Iran

By Ian Bremmer

When Yemen makes international headlines, it's usually because outsiders look at the unrest there as yet another proxy conflict between regional heavyweights Saudi Arabia and Iran. It's one more version of the Sunni vs. Shia Middle East story. The Saudis are supporting Yemen's government in a fight with Shia Houthi rebels financed and trained by Iran. The Saudi, Yemeni, and Iranian governments each have their motives for feeding this simplification.

The Houthis are a Shia rebel group in northern Yemen, centered in the city of Saada. They've warned for years that they've been politically and economically marginalized by Yemen's government, and Houthi rebels launched a rebellion in 2004. There have been six rounds of fighting since. In August of this year, the Yemeni government, with Saudi support, launched another battle against the Houthis, and the conflict has spilled across the border into Saudi Arabia, where Houthis have fought pitched firefights with Saudi forces. In response, the Saudis have launched bombing raids on Houthi positions inside northern Yemen. Tens of thousands of people have fled the expanding conflict zone.

The spike in violence is now getting the regional attention it deserves-but for the wrong reasons. Yemen's weak government already has its hands full with a growing threat from al Qaeda in the Arabian Peninsula (AQAP) and increasing secessionist pressures in the south, adding to the risk that Yemen will become a failed state. The refugee problem is creating a risk of social unrest inside Saudi Arabia. These are serious issues. Less serious is the fear, fanned by both Saudi and Iranian officials, that Iran wants to use the Houthis to create an Arabian version of Hizbullah, a direct Shia threat to Saudi territory. The Saudis are playing up this threat to justify cross-border attacks into Yemen. Yemen's government is using the threat to justify its willingness to accept Saudi attacks on Yemeni soil and to gain Western military support and financial help. Iran feeds the story to pose as increasingly influential within the region.

The Houthis, though, have no reason to play along. They follow the Zaidi form of Islam. They're technically Shia, but theologically and historically distinct from Iran's Twelver Shia majority, which has cultural connections in Lebanon and (to a lesser extent) in Iraq -- but not in Yemen. The Houthi rebels need guns and cash and can't be picky about where they get them. If Iran is willing to sell, they're willing to buy. That doesn't mean they will use them to advance Iranian interests in Saudi Arabia's backyard.

In Yemen, at least, all militancy is local. Few outside al Qaeda relish the idea of the world's largest oil-producer sharing a border with a failed state. That's a risk worth worrying about, but it's not a good reason to over-simplify a complex political, economic, ethnic, religious, and social problem into some sort of regional proxy war between Sunni and Shia.

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By Greg Priddy

Saudi Arabia faces a complex set of challenges in its role as leading member of OPEC amid ongoing economic and financial market volatility. After achieving an unprecedented level of compliance with OPEC production cuts from other members earlier this year, the kingdom now confronts a problem: compliance is beginning to fray, even as a weakening of the U.S. dollar and a surge in global equities markets push the oil market surging ahead.

If the breakout above $75 per barrel for West Texas Intermediate (WTI) crude oil is sustained and the momentum continues, it's entirely possible that Saudi Arabia will intervene to try to tamp down prices. If that happens, it wouldn't be as part of any understanding with the United States -- a relationship now under serious strain -- but from pure self-interest. With the global economic recovery still fragile, a rapid momentum-driven escalation in oil prices could weigh on consumer confidence and economic growth. That could produce a drop in oil prices. Saudi Oil Minister Ali al Naimi has spoken in recent months of a "goldilocks" range for crude oil at around $75 per barrel, and hinted at action to blunt any sustained push past $80 per barrel.

The Saudis also need to manage price increases to maintain pressure on Iran. Iran's nuclear progress has Gulf Arab governments on edge -- and the Saudis, in particular, would like to avoid taking any action that provides Iran's government with extra revenue. The Saudi government can balance its budget with WTI crude oil in the vicinity of the high $50s. That means they are now replenishing reserves at a rapid pace after running a deficit for the first half of this year. Despite spending cuts, Iran is still under financial pressure, and the Saudis would like to keep it that way.

