and a lot of oil comes through Hormuz. Iran may or may not be able to close the strait, and that reshapes Europe and China. The New Year thus begins where we expected: at the Strait of Hormuz.

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TEHRAN (Reuters) - Iran's Revolutionary Guard Corps said on Saturday it considered the likely return of U.S. warships to the Gulf part of routine activity, backing away from previous warnings to Washington not to re-enter the area.

The statement may be seen as an effort to reduce tensions after Washington said it would respond if Iran made good on a threat to block the Strait of Hormuz - the vital shipping lane for oil exports from the Gulf.

"U.S. warships and military forces have been in the Persian Gulf and the Middle East region for many years and their decision in relation to the dispatch of a new warship is not a new issue and it should be interpreted as part of their permanent presence," Revolutionary Guard Deputy Commander Hossein Salami told the official IRNA news agency.

The apparently conciliatory comments may be a response to the European Union and Washington's rejection of Iran's declaration it was close to resuming negotiations with world powers and with the Pentagon saying it did not expect any challenge to its warships.

Crude prices have spiked several times this year on fears diplomatic tensions could escalate to military clashes as well as uncertainty about the effect of sanctions on the oil market.

Along with the EU, which is set to agree an embargo on Iranian oil next week, Washington hopes the sanctions will force Iran to suspend the nuclear activities it believes are aimed at making an atom bomb, a charge Tehran denies.

There has been no U.S. aircraft carrier in the Gulf since the USS John C. Stennis left at the end of December at a time when the Revolutionary Guard was conducting naval maneuvers.

On January 3, after U.S. President Barack Obama signed new sanctions aimed at stopping Iran's oil exports, Tehran told the Stennis not to return - an order interpreted by some observers in Iran and Washington as a blanket threat to any U.S. carriers.

"I recommend and emphasize to the American carrier not to return to the Persian Gulf," Iran's army chief, Major General Ataollah Salehi, said at the time. "We are not in the habit of warning more than once."

NEW MANOEUVRES

Washington says it will return to the Gulf and Defense Secretary Leon Panetta said any move to block Hormuz - through which around a third of the world's sea-borne traded oil passes - would be seen as a "red line," requiring a response.

Citing operational security, the Pentagon will not say when the next carrier will return to the Gulf but officials say it is only a matter of time and they do not expect any problems.

In the coming days or weeks, the Revolutionary Guard will begin new naval exercises in the Strait of Hormuz and the Gulf. Salami told IRNA these would go ahead as planned in the Iranian month of Bahman which runs from January 21 to February 19.

Iran has said it is ready to return to talks with world powers that stalled one year ago, but the West, concerned about Tehran's move of the most sensitive atomic work to a bomb-proof bunker, says it must first see a willingness from Tehran to address the nuclear issue.

French President Nicolas Sarkozy said on Friday "time is running out" for a diplomatic solution and urged Russia and China to drop their opposition to sanctions on Iranian oil.

Iran is OPEC's second biggest exporter and blocking its crude exports - through the EU embargo or U.S. moves to punish banks that trade with Iran - could have a devastating impact on its economy but there are no signs so far such pressure would force it to stop what it calls its peaceful nuclear rights.

(Writing by Robin Pomeroy; Editing by Sophie Hares)

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After a visit to the Gulf in which he met the leaders of the states most threatened by Iran's aggressive foreign policy, Wen Jiabao, the Chinese premier, issued Beijing's clearest condemnation yet .

"China adamantly opposes Iran developing and possessing nuclear weapons," he said.

China appears to have sent a message to Iran that it could not rely on Beijing's unstinting support by reducing its imports of oil at a time when the US and Europe are promoting an embargo on the country.

The Washington Post reported that China trimmed its oil imports from Iran in January from a daily average of around 550,000 barrels to 285,000 barrels a day.

Chinese foreign policy experts said the statement demonstrated that Beijing would not allow its international position to end up beholden to Iran.

Mr Wen's trip to three of the world's biggest oil-and-gas producers was decribed by some commentators as an attempt to seek alternative energy sources, although he politely denied this was the case: "Some people said my visit was to secure oil, which is narrow-minded. I came here for friendship."

