Global agenda: I-ran for cover

The global financial community's way of relating to Iranian nuclear ambitions is quite pertinent.

iran nuclear 224.88 (photo credit: AP)
iran nuclear 224.88
(photo credit: AP)
As part of their mangling of English pronunciation in general, and that of foreign words in particular, the Americans express the names of the countries between Jordan and Afghanistan with a hard I (eye), rather than a soft I (ih). The result is I-raq and I-ran - " like I-reland, but not like In-dia, It-aly or even Is-real (aka Israel). Now at least we know why. The country once called Mesopotamia is the place where I-raq my brains for answers to questions such as how did we get into this mess? And, even more pertinently, how are we ever going to get out of it? The other one, previously known as Persia, is where I-ran for cover rather than face up to the unpleasant realities. As Iran marches forward in its quest for nuclear power and, down the road, regional hegemony and, eventually, the achievement of Shi'ite Islam's global dominion, the US leads the West in running away from the inevitable confrontation. One key aspect of the I-ran syndrome is the way the global financial community has related to the subject of Iran and its ambitions. This column has frequently pointed to the determination of analysts covering oil, equities and even economics in general to make the connection between events in Iraq and the relentless rise in the oil price since June 2003, when the American-led regime change began to unravel. The consensus position was originally that a barrel of oil should be priced in the $30s; when that became untenable, we were fed the "Chinese demand growth" story as the explanation for $50-, $60- and eventually $70-a-barrel oil. Clearly, demand is a key element in the equation, but so is supply, and the evaporation of Iraqi supply (of some 3 million barrels per day in the later Saddam period), as well as the non-materialization of increased Iraqi production post-Saddam (another 2 million-3 million bpd, according to pre-invasion projections) has surely had a considerable impact on price levels. I-ran, however, is much worse than I-raq, in terms of Western self-delusion. In tandem with the diplomatic efforts made by the US and the EU countries to ignore, minimize or at least play down the threat posed by Iran to regional and global stability, which included a steady retreat from the original "axis of evil" association that grouped Iran with Iraq and North Korea, financial analysts have paid little or no attention to the possibility that Iran will destabilize the global economy and markets. In this respect, it is possible to report both good and bad news. The good news is that the attitude of financial analysts toward Iran is changing. More and more analysts are expressing concern about Iran's potential for destabilizing the already unstable Middle East. They have even noticed that Iran can disrupt both the old center of energy production (the Persian Gulf) and the emerging new one (Central Asia and the Caspian region). A few have even ventured to write publicly that Iran represents the number one threat to the continued well-being of the global economy in 2006. That is a welcome, if belated, development. The bad news is that they are absolutely right. It is especially important to understand why the tendency to run from Iran has been so strong, and why it may now be changing. The idea that the government of a large country with hefty resources is in the hands of a clique of fanatics, who are detemined to impose their ideology on others - initially their own people, then their neighbors, ultimately everyone - is inherently repulsive. To investors, bankers and fund managers, it is also weird, because it implies that these people will not only prevent them from making money in peace and quiet, but actually don't care about making money at all. To investment professionals, this represents irrational behavior which cannot be reproduced in mathematical models, fed into black boxes and used to make decisions. To diplomats and politicians, it is equally reprehensible, because it means that the said country is immune to accepted stimuli and incentives. Indeed, it appears that what a normal country would consider negative incentives serve as positive ones in this case. There are precedents for this phenomenon, notably the Soviet Union in its early post-revolutionary years and Nazi Germany. The latter comparison is particularly resonant, both because of the rhetoric being used by the Iranian president and because of the dismissive reaction to it. One of the trends to watch in 2006 is whether the growing concern being displayed in the financial markets regarding the Iranian threat triggers a change of attitude among the politicians and the general public in Western countries.