Managing output levels and prices will be difficult, given that global inventories of crude oil and petroleum products remain well above their normal ranges. Any move by the Saudis to tamp down a surge in prices would likely involve a modest amount of increased exports -- say 500,000 bpd -- and could be pulled back once it has its intended effect of breaking the market's momentum. To bring inventories down, however, the leading Gulf Arab members of OPEC (Saudi Arabia, Abu Dhabi, Qatar, and Kuwait) will need to keep their own output well below pre-September 2008 levels through at least the end of 2010. Right now, compliance outside the Gulf Arab members has receded, particularly in Iran and Angola. Nigeria remains at its target, but that's a result of the continuing violence in the Niger Delta, not a policy decision to keep its promises.  

Greg Priddy is a Global Energy & Natural Resources analyst at Eurasia Group.

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By Willis Sparks and Geoff Porter

As the world focuses on the diplomatic tug of war over Iran's nuclear program, Israel lives with the worrying hum of all those centrifuges spinning just a thousand miles to the east. Yet, Benjamin Netanyahu's government knows that if Israel launches airstrikes, there's a limit to how much damage can be done and how long Iran's progress can be delayed. It therefore has to persuade the Obama administration -- and anyone else who might help slow Iran's march -- to see the risks from Iran as Israel sees them.

It helped that Iran recently revealed the existence of an undeclared nuclear site near the city of Qom. At the very least, that revelation of Iranian dishonesty might have made it a little more difficult for Beijing and Moscow to justify continued resistance to sanctions. Yet, Israel remained quiet. Suddenly it appeared Netanyahu, Defense Minister Ehud Barak, and National Security Advisor Uzi Arad might have a wind at their backs. Though they'd like the wind to blow a bit more steadily and to get them to their destination quicker, they can't risk the rhetoric that might label them as blowhards.

But now there's talk of a diplomatic breakthrough. Following talks in Geneva with negotiators from the United States, China, Russia, Britain, France, and Germany, Iran has signed on to a tentative "interim agreement" to accept a U.S.-Russian proposal (that has been on the table for more than a year) to ship much of its low enriched uranium outside the country for reprocessing. Ensuring that this uranium is processed outside the country would help verify that it's used for civilian, not military, purposes. And then over the weekend, Iran ostensibly agreed to allow IAEA inspectors into the Qom facility on Oct. 25.

This leaves the Israeli government in a bind. First, because the details have yet to be worked out and Iran could renounce a completed agreement at any time, Israel can't take much comfort from it. Second, the fact that others treat it as a potential diplomatic breakthrough makes it even less likely than before that Israel could justify military strikes or that the US can persuade Russia and (especially) China to support sanctions tough enough to make any difference in Iran's strategic planning.

Israel has no faith that the potential for diplomatic détente between Iran and the US and EU is anything more than an Iranian stalling tactic, buying Tehran more time to speed toward the nuclear finish line. Likewise, Israel doesn't believe that sanctions -- no matter how tough they are -- will back Iran down. For Israel, diplomacy and sanctions are merely different forms of delay, but Netanyahu has little choice but to wait them out.

He'll be waiting for some time. First, diplomacy has to run its course. Following the tentative agreement in Geneva and the announcement that Iran will allow inspection of its Qom facility, the diplomatic track seems to be gaining momentum. Once that momentum slows and stalemate resumes, sanctions will be debated and some of them will be implemented. That won't happen before spring 2010 at the earliest.

In the meantime, Israel has little choice but to sit on its hands. Netanyahu knows that strikes on Iran's nuclear sites during delicate negotiations would inflict much more damage to Israel's international reputation -- and its relations with Washington, in particular -- than to Iran's nuclear program. Nothing brings this home more clearly than the U.N. Human Rights Council's report investigating Israel's military campaign in the Gaza Strip in 2008-09, which came very close to launching a legal process within the UN that could have produced a referral to the U.N. Security Council -- and possibly a war crimes tribunal. That's not going to happen, but it underscored already shifting international attitudes toward Israel.

Former Defense Minister Shaul Mofaz has said 2010 would be the year of sanctions. His government was hoping for a year of action. Instead, Israel will wait.

Willis Sparks is Global Macro Analyst and Geoff Porter is Middle East & Africa Director at Eurasia Group. 

