Issue 769                                      2008

OIL AT $400 A BARREL BY NEXT SUMMER?

      I think this is a growing possibility.  Let me explain.

      I have given a lot of thought to this question: "What
is the worst-case scenario that has a relatively high
probability of taking place over the next six months that I
want to prepare against?"

      The worst thing that could happen to the American
economy at any time would be the detonation of a nuclear
bomb in the financial district of New York City.  On a par
with that would be the release of airborne anthrax in the
same part of town.  The terror caused by such an attack
would cripple the banking system within hours.  This would
spread to the entire world.  The economic breakdown would
be rapid, and it would be extensive.  I cannot think of any
area of the economy that it would not affect adversely.

      We have no idea what the odds are, for or against, for
such an act of terrorism.  Given the fact that it has not
happened yet, the odds seem to be against it.  So, looking
at those events that have a reasonable probability of
taking place over the next six months, we should not list
this sort of terrorist mega-attack as being high on the
list of priorities that we should be preparing for.

      Then what is the worst scenario that is more likely?
I keep coming back to the same event: war with Iran.

      This can happen in either of two ways.  First, the
President unilaterally issues an order to one or more
aircraft carrier task forces to bomb suspected Iranian
nuclear production facilities.  Second, the Prime Minister
of the State of Israel issues a similar order to the
Israeli Air Force.  I think the second is more probable
than the first.

      These days, there is greater talk about this second
possibility than there has been over the last year.  There
are signs that the Israelis are preparing to launch such an
attack.  While this is not being discussed on the evening
network news shows, it is being discussed in the fringes of
the mainstream media.

      I was convinced as recently as last November that
there would be war with Iran.  Then, with the simultaneous
release by 16 American intelligence agencies of a report
concluding that the Iranians ceased working on a program to
create a nuclear weapon back in 2003, I decided that the
powers that be had boxed in President Bush on this issue.
You can read the report here:

http://GaryNorth.com/snip/592.htm

      In other words, the American Establishment had decided
that it would not be a good idea for the United States to
attack Iran.  But the American Establishment has only
indirect influence over the decisions of the government of
the State of Israel.  The fact that America's intelligence
agencies have concluded, for public consumption, that Iran
is not pursuing the development of a nuclear weapon may
have only limited significance on the decisions of senior
officials in the Israeli government.  In fact, it may
pressure the leaders to launch an air strike on Iran.  They
may sense a wavering in the Establishment's support for
Israel.

      The immediate domestic issue is this: Who will be
elected President of the United States in November?  The
question is this: Do senior decision-makers in the
government of the State of Israel believe that Obama will
be significantly less willing to accept the possibility of
an Israeli air strike on Iran than President Bush would be?


      This issue will not be raised publicly by either party
during the election campaign.  No Republican senior
strategist dares say that Obama is soft on Israel's
defense.  Obama on June 4 stated clearly that, with respect
to the protection of the State of Israel, there is nothing
that he would be unwilling to do as President.

      I have been proud to be a part of a strong
      bipartisan consensus that has stood by Israel in
      the face of all threats.  That is a commitment
      --that is a commitment that both John McCain and
      I share because support for Israel in this
      country goes beyond Party. . . .

      I will do everything in my power to prevent Iran
      from obtaining a nuclear weapon--everything in my
      power to prevent Iran from obtaining a nuclear
      weapon--everything.

http://GaryNorth.com/snip/593.htm

      No senior Democrat is going to go public with any
suggestion that Obama is secretly willing to see Israel
attack Iran.  Obama would deny this immediately.  So, this
is a hot potato that neither the Democrats nor the
Republicans are going to pick up.

      The fact that this topic is not likely to be discussed
in the major media by representatives of either party does
not mean that the issue is not a major issue.  I regard it
as the most important issue that the country is facing
between now and the inauguration of a new President.

      The Israelis can be confident that President Bush is
not going to impose negative sanctions on the nation if the
government unilaterally launches an attack on Iran.  The
only question is this: Will he quietly pressure Olmert not
to launch the attack prior to the election in November?

      For political reasons, President Bush may not want to
face this issue prior to the election.  In between the
election and the inauguration of the new President,
President Bush is probably much less likely to interfere
with an attack by the Israeli Air Force.  The #1 question
is this: Is he likely to give a green light to such an
attack?  This issue is important, because Israeli planes
must fly over one or more foreign nations.  The most likely
candidate is Turkey.


