Afghanistan: the weak link in a stronger global chain?

The war in Afghanistan may not end well for the US; history has not been kind to foreign forces. But there are signs that it will become the key linkage in the Obama administration's attempts at redefining US foreign relations.

NATO announced today that it was restoring high-level contacts with Russia. US Secretary of State Hillary Clinton said that, amongst others, Afghanistan was an issue of "mutual concern." She also expressed her support for a conference on Afghanistan that would bring together all of the key stakeholders in the region, including Iran. From the BBC:

"If we move forward with such a meeting, it is expected that Iran would be invited as a neighbour of Afghanistan," she said.

The challenges posed by Afghanistan are shared by each country in the region (whether there by geography, choice or military alliance). Beyond the obvious interest of each stakeholder in the country's success, Afghanistan may provide the conduit for a diplomatic thaw in US-Russia (a "reset"), US-Iran relations (a handshake, maybe?). Stay tuned...

Commodity price collapse: who wins and who loses?

One of the great back stories of the ongoing economic crisis is the collapse in commodity prices, which occurred in the second half of 2008 after a record boom period lasting at least five years. The bursting of the bubble has produced clear winners and losers. Thanks to our fantastic contributors, zzzeitgeist has had excellent coverage of these repercussions. I thought I’d try to tie things together.

The biggest winners are consumers, particularly first-world automobile drivers. In the last 7+ months, oil has fallen from $147/barrel to about $37/barrel now. Economists reckon that amounts to a ‘stimulus’ of more than $240 billion. Also, now that the world food crisis has largely subsided, developing-world consumers stand to benefit from cheaper food prices. This means a lot when you spend more than 50% of your budget on food.

The mining sector is obviously a huge loser. Mining is often a boom and bust industry, because it takes a long time to develop new mining projects. It’s hard to forecast future supply/demand fundamentals (remember when this seemed like a good idea?) and unfortunately they can change drastically and rapidly, which is exactly what has happened in the last year. As a result, a number of firms are closing mines, because prices are too low to justify operating costs. Mining firms often take on a lot debt out of necessity – digging mines ain’t cheap. But thanks to the financial crisis and the disappearance of cheap credit, heavily indebted companies are suddenly struggling to stay afloat. Case in point: Rio Tinto, the world’s second largest mining conglomerate. See Rory’s excellent treatment of Rio’s debt woes here.

Finally, commodity-dependent countries suffer perhaps the worst. When prices are high, resource-rich countries are suddenly flush with cash, which they can use to advance geopolitical aims, reward cronies, or invest in infrastructure, education and health to avoid the resource curse (don’t hold your breath). Falling commodity prices have scaled back these ambitions. See Dan’s analysis of Venezuela, Rory’s take on Russia, or this money quote about Iran.

In my mind, these are the biggest winners and losers, but this list is by no means exhaustive. Falling commodity prices also have an enormous effect on agricultural trade, international cooperation, foreign direct investment, Guinea, South Africa, Australia, several Latin American countries, etc. Who else am I missing?

(photo from jeff-o-matic’s photostream)

A black lining

Well the world is falling apart but there's a little bit of good news...Oil futures closed today below $90.

But as Brad Setser points out, the Gulf monarchies will feel a pinch in the coming year and that may spell even more bad news for the US economy. Sovereign wealth funds have certainly taken a hit in the recent downturn and exporters the world over are feeling the pinch from these losses; coupled with the downturn in prices, they probably won't be inclined to keep pumping money into Wall Street institutions.

The lower costs of consumption will most certainly be happily accepted by Americans given the coming winter. But the secondary implications for international oil exporters may also shape the next administration's initial foreign policy. Venezuela recently had to cut spending for the next year; Iran will probably be next. Domestic regimes who can no longer lavishly spend on their constituents will probably not be accepted as readily. Rogue leaders - weather in Iran, Venezuela, or Russia - may have trouble holding onto power when they can't continue propping up ill-designed economic systems with booming oil revenues. This is great news for the next administration - whoever is in charge.