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By Eurasia Group analyst David Bender

Iranian President Mahmoud Ahmadinejad made it through his August 5 inauguration with the regime secure, but he faces a bumpy road ahead. The Iranian government won round one against the opposition through its willingness to use force in the streets, torture in the jails, and heavy propaganda in the media. Based on its apparent calculation that excessive repression will not provoke a revolution, but compromise might, the regime won't let up anytime soon on its crackdown. While this hard-line policy may keep the regime firmly in control for the short term, it leaves it few long-term options. The regime now has neither the legitimacy nor the political capital to effectively rule or institute needed economic reforms.

Iran is less politically stable than it has been at any time since the Islamic Revolution. The regime shows deep internal fractures, even between Ahmadinejad and Supreme Leader Ali Khamenei. The two are hanging together for now, but if Ahmadinejad becomes too great a liability, Khamenei may have to dump him. Ahmadinejad faces serious challenges, including an increasingly reactionary support base dominated by the hard-line Islamic Revolutionary Guards Corps, a wide field of opponents, and wary clerics in Qom. Meanwhile, the parliament is gearing up to challenge the president on a number of technocratic matters. In other words, the impetuous president is under pressure from multiple angles, something that history suggests will push him to become more brash, outspoken, and antagonistic.

Beyond his inflammatory rhetoric, Ahmadinejad needs to bring the concrete economic reforms he promised to the country. He must tame inflation, which has been higher than 20 percent for most of the last four years; reduce budget-draining energy subsidies that have made cheap gasoline a virtual entitlement for the urban middle class; and raise tax revenue to reduce Iran's dependence on oil revenue, which currently accounts for more than 80 percent of the country's total revenue. At the same time, with oil prices half of what they were 13 months ago, but official unemployment still at more than 12 percent, Ahmadinejad's government will need to continue creating jobs to maintain social stability. It remains unclear how the government can actually solve any of these major problems, however, given that the regime has little political capital and Ahmadinejad seems to have a personal aversion to technocratic expertise.

An opening to the West now looks even less likely than before the June presidential election. The Iranian regime's decision to blame the post-election social unrest on sinister foreign elements means that few in power in Tehran will be amenable to compromise with the United States on the nuclear issue -- or anything else. In Washington, there will be more support for expanding sanctions than pushing talks. A nuclear or diplomatic breakthrough between the United States and Iran is extremely unlikely at this point, raising the threat of U.S. or Israeli military action in 2010.

For now, having consolidated control of the government and the security services, the Iranian regime looks secure. The political equation, however, has fundamentally changed as the Islamic republic has essentially become a military junta that imposes its will though force. This arrangement leaves very little margin of error for the regime and makes the country even less able to withstand future political or economic shocks. During the next 18 months, the Iranian regime will struggle to maintain regime unity, effectively counter the opposition, and deal with disillusioned cleric elites while trying to make difficult economic decisions and manage an increasingly complex geostrategic position. Ahmadinejad may find that fixing his election was the easiest part of his next four years in office, if he makes it that long.

By Ian Bremmer

The George W. Bush administration learned the limits of a policy approach to America's antagonists (like Iran and North Korea) that relies almost exclusively on political pressure and economic coercion. Even as Washington issued warning after warning, Iran made enormous progress toward a nuclear capability, and North Korea amassed a small nuclear arsenal.

But the Obama administration is now learning the limits of constructive engagement. Iran is ignoring U.S. calls for an end to a crackdown on Iranian demonstrators, and North Korea is threatening the United States with a "fire shower of nuclear retaliation." What do we learn from this? That, as time passes, U.S. policymakers have less and less ability to influence events within isolated countries and the choices made by their leaders.

In fact, events inside Iran over the past two weeks represent something close to a worst-case scenario for Washington. Since Obama became president, his tactical approach to Iran has been governed by a simple principle: Don't do or say anything that will help Iranian President Mahmoud Ahmadinejad use Washington to rally support. That was a wise choice, but one that came to nothing because, as Joseph Stalin once observed, "It's not he who votes that counts but he who counts the votes."

Obama responded to the stolen election and the protests that followed with characteristic caution, using vivid language of condemnation only after the level of violence in Tehran demanded it. But it will be harder now to make the deal he wants over Iran's nuclear program, because whatever he offers Iran will open him to charges of "appeasement," and because Iran's weakened government will likely respond to U.S. warnings with renewed belligerence.