"Iran would not have wanted China to make this statement, but Iran must understand that if it comes down to a choice China will not alienate itself from the rest of the world for the sake of single country," said Yu Guoqing, a researcher on the Middle East at the Chinese Academy of Social Sciences.

With a second front of pressure opening up on Iran over its support for the Syrian regime's crackdown on nationwide protests, Tehran has moved closer to global pariah status.

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WASHINGTON — A U.S. aircraft carrier sailed through the Strait of Hormuz and into the Gulf without incident on Sunday, a day after Iran backed away from an earlier threat to take action if an American carrier returned to the strategic waterway.

The carrier USS Abraham Lincoln completed a "regular and routine" passage through the strait, a critical gateway for the region's oil exports, "as previously scheduled and without incident," said Lieutenant Rebecca Rebarich, a spokeswoman for the U.S. Fifth Fleet.

The Lincoln, accompanied by strike group of warships, was the first U.S. aircraft carrier to enter the Gulf since late December and was on a routine rotation to replace the outgoing USS John C. Stennis.

The departure of the Stennis prompted Iranian army chief Ataollah Salehi to threaten action if the carrier passed back into the Gulf.

"I recommend and emphasize to the American carrier not to return to the Persian Gulf. ... We are not in the habit of warning more than once," he said.

The threat led to a round of escalating rhetoric between the two sides that spooked oil markets and raised the specter of a military confrontation between Iran and the United States.

Iran threatened to close the strait, the world's most important oil shipping gateway, while the United States warned such a move would require a response by Washington, which routinely patrols international sea lanes to ensure they remain open.

Iran appeared to ease away from its earlier warnings on Saturday, with Revolutionary Guard Corps Deputy Commander Hossein Salami telling the official IRNA news agency that the return of U.S. warships to the Gulf was routine and not an increase in its permanent presence in the region.

"U.S. warships and military forces have been in the Persian Gulf and the Middle East region for many years and their decision in relation to the dispatch of a new warship is not a new issue and it should be interpreted as part of their permanent presence," Salami said.

Pentagon officials declined to comment directly on Salami's remarks, but reiterated that continued U.S. presence in the region reflected the seriousness with which Washington takes its security commitments to partner nations in the region and to ensuring free flow of international commerce.

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British and French vessels joined a US CVBG in a six-strong flotilla of warships which passed through the sensitive Strait of Hormuz, Britain's Ministry of Defence said Sunday.

The ministry said a Royal Navy frigate, HMS Argyll, was part of a US-led carrier group to sail through the waterway which Iran has threatened to close over Western moves to impose new sanctions over Tehran's nuclear programme.

A spokesman said: "HMS Argyll and a French vessel joined a US carrier group transiting through the Strait of Hormuz, to underline the unwavering international commitment to maintaining rights of passage under international law."

He said Britain maintained "a constant presence in the region as part of our enduring contribution to Gulf security".

The French Navy vessel is thought to be La Motte-Picquet anti-submarine frigate.

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Iranian researchers have built a "smart remote-control submarine" (or UUV unmanned underwater vehicle) with the subsurface speed of 10 meters per second, according to the semi-official Iranian news agency ISNA.

According to ISNA, the submarine, dubbed the ‘Phoenix’, ”also possesses beautiful appearance and capable of carrying out different maneuvers.”

Weighing 3 kilograms, the Phoenix has a single screw propulsion system and a fin maneuverability system.
It “can carry out surveillance up to one meter,” according to ISNA, adding that a camera can be installed on the submarine and the system can be employed in maritime and military roles.

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The deal the West could strike with Iran
Tehran should be allowed to enrich uranium – but with the toughest safeguards.

