SPEAKING FREELY
Iran takes center stage in East-West struggle
By Ramin Davoodi
The macroeconomic and geopolitical stakes are high in a stand-off between the global East, South and West. As the stakes rise on the world's chessboard, so does Iran's role.
The United States, though still the largest economy on earth, has been in a seven year-long depression that, despite nearly US$4.5 trillion of "Quantitative Easing" printed since autumn 2008 - and despite nicely rigged equity, bond, precious metals, oil and foreign currency markets - isn't showing any signs of letting up.
US national debt is pushing US$18 trillion, and the real rate of US unemployment is anywhere between 12% and 25%. Meanwhile, five of the largest American banks each carry over $40 trillion worth of exposure to hyper-risky financial derivatives instruments and the toxic mortgage problems that caused the 2008 Financial Crisis aren't fully resolved.
There is also a student loan bubble worth more than $1.2 trillion threatening future institutional insolvencies, and to top it all off, there are vicious, sophisticated currency and resource wars in procession amongst multiple sovereign players between East and West.
The collective economy of the European Union certainly isn't better off, with long term, structural debt problems plaguing much of the continent, and systemic risks remaining latent between North American, European and Japanese financial institutions.
Nations of the global East and South have responded to increasing economic and political tensions sparked by the over-leveraged US by increasingly coordinating their efforts so as to hedge against said risks and their expected contagion.
The BRICS (Brazil, Russia, India, China and South Africa) and Shanghai Cooperation Organization (SCO) blocs have rapidly established political, economic and even military joint ventures as means for procuring both regional protection as well as tactical responses to what their component states each view as a disturbingly desperate, belligerent NATO.
The core members of both BRICS and the SCO - Russia and China - have been at the forefront of all the activities, with the aim of taking on established Atlanticist norms.
Eastern responses in the financial and energy fields have provoked the West into action, with a general "de-dollarization" effort underway by multiple nations, and a direct challenge to the 41 year old US-backed petrodollar global currency standard actively in the works.
To counter and circumvent the US-led sanctions against Russia, deter attacks against the Russian ruble, generally distance themselves from perceived excessive reliance on US Dollar pricing as well as hopefully establish a keen, solvent precedence for other nations to follow, Russia and China have begun using their own respective currencies for energy trading.
Beijing has increased its usage of yuan trading directly with various nations in bilateral deals meant to strengthen its currency, circumvent dollar reliance and strengthen relationships. Banning SWIFT access to Russian banks has resulted in a "judo-style" response involving the exploration of an alternative to SWIFT for Russia's - and Russia's partners' - banks.
The importance of physical gold - the oldest, most riskless and thus most reliable form of money on earth - shows in its embrace by both Russia and China in their economic reform efforts.
To secure their own economic sovereignties, as well as those of their stated alliances, Eastern nations see gold accumulation as an imperative.
China is blunt about the strategy, as is Russia, and both realize the vital utility of gold for establishing a new global economic order that would originate in the East, as well as to lend an imperative credibility to any future energy pricing and trading platform.
Fellow BRICS member India, along with Turkey and Iran certainly understand the gold-energy nexus as well, with Iran recently committing to further mining its own gold to shore up economic security and currency.
Massive energy deals amongst these state actors are pushing the global momentum eastward. The recent Russian $400 billion natural gas agreement diversifies energy exports away from a NATO-compliant European market towards ally China, averts the tactical attack against Russia's energy sector (staged with weary Saudi support), while furthering an anti-petrodollar agenda.
Russia also signed a $30 billion oil pipeline deal with India earlier this year, providing necessary supply diversification for New Delhi and traversing through China. Importantly, the deal will more than likely be consummated using rubles and rupees rather than dollars or euros, as the practice of ruble deployment increasingly becomes Russian state policy.
Such monetary practices by the BRICS countries and the SCO are not taken trivially by the West, and are garnering perceptual dividends for the East. Germany, despite technically being in the Atlanticist camp, nonetheless just started Europe's first yuan trade settlement practice.
Germans took the strong hint earlier this year when their requested gold reserves were not returned from the New York Fed, and face the loss of 300,000 jobs over Russian sanctions. Berlin, too, is itching to lean further East.
The importance of Iran
Although it is not a formal member of either the BRICS or, until recently, the SCO, Iran has nonetheless played an indispensable role in their respective build-ups. Tehran has retained "observer status" for years while seeking formal admission to both.
"Earning its stripes" with these consortiums hasn't been hard for Iran, considering A) millennia-old relationships that Tehran has retained with their members (for better or worse), and B) Anglo-American-Israeli animosity, interference, virulent propaganda, outright state acts of terrorism, politically-charged assassinations, and cyber-subterfuge, amongst a myriad other complaints by Iran, and C) a clearly shifting economic momentum toward the East and South (especially in the case of China).
Russia and China have set their anchors in Iran as well, with the latter welcoming practically every deal. Russo-Iranian strategic cooperation stretches across banking, oil, natural gas, nuclear energy development, agriculture and infrastructure.
The collaboration has stretched into major bartering deals as one means of circumventing US-drawn sanctions, promising to expand the current scope of Russian-Iranian trade. China remains Iran's largest trading partner and has represented a loyal ally.
