STAFF NEWS & ANALYSIS
Obama to House Dems: If Sanctions Fail, Israel Will Likely Strike Iran
By - July 31, 2008

Sen. Barack Obama, D-Illinois, met with House Democrats yesterday, talking about his trip abroad and his observations. Obama told the caucus, according to an attendee, "Nobody said this to me directly but I get the feeling from my talks that if the sanctions don't work Israel is going to strike Iran." Others in the room recall this as well. The notion that Israel is preparing for such an action against Iran's myriad nuclear facilities is not new, with conjecture heating up in May after an Israeli military exercise featuring 150 aircraft flying almost a thousand miles over the Mediterranean Sea in what was seen as a dress rehearsal for an air strike. Now that the Bush administration is engaged in diplomatic efforts with Iran, many Israeli officials are worried the US is getting soft on Iran, prompting Israeli Defense Minister Ehud Barak to travel to the US this week to meet with Defense Secretary Robert Gates, Secretary of State Condoleezza Rice, and National Security Adviser Stephen Hadley. Barak's office released a statement saying "a policy that consists of keeping all options on the table must be maintained." – Yahoo

Dominant Social Theme: War is coming – maybe. Get ready in any case. Can't think of anything to do? Think some more! And be afraid, very afraid …

Free-Market Analysis: One gets the idea that the drums are beating louder and louder and that little can stop continued speculation over yet another war – a third front for America and the "war on terror." Obama's remarks both point to this and tend to confirm a general trend of thought – that Israel's leaders are determined to give Iran only two options when it comes to nuclear energy: cease and desist or be on the receiving end of a military campaign.

Usually, Israel's military posture tends to be moderated by internal or international pressures or pragmatic considerations. But this time, the situation could indeed devolve into a serious shooting war, or at least a bombing one. This is because elements of belligerence are shared by at least three parties. First is Israel; some of its most powerful leaders refuse to countenance an Iran with nuclear weapons. Second is Iran, which itself sounds numerous belligerent notes about Israel while passing along mixed messages about its own nuclear plans. Finally, there is America; American politics tend to support Israel and the strategic thrust of Israeli leadership.

Of course, it has been famously said by Prussian General Carl Philip Gottlieb von Clausewitz (1780-1831) that war is a "continuation of politics by other means." In this case, a significant portion of the Israeli populace does worry about nuclear weapons in the hands of the current Iranian regime – and that means that there are more than political considerations at work.

Iranian leaders seem to be playing an even more political game, one Clausewitz would likely recognize, as the country has plenty of problems, economically and otherwise. It's possible that Iranian President Mahmoud Ahmadinejad has welcomed the controversy, as it gives him the chance to stand up to the "powers of the West" that are seemingly aligned against him and his country.

Finally, there is America. American politics seem split on a war, with some in the Administration camp, including most famously Vice President Dick Cheney, seeking a more aggressive confrontation with Iran, one that may well include a military aspect, with or without Israel. The thinking here, according to some, is that a wider war on terror would cement the current American military initiative in the Middle East, for better or worse – securing a certain militaristic foreign posture from which America would be hard put to disengage. This would apparently please certain portions of the American strategic community which seemingly seeks a "wider war on terror."

Of course, others look on the idea of a war with Iran as an unmitigated disaster out of which only unfortunate consequences can flow. Even Clausewitz wrote that war was not an answer to political problems, even though it might be an extension of them. Perhaps for these reasons, America and Iran have recently seemed to pull back from the abyss a bit – despite the more bellicose talk coming from Israel.

A recent report indicated that Iran wants to seek common ground with the West over its nuclear ambitions, even as it faces an international deadline to halt uranium enrichment. "In an NBC television interview broadcast Monday, Iranian President Mahmoud Ahmadinejad said that a new approach by the United States towards his country could yield positive results, as he reiterated that his country is not interested in developing a nuclear weapon. In a further easing of the angst over whether the U.S. might attack Iran, U.S. Defence Secretary Robert Gates said in a newly published magazine article that even though he thinks Iran is ‘hell bent' on building nuclear weapons, a third U.S.-led war in the region would be ‘disastrous on a number of levels.'" (Canwest News Service)

The critical swing player in all this is Israel. Ehud Olmert's recent resignation from his party's leadership leaves a great deal of uncertainty over where the country is headed diplomatically, especially as pertains to Iran.

According the British Guardian, Olmert's leave-taking means that Iran "jumps to top of the in-tray" for the new PM. The article points out that one of the main political players on the scene, Tzipi Livni (Israel's foreign minister), has a bit more peaceful approach than another high profile pol "Mr. Security", Shaul Mofaz. According to the Guardian, and other media as well, Mofaz is a hawkish former chief of staff and defence minister who "generated global headlines recently when he said it was ‘inevitable' that Israel would attack Iran's nuclear installations."

After Thoughts

All this to-ing and fro-ing over Iran and the possibility of an upcoming war may seem somewhat speculative until one realizes what it could do to commodity pricing. We've written about speculation that a war would cause oil to soar to $500 a barrel or even higher. But what of precious metals? If Israel starts a war it can't finish, the United States may be forced to step in, widening the military conflict precipitously.

Think gold is high now around $1,000? Gold bulls have speculated that over the next few years gold could get as high as $2,000 an ounce. But if you want see to see gold get there all at once, root for war in the Middle East.

Of course, no one in his right mind would do so – as a Middle Eastern war would have grave consequences not just for the region but for the Great Powers as well. In fact, it would be the nearest thing to a World War since the actual World Wars of the last century.

Still, the combination of high oil prices, inflationary pressures yet to come and military tensions in the Middle East may all combine sooner rather than later to force another spike in the price of gold. We'll close with an analysis from SeekingAlpha which pulls some of these trends together along with a price projection, as follows:

"Despite volatility that can cause short-term fear (such as that found in recent weeks), there are several reasons why the momentum points to higher prices in gold. I am concluding that we can all but ignore the typical ‘real world' supply-demand equation in favor of investment demand. The major catalysts I see for gold's uptrend include: 1. Bullish trends in the gold options markets; 2. The historical ‘gold-oil ratio' averages; 3. Potential market-moving events to drive demand. … There is absolutely no reason that gold should still be sitting below $1,000. I am calling for $1,150 an ounce by the first quarter of 2009. With commodity levels headed back toward $900, I feel that a rebound in precious metal markets is imminent despite the occasional bear market rally on flailing oil prices. If you can stand the volatile short-term movements in the market, gold bulls may soon be rewarded."

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