By Peter Jenkins8:45PM GMT 23 Jan 2012

The Iranian nuclear controversy is reaching a critical juncture. Yesterday, the EU agreed on an oil embargo as part of sanctions against the country. On Sunday, Britain, America and France sent warships through the Strait of Hormuz. Recent months have seen a big rise in the twin risks of military action and grave damage to the world economy. This is the consequence of what I believe to be a great diplomatic over-bid: the West’s demand that Iran surrender its capacity to enrich uranium.
Nine years have passed since I first talked to Iranian diplomats about their nuclear programme. Then, I was Britain’s representative at the International Atomic Energy Agency (IAEA) – and I disbelieved the reassuring words of my Iranian interlocutors about their commitment to the Nuclear Non-Proliferation Treaty (NPT). At the time, I was all for denying Iran any capacity relevant to making nuclear weapons. Now, however, I see things differently.
The NPT prohibits the manufacture or acquisition of nuclear weapons. But it permits the uranium enrichment that has been at the heart of the West’s quarrel with Iran. I say “the West’s quarrel” because more has changed since 2003 than my beliefs. Then, almost all the states that make up the membership of the IAEA were angry that Iran had concealed its research into enriching uranium. They backed the West’s demand that Iran account for its secret work. And they supported the West’s view that Iran must suspend enrichment until that accounting was complete.
Now, the West is all but isolated in insisting that Iran must not enrich. Most non-Westerners would prefer to see Iran treated like other NPT parties: allowed to enrich uranium in return for intrusive monitoring by IAEA inspectors. My sympathies lie with the non-Westerners. My hunch is that this gathering crisis could be avoided by a deal along the following lines: Iran would accept top-notch IAEA safeguards in return for being allowed to continue enriching uranium. In addition, Iran would volunteer some confidence-building measures to show that it has no intention of making nuclear weapons.
This, essentially, is the deal that Iran offered the UK, France and Germany in 2005. With hindsight, that offer should have been snapped up. It wasn’t, because our objective was to put a stop to all enrichment in Iran. That has remained the West’s aim ever since, despite countless Iranian reminders that they are unwilling to be treated as a second-class party to the NPT – with fewer rights than other signatories – and despite all the evidence that the Iranian character is more inclined to defiance than buckling under pressure.
But that missed opportunity need not prove lethal if the West can pull back now and join the rest of the world in seeing an agreement of this kind as the prudent way forward. Some might object: “But surely the IAEA just reported that Iran is hell-bent on acquiring nuclear weapons?” No. The IAEA says that prior to 2003 Iran researched some of the know-how needed for a weapon, and that further research may have taken place in the years since. The IAEA has not reported evidence of attempts to produce nuclear weapons, or of a decision to do so.
This is hardly surprising, since the key bits of November’s IAEA report were based on material supplied by Western intelligence. For years, the Western assessment has been that Iran seeks the capability to build nuclear weapons, but has not taken a decision to produce them.
Imposing sanctions or even going to war could be a proportionate – and therefore a just – reaction to any Iranian decision to break the NPT and acquire nuclear weapons. But these measures are a disproportionate response to a state acting on its right to enrich uranium. The correct way to handle enrichment is the NPT way, namely that the process can go ahead, but only under the strictest safeguards. This embodies a principle dear to President Reagan in his later years: “trust but verify”. If ever Iran goes for nuclear weapons, the world will be united in condemning such a betrayal of trust. The West could be confident the Security Council would approve whatever steps were necessary to counter a violation of one of the most valuable global treaties.
At the moment, however, we are locked into a process of imposing ever tighter sanctions on Iran. This economic warfare has many drawbacks. It requires an exaggeration of the Iranian “threat” that fuels the scare-mongering of those who want this pressure to be a mere step on the way to war. It risks provoking retaliation, while hurting ordinary Iranians. And it risks higher oil prices that the West can ill afford. Moreover, even if Iran were unexpectedly to give way, coercion rarely delivers durable solutions. Its effect on motives is unpredictable. It can breed resentment, while restrictions can be circumvented in time.
It may be asking a lot of our leaders that they swallow their words, lower their sights and focus on a realistic target. They could do it, though, and the talks due to take place shortly in Turkey could be the setting for a change of course. What is much more likely, unhappily, is that we will continue to see a variant on the devil having the best tunes. Far too many American politicians see advantage in whipping up fear of Iran. I can almost hear them sneering that the NPT is for wimps. The odds must be that they will continue to propel the West toward yet another Gulf war. Still, nothing is inevitable.
Peter Jenkins was Britain’s permanent representative to the IAEA, 2001–06

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Australian Foreign Minister Kevin Rudd said on Tuesday his country would follow the European Union in banning Iranian oil imports, after talks with his British counterpart in London.