For instance, when the US objected to the Iran-Pakistan-India Pipeline ("IPI", also referred to as "the peace pipeline") project in favor of the US/UK-sponsored TAPI Pipeline, China offered to pick up the slack, asking to serve as the IPI's end route.
New Delhi has also repeatedly revisited the IPI opportunity, and resents being told what to do by Washington and by Israel regarding Iran. Pakistan retains the same growing resentment over such condescension.
Washington's economic sanctions on Iran pushed Tehran closer to the BRICS/SCO camps and vice versa, triggering trading innovations while lacking the full punch that the West intended. Russia and China stepped up their trade and diplomatic relations with Iran, adopting the seemingly orphaned energy power on the world stage, providing advanced technology, services and other goods to Tehran, and even showing some muscle, akin to the bigger kids protecting the proud, smaller one against the globe's bullies. These rising Eastern nations are not afraid of the West and have assisted Tehran with security for a few years now.
Subsequently, Washington and its allies are in a quandary, abruptly shifting a 35-year-long policy of isolating Iran like a tanker trying to turn on a dime to avoid hitting an iceberg. Desperate times apparently call for desperate measures, as the Atlanticist camp increasingly realizes Iran's economic and geostrategic worth and is now in the process of cautiously trying to repair ties in order to achieve wider political aims against a rising Eurasian juggernaut.
As tensions mount against a shrewd, calculating Kremlin, the West sees Iran's natural gas supplies - second in the world in proven reserves behind Russia itself - as an essential replacement for Russia's near monopoly over Europe.
Despite sanctions being in place, the French are salivating over re-entering Iran's car and energy markets. In fact, some Western analysts are even elevating Iran's to being the leading 'untapped emerging market', representing over $1 trillion of value. In anticipation of a historic deal being struck next week over Iran's nuclear negotiations, strategists have pulled out their graphics and giddy US-based lobbyists are urging the US government to proactively engage Iranian business ties.
Yet the messages from the West are certainly mixed. Despite direct diplomatic negotiations with Iran, Washington nonetheless fields near-fictionally belligerent language from some of its deepest-pocketed supporters.
Billionaire media mogul Haim Saban, a Hillary Clinton supporter, told a riled-up audience at the Israel American Council conference last week that he would "bomb the living daylights out of these sonsofbitches", referencing Iran.
His Republican Party-supporting counterpart, billionaire Sheldon Adelson, who significantly funded Mitt Romney's campaign in 2008, said last year that an "atomic weapon" should be dropped on Iran.
Plus, Washington has, with its Saudi ally, engineered a drastic, cunning oil price drop in order to hurt both Russian and Iranian bottom lines, in hopes of sparking public unrest in each nation, thus presumably paving the way for respective regime changes.
That tactic managed to work 38 years ago against the shah of Iran, but global economic dynamics are different today, and this tactic reveals a desperate tightrope strategy that will hurt the nascent shale energy platform , threaten a dangerous slide into the very deflationary forces that the Quantitative Easing and Zero Interest Rate ("ZIRP") policies of the past six year were meant to prevent, and throw a brick at the wider global debt bubble.
Washington's forcing of Japan to pick up the global liquidity slack, while it "tapers" its own paper printing experiment, won't do the trick here either. Should Western sanctions be lifted from Iran, and offers of diplomatic and private sector engagement commence, Tehran must tread very carefully. The ideal eventual scenario for Iran is one of striking a balance between BRICS/SCO and NATO/G8 economically and politically while protecting its interests, similar to what Turkey and India have established, yet with the key difference of maintaining complete autonomy and state sovereignty while doing so.
Recent personnel changes within Iran's energy sector and other overtures have many sensing that a more "pragmatic" approach to the West is in the works. Yet President Rouhani recently displayed Iran's dignity and sense of fidelity by stating that, should sanctions be lifted, Iran will not replace Russian gas supply to Europe.
This independent instinct within the global energy game only intensifies the urgency within Western circles for achieving regime change in Iran, as the events of 1953 and 1978-9 underline. Combine that general reality with the acute, recent history of funding and stoking separatist movements in Iran's eastern, northwestern, western Arab and western Kurdish flanks - and a knack for attacking a nation's economy through speculative means - and one sees why trusting the NATO/G8 contingency is a difficult thing to do.
In a sense, and despite the massive US market with which Iran could viably trade, Iran can either expose itself to heightened risks of being Balkanized and/or caught in an exposed position during the eventual global carry trade unwinding, or lend further muscle to an increasingly solvent, hard-assets backed Eastern and Southern endeavor. One that tends to respect Iranian sovereignty and aims at setting legitimate global checks and balances.
The choices, eventual national growth strategies, and ultimate strategic chess moves on a dangerous board, are solely up to Iran to make.
Ramin Davoodi is a private equity executive and former commodities trader working between Asia, Europe and North America. He has advised multiple public and private sector firms on corporate finance, government policy, risk mitigation, market entry and trends within global finance. He can be reached at
[email protected].
(Copyright 2014 Ramin Davoodi)
