Iran to China for Money, Now She’s Angry

One of my first blog posts was about the dangers in the Middle East and the likelihood that war could break out between Israel and her neighbors. I argued that this would be fundamentally different, and more dangerous, than previous wars that Israel has been involved in. Just to recap, I focused on the dangers of an Iran with growing nuclear potential and on Turkey’s break from the West, but I also mentioned that China would have a strategic interest in helping the Arab nations prolong such a war to increase its influence in the region, and decrease the influence of the United States.
Over the past week, there has been some movement on two of these fronts. Iran has heightened its feud with the more Western-friendly Saudis, and US-Chinese relations have been strained with passage of legislation that would allow punitive sanctions to be imposed on any country that manipulates the value of its currency, a move clearly aimed at the Chinese. Turkey has had no major activity in the region recently, except asking Iraq to crack down on Kurdish insurgents, so I will largely leave them out of this blog.
If you have not heard, members of the Iranian government allegedly sought to assassinate the Saudi Arabian ambassador to the United States. Even if the actions were not approved by President Ahmadinejad or the Ayatollah, such a bold and rash action is indicative of a regime high on its newfound status in the region. The Saudis have been the dominant military and economic power in the Islamic Middle East for decades, but the Iranians now can challenge them for hegemony. In terms of US interests and Israeli security, Saudi hegemony is imperative. The Saudis have never directly participated in the wars against Israel because of their economic ties to the pro-Israeli West, making their relative strength in the region of utmost importance to the US and Israel.
Contrastingly, the Iranians have had to turn to anti-Western nations, such as Russia and China for economic ties, since the West imposed economic sanctions on Iranian gas imports. They have no economic or political need to support peace with Israel; in fact, in order to please the religious fanatics that have strong factions within the Iranian government, a hegemonic Iran could very well call for “pushing Israel into the sea”, as it has in the past.
The escalating tensions with China are just as worrisome, however. After the Senate passed the sanctions on currency manipulators on Wednesday, talk of a trade war with China immediately arose. If this dispute were to escalate beyond the inevitable tit-for-tat punitive measures that they will try to impose on us, then it is very conceivable that they would take a more active role in escalating the situation in the Middle East. They know that we will feel the need to involve ourselves and that we will be sucked further into a prolonged conflict than we would like to be, so in the atmosphere of a trade war and strained relations with the US, the Chinese would be fools not to enflame unrest in the Middle East.
An alternative, and potentially more grave, scenario that could arise would be the Chinese trying to punish our protectionism by liquidating our debts to them in a manner that would tell other investors that the US is no longer considered a safe risk by her biggest foreign creditor. Even if this did not spark a bear market for American debt, it would significantly increase our interest rates and wound an economy that is barely limping along as it is. With such an economy, our influence in the Middle East would drop as quickly as our purchasing power, and we would be unable to effectively promote peace in the region, at which point the stability of the region would likely be determined by the victor of Saudi Arabia and Iran’s race for hegemony.
So, what course of action should we take to avoid such a scenario? Well, we must try to avoid a full blown trade war with China; we must try to inhibit Iran’s growing power in the region through diplomatic means; and we must make sure that if the worst case scenario does manifest, then Israel has the ability to adequately defend herself from invasion with as little aid from the US as possible. All these are good treatments for the symptoms of our illness, but the root cause is the irresponsible economic practices that we have domestically. If we had not run up a huge deficit, had it financed by unfriendly nation, prevented domestic oil drilling, or set up a system that rewarded the exportation of manufacturing jobs, then we would be in a much stronger situation today. The problems that we see today are all symptoms of a decade of irresponsible economic policies, but if we fix them in a truly capitalist fashion, then we will see the symptoms cured as well, in the long term.

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