On North Korea, whatever the president's approach, uncertainty within that country is generating a level of anti-American vitriol that's unusual even by North Korean standards. Kim Jong-Il has apparently tapped his 26 year-old son, Kim Jung Un, to succeed him. Whether this latest of the Kims will actually rule or the North Korean military will wield new power within a kind of dictatorship by committee, we can only guess. But it's clear that, for the moment, U.S. officials can plan for various contingencies and respond to events, but can't do much to influence what comes next.

The Obama approach to these problems is to try to keep as many options open as possible. That might help to protect him against the charges of hubris that rained down on Bush-era neocons, but it also allows others who don't play by the same rulebook to outmaneuver him. Political decision-makers inside Iran and North Korea are now defining the terms of their engagement with the United States.

By Eurasia Group analyst Cliff Kupchan

The Iranian regime controls the guns and has the support of at least 30 percent of the population. That's probably enough to reestablish dominance in the streets and to avoid compromise in the bitter conflict stemming from the country's presidential election. That said, Supreme Leader Ayatollah Ali Khamenei has tied himself as never before to Iran's controversial president -- and therefore could become increasingly vulnerable over the next year.

The crackdown now playing across front pages all over the world looks to be led by the police and the Basij, the militia blamed for much of the current violence. But press reports suggest it may also include elements of the Revolutionary Guard, demonstrating clearly that the government now means to quell the protests as fully and quickly as possible. Eyewitnesses placed the crowds of pro-opposition protesters last week at more than 100,000, but over the past two days, the numbers in the streets of Tehran have become noticeably smaller.

Iran's government will likely regain control of the streets of Iranian cities. Violent repression will intimidate protestors, and the arrests of reformist leaders and continuing limitations on the internet and mobile phones makes organization of protests difficult. Importantly, the regime has far better control of police, military and security forces than did the governments of Georgia, Ukraine, and Lebanon -- the focal points for "color revolutions" of recent years.

There is a short-term and a serious longer-term threat to Iranian stability. The shorter-term threat is of a fracture within Iran's governing elite. One of Mousavi's most high-profile supporters is Ali Akbar Hashemi Rafsanjani, the former president and current head of the Assembly of Experts, who currently appears to be working to build support among the clerical establishment in Qom. His precise intentions are unclear, but Rafsanjani's actions represent a larger fracture occurring within the Iranian regime between the militaristic Revolutionary Guard (which supports Khamenei and Ahmadinejad) and the clerics (who support the regime but were never enthusiastic about Khamenei's elevation to supreme leader or Ahmadinejad's presidency).

Another key powerbroker, Parliamentary Speaker Ali Larijani, said publicly on Sunday that "a majority of people are of the opinion that the actual election results are different than what was officially announced," and warned the supervisory Guardian Council, which has final authority to rule on election appeals, against siding with one candidate. He's also called for support for the government and attended the supreme leader's Friday sermon last week. But if Larijani and other pragmatic conservative political figures jump ship, the government's non-military base will narrow further.

There's a greater long-term threat: The Leader's legitimacy, and by extension that of the system, is in question for the first time. In the past, the supreme leader managed to remain above politics, entering the fray only to mediate or impose a compromise. But the firm public and personal support he has expressed for Ahmadinejad, including at Friday prayer last week, makes Khamenei a partisan, now firmly linked to Ahmadinejad. This means that the Supreme Leader will also be connected in an unprecedented way to the president's actions, including his failed economic policy and extremist foreign-policy rhetoric -- factors that have divided many Iranian conservatives and motivated many of the protesters. Also, by endorsing an almost certainly rigged election, the Leader has further reduced his legitimacy. The vote matters to Iranians; the veneer of democracy in the system is a matter of national pride, and the Leader's repudiation of it will hurt him.

Finally, the opposition has been very effective in using Islamic symbolism against the Islamic Republic, focusing most of its protest on honoring the dead, wearing green, shouting ‘God is Great' from rooftops, and using other tactics reminiscent of the 1979 revolution. Especially in that context, every death will undermine the Leader's moral standing and further weaken the regime's legitimacy over the longer term.

Iran's hardliners will likely win the current battle in the streets, but Khamenei and Ahmadinejad now have a longer-term legitimacy problem. Further, if the regime continues on its current course, Iran will increasingly become a garden-variety military dictatorship, which would make the regime's ability to absorb internal shocks -- whether from economic crisis or social instability -- far narrower. The outcome of Iran's broader and deeper conflict is farther from certain. Iranian stability is in play as never before.

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