Iran

The spy novels just keep on coming. The latest is out of the FT which speculates that due to numerous delays and technical setbacks in Iran's nuclear program, it could have been the target of sabotage. "A series of recent reverses, notably affecting Iran’s ability to enrich uranium, is prompting debate over whether the programme is being undermined by sabotage, sanctions, or the incompetence of the regime’s scientists." Of course, while the latter is most likely the correct answer, the fact that the FT is floating this story now is cause for concern. The reason: Iran will likely not take too kindly to even mere speculation that its control structure is weak enough to allows spies to interfere with its identity-defining and critical nuclear program.

The explosions occurred at a mosque in Zahedan according to IRNA. No details on injured or casualties yet.

One wonders how many Ph.D. were consulted in the preparation of this report. Yet aside from the glaringly obvious, there are some other interesting observations. "An Israeli attack on Iran would be the start of a protracted conflict that would be unlikely to prevent the eventual acquisition of nuclear weapons by Iran and might even encourage it. Long-range strike aircraft acquired from the United States, combined with an improved fleet of tanker aircraft, the deployment of long-range drones and the probable availability of support facilities in northeast Iraq and Azerbaijan, all increase Israel's potential for action against Iran." According to the report, it might take three to seven years for Iran to develop a small arsenal of nuclear weapons if it decided to do so. Also, the report wisely states that an Israeli strike would be focused not only on destroying nuclear and missile targets but would also hit factories and research centers and even university laboratories to damage Iranian expertise. Shockingly, this would cause many civilian casualties. Oxford believes Iran's retaliation would include withdrawing from the nuclear Non-Proliferation Treaty and the production of nuclear weapons to deter further attacks. Other recourse would include missile attacks on Israel, closing the Strait of Hormuz to push up oil prices and paramilitary or missile attacks on Western oil facilities in the Gulf. Fun bedside reading.

I have a frequent nightmare: In the year 2011, with the full support and complicity of their shadow ally, Russia, the Islamofascist regime in Tehran announces that that they have developed a deliverable nuclear weapon(s).

A whole bunch of American ships are headed to Iran, including one aircraft carrier. Some claim this deployment is “normal”, while others think it might be the first move in a U.S. offensive against Iran, either actual or diplomatic. From the Iranians’ point of view, there’s only one way to look at this deployment: As another provocation. American leadership—educated at the best schools and colleges, multi-cultural up the wazoo—don’t have a clue why Iranians feel besieged. They have no idea why Iran acts the way it does. They don’t even realize that they don’t understand Iran’s motivations. There has been a complete lack of imagination, in America’s dealings with Iran—and that failure of imagination is why things are so fucked up in the Middle East. (Is there any other way to characterize the whole mess? False politesse does not capture the sheer fucked-up-edness of the situation.)

Iran: The failure of imagination has been Iran.

So perhaps a thought experiment is in order—for once, let’s try looking at the world from the Iranians’ point of view

Paul Mylchreest periodic report on all that is important is, as usual, a must read. In this issue:

• Buying Oils and Rare Earths
• Gold and the Euro - rumblings of economic discontent
• Feedback from the secretive Bilderberg & Trilateral Commission
  meetings
• Why we shouldn’t be surprised that Obama has failed to live up to all
  the hope
• Arch Crawford’s warning of a rare planetary alignment
• Decoding Stanley Kubrick’s Eyes Wide Shut

At least back in 2009 the most promising targets for damaging the Iranian nuclear program, specifically the weapons related development, were Plutonium production facilities (characterized primarily by the Plutonium Production Heavy Water Nuclear Reactor in Arak) and facilities critical to the "Nuclear Fuel Cycle" (most obviously the Uranium Enrichment Facility in Natanz and the Uranium Conversion Facility in Esfahan).  The Center for Strategic and International Studies' Abdullah Toucan released a detailed report comparing the mission requirements of strikes on these (and other) facilities with Israel's capabilities and concluded the mission was within Israel's grasp operationally.1  Normally we would call this report a "must read," but instead we've read it so you don't have to, as well as added some of our own research and secondary sources.  The report also examined the ballistic missile strike option and delved into some of the political and instability costs that an attack would extract (which we ignore for the purposes of this discussion).  Those sections are well worth reading, even if the political reality on the ground has changed since early 2009.

• 1. Abdullah Toukan, "Study on a Possible Israeli Strike on Iran's Nuclear Development Facilities," Center for Strategic and International Studies (March 16, 2009).