NON-NUCLEAR FALLOUT

      Think through the military implications an air strike
by the Israeli Air Force on suspected nuclear production
facilities inside Iran.

      Iran is a large nation geographically.  It is not like
Iraq.  Second, its nuclear facilities are underground.  The
Israelis will not be able to take out all of them.  Some of
them have deliberately been located beyond air strike range
of Israeli aircraft.  The Israelis know this.  So, the
attack would be more of a warning than a crippling
strategic attack.  There is no way for the Israeli Air
Force to cripple Iran directly, short of the use of nuclear
weapons.  I think it is highly unlikely that the Israelis
would use nuclear weapons.

      So, the infrastructure of Iran will still exist.  But
there will be an overnight transformation of public opinion
in Iran.  An attack would create enormous and unbreakable
unanimity among Iranian voters, a unanimity which does not
exist at the present time.  An attack would create
legitimacy for the existing government to do whatever it
deems effective in crippling the United States regionally.

      Iran may not be able to do much directly against the
State of Israel, but it can do a great deal to hamper the
two regional wars that the United States is presently
conducting.

      Officials of the Iranian government have already said
that Iran will regard such an attack by Israel as an attack
by the United States.  This means that the new President
will face Iranian counter-attacks on American forces in the
region.  The question is: What kinds of counter-attacks are
likely, and what will be their effects?

      The obvious thing that Iran could do is to increase
the flow of weaponry to Shia resistance groups inside Iraq.
The other thing that it can do is to supply resistance
groups in Afghanistan with weapons.  This would make
difficult every aspect of both wars from the perspective of
the American military command.  This is why there is no
widespread support within the American military for an
attack on Iran.  The chairman of the Joint Chiefs of Staff,
Admiral Fallon, resigned in March over exactly this issue.
He was known to oppose any air strike against Iran.

http://GaryNorth.com/snip/594.htm

      If the Israelis do attack Iran, this will guarantee
long-term acceptance retroactively by the United States
government of Israeli strategic policy.  Prior to such an
attack, no U.S. government official would dare to admit
this publicly.  After the attack, almost every government
official will do so.

      This is always the effect of a war.  Opponents of the
war are able to present their case prior to the day
hostilities break out.  On the day hostilities break out,
virtually all domestic opposition to a war ceases.  This is
why peace movements find it almost impossible to stop a war
once the war begins.

      If the war drags on, and if the headlines are bad
enough, and if the media decide to take a stand against the
war, an antiwar movement can have some effect in bringing
the war to an end.  But it cannot do this without growing
opposition to the war within the general electorate, which
had been overwhelmingly in favor of the war on the day it
broke out.

      There is widespread opposition to the war in Iraq
today.  Nevertheless, this has not translated into
effective antiwar activity.  Congress still votes for all
of the expenditures that President Bush calls for to fund
the wars.


WHY ATTACK THIS YEAR?

      My opinion is that the main justification for an
Israeli attack on Iran prior to January 20 would not be to
cripple the supposed nuclear weapons facilities in Iran.  I
don't believe such facilities exist, and I don't believe
that the Israelis believe such facilities exist.

      The main reason for the attack would be to box in the
next President of the United States, so that he is
incapable politically of opposing the extension of
hostilities into Iran by the United States.

      United States troops will be put at risk by an Iranian
counter-offensive.  This offensive will be in the form of
low-cost weapons supplied by Iran that can create damage to
conventional troops when placed in the hands of dedicated
Shia militia groups -- something that at present is being
restrained by Iraq's Shia leaders, presumably at the
request of the Iranian leaders.  But the day Iran is
attacked, Iranian officials will not only reverse their
existing decision to restrain the Shia militias in Iraq,
they will actively encourage the escalation of guerrilla
attacks on American troops.

      I have no doubt that the Israelis understand military
cause and effect.  There is very little that Iran can do
directly to gain revenge against the Israelis.  They can
encourage Hezbollah in Lebanon.  But Hezbollah is a
nationalist movement in Lebanon, and it will not do much to
threaten the Israelis, other than perhaps shelling a few
cities close to the Lebanese border.  It may not even do
this.  Hezbollah can create a great deal of trouble for the
Israelis in terms of propaganda in Lebanon, but it cannot
inflict major damage on Israel's military forces unless
Israel invades Lebanon.  Israel knows this.  The last
invasion was a debacle for Israel's forces.

      So, an air attack by Israel on Iran will be a case of
"let's you and him fight."  An attack would be guaranteed
to create Iranian-funded counter strikes against the
regional forces of the United States.  Under such
conditions, the President of the United States would have
to commit American resources against Iran.