"The actions taken in Brussels yesterday on sanctions by the European Union, we in Australia will undertake precisely the same parallel action for Australia," Rudd said after talks with William Hague.

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Sheikhs fall in love with renminbi
By M K Bhadrakumar

China and Qatar have been taking virtually opposite positions apropos events in Libya and Syria. Yet, they do not seem to be deterred by this little difference and are bonding in a big way in economic cooperation to mutual benefit.

Chinese Prime Minister Wen Jiabao, who visited Doha last week, disclosed at a press conference on Friday: a) China proposes to invest in the manufacturing of ''downstream oil products, which are most urgently needed by Qatar''; b) China and Qatar signed an agreement to jointly build a refinery in Taizhou, Zheijiang, in China; c) Chinese companies propose to participate in infrastructure projects in Qatar; and d) China and Qatar are discussing a "long-term, stable and comprehensive cooperative partnership" in natural gas.

Then, Wen quietly dropped a bombshell. He revealed "one more important point" as if it were an afterthought. He said:
In order to address investment issues, we [China and Qatar] need financial support. Therefore, we reached another agreement, a cooperation agreement linking finance with investment. Qatar also proposed the use of local currency in trade settlement and even a specific ratio. I think this proposal can be studied.
The short point is, the renminbi, the "people's currency" also known as the yuan, is appearing in Doha. The China-United Arab Emirates (UAE) currency swap deal which was signed during Wen's visit to Abu Dhabi last week already brings the yuan to the Emirates. The deal with the UAE is worth US$5.5 billion and the Chinese central bank statement said that it aims at "strengthening bilateral financial cooperation, promoting trade and investments and jointly safeguarding regional financial stability".

Indeed, China is playing for the long term. Addressing an energy summit in the UAE, Wen made the startling proposal to create an international body that is mandated to determine the price of oil and which would regulate the policies of the entire supply chain involving the supplier countries, the consumers and even the transit countries.

Iran and Russia have already switched to their national currencies for conducting bilateral trade. Tehran's ambassador to Moscow Seyed Reza Sajjadi said on Friday, "[Trade] with Russia is based on our national currencies. We started this work long ago. Iranian businessmen are buying products in Russia and are using the rouble as [payment] currency] ... The US dollar has no [economic] support base ... There is a similar interest on the Russian side."

Last week, it also came to be known that India proposes to allow Iran's central bank to open rupee accounts with two Indian banks as a long-term solution to the countries' payment problems instigated by the US (which pressured New Delhi to terminate the traditional payment mechanism for Iran within the Asian Clearing Union.) An Indian delegation visited Tehran last week to finalize details.

The new arrangement envisages that while the payments for India's oil imports from Iran (roughly $12-14 billion annually) would be initially in Indian rupees, they would subsequently be converted into a separate designated currency. This is a pointed snub to Washington, which forbids friendly countries from dealings with Iran's central bank.

But, the UAE and Qatar are not to be compared with Russia or India. They are widely regarded as the anchor sheets of the Western strategy in the Middle East and they provide very substantial underpinnings to the petrodollar recycling.

Aren't we missing something here? Quite obviously, Persian Gulf countries are slowly, steadily probing their options in the Asia-Pacific to diversify their external relations that have been traditionally riveted to the West. With Europe in serious disarray and the US in decline and its reputation in the Middle East significantly dented, this trend is likely to become pronounced.


Smells like Arabic coffee ...

Equally, Wen made some candid remarks on Syria and Iran during his press conference in Doha, fully realizing that his host country would have a different point of view. Wen said Beijing is "very concerned" about the Syrian situation. He added in some detail:
Syria's turmoil has been going on for quite some time. We have three comments on the Syria issue. First, we need to strive to seek a peaceful and political solution to the Syria issue. We oppose the killing of innocent civilians and should prevent it from happening. The order in Syria should be restored as early as possible.