What's really going on with Iran?

As we first reported last week, in an article that was met with much original skepticism, the Pentagon has now confirmed that a fleet of 12 warships has passed the Suez Canal, and is now likely awaiting orders to support the escalation in the Persian Gulf. The attached image from Stratfor shows the latest positioning of US aircraft carrier groups as of June 23: the USS Harry Truman (CVN-75) is now right next to USS Eisenhower (CVN 69), both of which are waiting patiently just off Iran. As for the catalyst the two carriers may be anticipating, we provide the following update from the Gulf Daily News where we read that Israel may be on the verge of an attack of Iran, with an incursion originating from military bases in Azerbaijan and Georgia.

Remember those 3 nuclear-armed subs we wrote about, that Israel had positioned off the coast of Iran, a development which promptly got lost in news about the whole flotilla incident? Well, they may be getting some more press time soon. Jerusalem Post reports that in the latest escalation step, Iran has offered to provide military protection in the form of warship escorts for Gaza activist ships. Needless to say, this introduces another huge variable into the game theoretical stability equation: not a single party has "cooperated" yet, even as more and more parties decide to defect. We are increasingly concerned that this will not have a favorable outcome, as all it takes is one stray button or trigger getting pushed for events to get beyond the point of no return.

Over the past two weeks we have seen a charade of support for the euro coming from not onlly the insolvent developed sovereigns, but from the BRICs as well (especially China's SAFE), which have hundreds of billions on euro-denominated holdings that would be severely impacted in case the euro continues on its painful slog to parity. Ironically, one country which sees no reason to sugarcoat reality is Iran - the country's Central Bank has just announced plans to sell 45 billion in euros, without providing further commentary. The proceeds? Buy dollars and, wait for it, gold ingots.

As the United States edges closer to issuing a fresh round of sanctions against Iran, foreign investors so far unmoved by international pressure will end up doing business with a Revolutionary Guard that makes even local firms nervous, an analyst warns. The Islamic Revolutionary Guard Corps, known as the IRGC or Revolutionary Guard, is a military branch set up after the 1979 revolution to protect the regime and has become more ingrained in the Iranian economy particularly under President Mahmoud Ahmadinejad’s administration. In recent weeks, the Revolutionary Guard has declared that it can assume control of the energy industry if Westerners flee under the crush of coming U.S. sanctions. Over the last two-and-a-half decades, the powerful force has gradually moved into sectors like construction, energy and telecommunications, said Alex Vatanka, a scholar at the Washington-based Middle East Institute.

As if uncontrollable economic contagion was not enough for the administration, Obama is now willing to add geopolitical risk to the current extremely precarious economic and financial situation. Over at Debkafile we read that the president has decided to "boost US military strength in the Mediterranean and Persian Gulf regions in the short term with an extra air and naval strike forces and 6,000 Marine and sea combatants." With just one aircraft carrier in proximity to Iran, the Nobel peace prize winner has decided to send a clear message that peace will no longer be tolerated, and has decided to increase the US aircraft carrier presence in the region by a 400-500% CAGR.

Just as the White House released a brief note saying the US delegation has walked out on Ahmedinejad's speech at the UN, so Robert Gates was quoted by Reuters saying that "Iran is taking steps to challenge U.S. naval power in the Middle East." The defense secretary added: "Iran is combining ballistic and cruise missiles, anti-ship missiles, mines, and swarming speedboats in order to challenge our naval power in that region." What about weapons of mass destruction? Oh wait... Either way, the only thing from keeping liquidity overflow from taking the Dow to 36,000 is that risk that Oil would hit $1,000/bbl first. And geopolitical events are just what is preventing the JPMs of the world from using the same harsh tactics as they do with PMs. The last thing this administration needs is a middle-east war which would send a gallon of gas to $5, the stock market tumbling, and the clotheless Ponzi economy exposed, as even without paying one's mortgage, if the price of a refill doubles, there are only so many iPads one can buy.

Yesterday we found out that North Korea had, as everyone was well aware, in fact attacked South Korea by sinking its ship using a submarine torpedo, heating up geopolitics in the peninsula. Today we find out that Iran's Revolutionary Guard has started large-scale war games in the strategic Straits of Hormuz via Reuters. Surely, Israel will note this with passing indifference and go back to buying US consumer retail and REIT stocks in bulk, especially after watching Steve Liesman's latest "breaking" expose on Goldman by Goldman.