By Christian Takushi, Independent Macro Economist & Geopolitical Strategist. 19 Sep 2019.
while the world is watching developments in Washington, Wall Street and Saudi Arabia, the really important action is taking place in Jerusalem. For consensus this is just another election. I think consensus is wrong.
I will focus here on a scenario that consensus is underestimating – in the hope it doesn’t come to pass.
Israel shifts left
General elections on Tuesday in Israel produced no winner, but the Left Party (Blue & White) led by Mr. Gantz won a slight lead vs Netanyahu’s Right Party (Likud). The Left not only managed to mobilise Arab voters, Mr Liberman’s Yisrael Beitenu Party managed to weaken the Right and has de facto become the King Maker. Mr. Netanyahu’s court battles did the rest.
The shift in a nutshell
– The Left is on the brink to form an Arab-backed government in Israel
– If successful, Mr. Gantz is likely to give in to key Arab demands, shift Israel towards a more Iran-friendly course and seek to divide the land with a Two-State Solution
– The Left could offer a Two-State Solution in exchange for a PEACE DEAL. We have warned such a Deal is coming and that this Peace will be an elusive and short-lived one.
It is a regular irony of political history that the most Peace-loving leaders end up ushering the very war they want to avoid at all cost. European leaders appeased Hitler in exchange for a much celebrated Peace Deal signed in Munich in 1938. The more assertive party takes advantage of the peace-seeking one.
Events in Israel could accelerate Saudi Retaliation against Teheran
There are four major plausible scenarios in Israel, but the most likely is for Mr. Liberman’s Yisarel Beitenu to support Mr. Gantz. Yisrael Beitenu, which gathers many Russian-Israelis, would like to unseat Mr. Netanyahu. It is remarkable how two overlooked minorities (voters with an Arab and Russian background) are playing a key role in reshaping the government of Israel, and the future of the Jewish state.
Enter Saudi Arabia – What few in the West know is that Saudi Arabia has been relying on the conservative government of Mr. Netanyahu to boost regional security. This cooperation helped protect Sunni-Arab states from Iran, and included some elements of intelligence and operational exchange. Israel has by far the most impressive nuclear deterrence, intelligence apparatus and stealth air force in the region. The only three things Teheran really fears.
A new Liberal Left government in Jerusalem is likely to quietly put an end to this close cooperation with Ryad in order to accelerate peace negotiations. Given the tense situation between Ryad and Teheran, Mr. Gantz will have to do this immediately. With already a very weak support from Washington ahead of the 2020 Elections, the imminent loss of a staunch ally in Jerusalem is likely to persuade Ryad to unleash its Retaliation Strike at Iran in the few days it still enjoys effective Israeli military support.
As things stand, Ryad may actually have to act before facts are on the table. Should Ryad have made up its mind to strike back, all the above means, they have to do it soon.
The next couple of hours and days could be decisive for the Middle East.
Pompeo stands in the gap
For almost a year Ryad has had to show restrain versus Teheran. If Secretary Pompeo cannot sway Ryad from striking back, I think, Ryad is likely to convey to the White House the following “we are going ahead with a strike. We hope you join the operation, at least support it quietly”. At this stage I think President Trump will chose not to join, because he will not want to hurt his re-election campaign and expose US personnel to risks.
The question is twofold ..
Can Secretary Pompeo offer something to Ryad to sway it from retaliating? Can he sway the US President to join the operation to secure its effectiveness and proportionality? Such a measured strike would limit civilian casualties, allowing Teheran to limit its own response. If it goes wrong, it could expose the US to direct Iranian retaliation though.
Iran is rising
The West doesn’t want to admit it, but Iran is a rising geopolitical-military-religious power. Iran already controls large swaths across the Middle East, and more importantly it carries the favour of many political groups and disenfranchised people in the Middle East. It is the only power, along Turkey, that can defy or attack the USA, and get away with it. Leaders in Ankara and Teheran have proven to millions of followers across the Muslim world, that the West is afraid of standing up to them. This has made is harder for Israel and Sunni-Arab states to defend themselves.
Many Palestinians in Israel see Iran as a more committed supporter of their cause than the Kingdom of Saudi Arabia. Turkey and Iran have successfully supported politically active groups in the Palestinian territories and Israel over the years.
Ryad needs Netanyahu
Israel has vast operational experience in unilateral action that lacks material US support and even defies US policy. Something Washington has had to accept grudgingly. For the majority of meaningful Saudi retaliatory strikes, material US and Israeli support is needed. The most strictly unilateral attacks would carry significant collateral damage risks and open the door to an all-out war.
On Western media experts debate to what extend Teheran can be made responsible for the massive attack on Saudi Arabia. To most actors in the Middle East know that although no one can predict when, a major war is only a matter of time. The Israeli Armed Forces are preparing for it, and they think they will fight it on three to five fronts.
Markets unprepared – big fallout likely
Markets are totally unprepared for a large military conflict in the Middle East: The aftermath of a serious Saudi retaliatory strike or counter-attack against Teheran could disrupt the vulnerable Trading Routes between Asia and Europe and send Energy Prices higher. The USA and Russia can digest that, not so Europe and China.
The most likely market reaction in case of a Shia-Sunni Armed Conflict is this: There are seven major points ..
- USD rises sharply – depending on course of events CHF and Yen could also benefit
- US Treasuries rally, 10 Year Yield falls by 0.25% – 0.50%
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*) because we would be dealing with a military conflict of systemic proportions the USD and US Govt Bonds would be the main Safe Haven. The USA is the world’s military super power. Gold is only a secondary beneficiary since this is not a monetary-financial crisis at first.
By Christian Takushi MA UZH, Independent Macro Economist & Geopolitical Strategist. 19 Sep 2019.
Disclaimer: None of our comments should be interpreted or construed as an investment recommendation
A distinct broad approach to geopolitical research
(a) All nations & groups advance their geostrategic interests with all the means at their disposal
(b) A balance between Western linear-logical and Oriental circular-historical-religious thinking is crucial given the rise of Oriental powers
(c) As a geopolitical analyst with an economic mindset Takushi does research with little regard for political ideology and conspiracy theories
(d) Independent time series data aggregation & propriety risk models
(e) He only writes when his analysis deviates from Consensus