Second, we must respect the requests of the Syrian people for change and their demands to safeguard their own interests. Third, we need to give play to the LAS' [Arab League's] role in this regard, especially its investigation and mediation role on the Syria issue, and enable LAS to provide help for the peaceful resolution of the Syria issue through dialogues and by political means.

Our goal is to find solutions, including meeting the requests of the people for change, continuing to develop economy and improving people's livelihood, so that states experiencing instability such as Syria could achieve stability and development.
This is the first major policy pronouncement on Syria by the Chinese leadership and, most interestingly, it was made on Qatari soil. The impression one gets increasingly is that China is quite comfortable with both Iran and the Gulf Cooperation Council (GCC) states and doesn't see the security paradigm in the Persian Gulf in quite those zero-sum terms. The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.)

Again, we are blithely making assumptions on the basis of the sustained Western propaganda regarding an impassable Sunni-Shi'ite schism in the Persian Gulf, which completely overlooks that Iran and the GCC states (Saudi Arabia, in particular) have always maintained back channels to keep their discords in check.

Evidently, China is placing itself in the middle of the divide in the Persian Gulf while strengthening its interests on both sides. How its newfound influence plays out will be interesting to watch.

In turn, the GCC states also do not seem to mind that China has a strong strategic partnership with Iran. And, on its part, China seems justified in assessing that the GCC rulers are far from the one-dimensional moronic anti-Shi'ite fanatics that Western propaganda often makes them out to be. Beijing's new thinking opens up a fantastic panorama of China-GCC cooperation.

Wen said Iran didn't figure in his conversations with the leaderships in Saudi Arabia, the UAE or Qatar.

The Chinese commentaries have made it out to be that continued Iranian oil supplies are vital for China and implying that any increased purchases from Big Oil operating out of the GCC states would make China vulnerable to pressures. The government-owned China Daily featured a commentary on Saturday in a wrap-up of Wen's tour of the Persian Gulf, which said:
US is lobbying the international community to put the screws on Iran. But China should read into this game and refrain from succumbing under other big powers' pressure ... China should follow its own course, for Sino-Iranian trade is in accordance with international laws ...

Iran is an essential overseas market for goods, especially technology-intensive ones, from China, which built the subway in Tehran ... Oil imports from Iran are very important for China. If China stops importing oil from Iran, it will face an immediate shortage of fuel. Even if China can meet the shortage by importing from other countries, it would have to pay high prices and meet harsh conditions, which will deal a terrible blow to its economy. China has long suffered the whims of big oil-exporting companies and it is time their monopoly was curbed.
Wen was plainly dismissive about Western media reports that he was scouting for GCC oil to replace Iranian oil. "Some people think I have come for the oil. I think they are too narrow-minded. It should be said that I have come for the friendship. The biggest harvest of my trip is the enhanced mutual political trust."

Thus, a new matrix is shaping up whereby within the framework of bilateral agreements, Persian Gulf countries - Iran and the GCC alike - are beginning to bypass the US dollar as an intermediary in their oil trade with Asia.

Neither the UAE nor Qatar is embarking on a strategic defiance of the US. But they know that the yuan smells like good Arabic coffee and it feels great to hold it in a volatile and ephemeral world, given that its appreciation in value in the future is a certainty.

Simply put, the UAE and Qatar are creating a cushion from exchange rate volatility. But the geopolitical reality is also that the renminbi will look great sitting in their vaults. The big question is when Saudi Arabia might make its move.

Ambassador M K Bhadrakumar was a career diplomat in the Indian Foreign Service. His assignments included the Soviet Union, South Korea, Sri Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.

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Fincantieri shipyard at Muggiano recently launched the “Ganthoot”, the first of two stealth patrol vessels included in the “Falaj 2” program in progress for the United Arab Emirates Navy who ordered them in 2010. The ship, whose name comes from a geographical area in the Emirates in the neighbourhood of Abu Dhabi, will be delivered in the last half of 2012.
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Capable surpassing 20 knots, the “Falaj 2” program patrol vessels are 55 metres long with a beam of 8.60 metres and can accommodate a crew of 28. However, what makes this ship special is her particular geometry thanks to which it is difficult to pick her up on radar (stealth).

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