Foibles not follies

There's another beleaguered executive making news and his name isn't Bush. Soon to be former Prime Minister of Israel Ehud Olmert sat down for an interview this week to discuss the state of Israel. Typical of a politician, Olmert has now called for action that needs to be taken when he can do nothing about it (he resigned due to corruption charges earlier this month but remains the interim PM until a new government is formed). His formerly astringent stances have been softened into calls for a unified, realistic strategy of engagement and dialogue with Palestine, and more importantly, Iran.

It's convenient that Olmert chose this moment to reshape his own policy views. The Israeli stock market has been largely unaffected by global credit problems and with the New Year just around the corner, his interview is front page news. And the right type of front page news, an about turn from his corruption battles the past few months. Olmert now knows an Israeli withdrawal from the West Bank, along with a partition of Jerusalem, is the bare minimum for sustained peace.

Just as important, given the recent rumors about preemptive strikes on Iran, is Olmert's assertion that Israel must act within the international system in addressing the threat of Iran. For all the rabble rousing both candidates spout regarding Iran, it is important to note this about turn. Ahmadinejad is up for re-election in June 2009. His apocalyptic, "Hidden Imam" brand of Islam not only contradicts the Ayatollah's more compromising Mashad understanding which values preservation, but is quickly losing support from the populace. His control of the nuclear program is dangerous but overstated, just like his rhetoric. Olmert's realization that unilateral action is even more dangerous than Ahmadinejad represents a correct and noteworthy policy shift. It may be a particularly weak turn given his current position, but it is one worth supporting.

All quiet on the Western front?

Any talk of Afghanistan these days usually revolves around its porous border with Pakistan. Common sense wisdom says that Tailban militants are hiding out in the terrain that straddles the desolate area known under a variety of guises: FATA, Warizistan, North West Frontier Province.

While it's certainly true that funds and arms pour in from Pakistan, well-founded rumors are also circulating that Iran is smuggling arms and cash in exchange for drugs to the Taliban over the western border as well. This is scary, probably true, and should be just as high on our security agenda as the Pakistani border. Iranian influence was what caused, in part, the severe sectarian strife in Iraq. It's pretty obvious that's the last thing we need in Afghanistan. And it is certainly true that the violence once contained in the south and east has been increasing in the western countryside.

As a possible nuclear power with delusions of dominance and influence throughout Central and South Asia, Iran's role in Afghanistan offers a chance to pursue a more fruitful strategy of engagement and stabilization in both countries. The US can either rebuff Iranian efforts unilaterally in which case arms will continue to flow into Afghanistan and probably increase. Or measured steps can be taken to allow Iranian efforts greater importance. Iranian desire to expand their regional influence through aid efforts is a concern but much less than an increase in their arms smuggling. Iran has been a heavy giver in the international reconstruction effort and was a vital lynchpin in negotiating the Bonn Agreement, which established Afghanistan after the fall of the Taliban. They want a greater role in guiding the future of Afghanistan and if they aren't given a seat at the table will continue to destabilize our efforts in the country.

Their role gathering support from normally aloof countries, with little desire to be tied to an American led invasion, was vital to securing international and regional support in 2001. Let's treat it as such and give them something better to do in Afghanistan than run guns.

(Photo: fallenwattle)

An oily predicament

This sentence caught my eye in the dead-tree version of the Washington Post this morning:

"An oil drop of $30 a barrel is significantly more damaging to Iran's economy than UN Security Council sanctions," said Karim Sadjadpour, an associate at the Carnegie Endowment for International Peace. "That's a loss of about $75 million per day in oil revenue. A further drop in prices could play a decisive role in the June 2009 presidential elections, for it could deflate [President Mahmoud] Ahmadinejad's populist agenda."

Common sense, perhaps, but still quite powerful.