      I have not seen any analyst present the case for an
Israeli air strike in terms of the strategy that I have
presented here.  Analysts talk about Israel's concern over
the possibility that Iran will develop a nuclear weapon.  I
have no doubt that the Israelis are very concerned about
this possibility.  What I doubt is that senior Israelis
believe that the Iranians are anywhere near producing a
nuclear weapon.  What they want to ensure is that Iran is
not in a position to produce such a weapon in the near
future.

      It is therefore possible that senior decision-makers
in Israel have concluded that the best way to keep Iran
from developing a nuclear weapon is to tie up Iran's
resources in a surrogate guerrilla war against the United
States' troops in the region.  In other words, the strategy
has more to do with bankrupting the Iranian economy than it
does with taking out alleged facilities that allegedly are
producing a nuclear weapon.

      This strategy is widely believed to have been the
basis of Ronald Reagan's escalation of military spending
for eight years.  It is widely believed that the Soviet
Union went bankrupt in an attempt to match this buildup of
American military power.  In other words, strategists
believe that Reagan adopted a self-conscious strategy to
bankrupt the Soviet Union.

      They do not believe that Star Wars (SDI) was ever
going to be deployed.  They don't believe that Reagan
believed it would ever be deployed.  They believe that
Reagan believed that the threat of deploying it would force
the Soviets into spending programs to counteract Star Wars,
and these spending programs would bankrupt the Soviet
government.  I don't know if Reagan was this self-
conscious, but I do believe that this was the effect of the
buildup of American military power during the 1980s.

      If you were an Israeli military strategist, and you
wanted to inflict the greatest damage possible on Iran, you
would do whatever is necessary to involve Iran in a
regional war that would not involve direct attacks on the
State of Israel.  The longer this regional war lasts, the
more likely that Iran will be bankrupted.

      The Iranian economy is already a disaster zone.  It
has very high unemployment.  It is a welfare State.  Its
demographics are truly disastrous.  The birth rate in Iran
has collapsed.  It is likely that Iran will not be able to
export oil within 20 years -- maybe as soon as ten years.
If the Iranian economy shifts output to military
production, it is likely that Iran will go bankrupt within
a few years.  This would do more than anything else to make
certain that Iran will not be able to develop nuclear
weapons and a strike force capable of threatening the State
of Israel.

      This is a very high-risk strategy.  The risk is not
that Iran will launch successful counter-strikes against
the State of Israel.  The risk is that Iran will launch
successful counter-strikes against United States troops by
surrogates in Iraq and Afghanistan.  These attacks could be
successful in creating a public relations disaster for the
United States military.  Voters in the United States might
finally turn against the wars and demand that the President
withdraw troops from the region.

      This happened in Vietnam.  To think that it cannot
happen again in the Middle East is naive.  In other words,
the greatest threat to the State of Israel of an attack on
Iran this year is not what Iran can do directly to the
State of Israel; it is what Iran could do indirectly over
the next two or three years to American military troops in
the region.  If the United States ever decides to get out
of the region, and stay out, then the long-term threat
against the State of Israel increases dramatically.

      So, I am not saying that this attack is inevitable.  I
am saying that the risk is much higher than the network
evening news shows indicate.  It is also much higher than
what stock market investors believe is the case today.


CONCLUSION

      I suggest that you think through your plans on the
assumption that there will be an attack by the Israeli Air
Force on Iran before January 20, 2009.  That's what I am
doing; so, I suggest that's what you should do.

      You would be wise to factor such an attack into your
economic strategy.  You should look at your employment
possibilities, your retirement portfolio, and the solvency
of your employer.  How well would your company do in an
economy in which gasoline is at least $10 a gallon?  How
would you do personally under these circumstances?

      I suggest that you sit down with a pencil and a piece
of paper and write down the changes in your life that would
be imposed by gasoline at $10 a gallon.  Think through the
implications of a permanent war by Shia insurgents in Iraq.

       Add to this the re-arming of insurgent groups in
Afghanistan.

      Add to this the loss of confidence in the American
stock market by investors who come to the realization that
the war in Iraq and the war in Afghanistan are escalating
because of low cost weapons supplied by Iran to insurgent
groups, and you see that the federal deficit is likely to
go up by 50% over the next three or four years.

      Then think about a shift to the euro by Middle Eastern
oil exporters.

      It's an ugly scenario.