The Iraqi Election's Effects, from Washington to Tehran

Note: The Geopolitical Intelligence Report will resume Jan.
3.

By George Friedman

Let's begin with two facts.
First, the Iraqi elections were held Dec. 15. That is the important news:
They were held. The Sunni population, along with Shia and Kurds,
participated. Second, U.S. President George W. Bush did not break below 37
percent popularity. In fact, he bounced to about 47 percent.

The
first fact indicates that the Iraqi situation did not collapse into utter
chaos. The second fact indicates that the Bush presidency did not collapse
into impotence. These two facts are obviously connected. They do not end the
story by any means, but they do open a new chapter.

In September and
October, as Bush sank below 40 percent in the polls, we argued that he was
reaching a critical point: As presidents fall below about 35-37 percent,
they start losing their core constituency -- an event from which recovery is
extremely difficult. Bush's presidency was at its red line. We also argued
that the crisis' cause was not just Hurricane Katrina -- although it
certainly hurt -- but also that Bush couldn't seem to pull the situation
together in Iraq. But even though Bush's political base shuddered, it did
not break. And that bought him time to see Iraq develop a sense of order
with the Dec. 15 election.

Looked at in reverse, if Bush had been
flattened completely by plummeting popularity figures, pulling things
together Dec. 15 would have been impossible. The Sunnis were looking to
Washington to guarantee their interests as they entered the political
process. If Bush had collapsed completely, those guarantees would have been
of little value, and the Sunnis might well have pursued a different course.
However, Bush did not collapse, and the Sunnis entered the political
process. Thus the two political processes became intimately bound up
together.

The Baathist and traditional Sunni leadership's decision
to participate in the elections was conditioned by two considerations.
First, and most important, had they not participated they would have been
completely excluded from the regime the Shia and Kurds were crafting. The
Sunnis realized the insurrection was not spreading beyond their own region.
They could sustain their resistance, but the political process was under way
in the rest of Iraq -- the larger part of Iraq -- and they would be left with
chaos in their own region, isolation from the rest of the country and no
political power. Moreover, if they succeeded in driving out the Americans,
they would have been left to the tender mercies of their historical enemies.
So, if they failed to drive out the Americans, they would be in chaotic
isolation; if they did drive out the Americans, they would face much harsher
treatment at the hands of the Shia. The revelation of conditions in Shiite
prisons for Sunnis just before the elections helped drive that point home
neatly.

Secondly, the native Sunni leadership was not happy with
the inroads foreign jihadists were making into the Sunni community. The
Baathists are secular, and the rest of the Sunni community is far from
Wahhabi jihadists. That the jihadists were effective in fighting the
Americans did not necessarily thrill the Sunni leadership, who did not want
to see their sons come under the radicals' influence. Jihadist leader Abu
Musab al-Zarqawi -- useful while the Sunnis were trying to force a military
solution to their situation -- posed an increasing danger to the traditional
leadership. As foreigners and jihadists, al-Zarqawi and his followers in all
likelihood could not supplant the local leadership. Nevertheless, they posed
a challenge that would only increase as the insurrection continued. Also, the
Iraqi Sunnis were not exactly thrilled about Sunnis regularly dying at the
hands of jihadists -- whether as collateral damage or due to
"collaboration." In the Sunni mind there is a difference between killing
Americans (resistance) and killing Sunnis (terrorism). The jihadists were a
useful tool, but only when they could be controlled.

For the United
States, splitting the Sunnis between the jihadist and Baathist/traditional
faction had been a fundamental strategy. Following the miscalculations of
2003, the first U.S. strategy had been to play the Shia against the Sunnis
in order to contain the insurrection in the Sunni region. That having
succeeded, the United States now wanted to split the Sunnis among
themselves, and especially isolate the al-Zarqawi faction.

U.S.
efforts were much more sophisticated than just pitting Sunni nationalists
against jihadists. Washington also worked to exploit internal Sunni
nationalist differences between Baathists and Islamists, between different
tribes, within tribes and even within other groups such as the religious
scholarly body. In other words, it was the ability of the Bush
administration to take advantage of multiple fault lines that led to the
split within the Sunnis -- which, in turn, allowed the constitution to pass
in the Oct. 15 referendum and forced most Sunnis to take part in the Dec. 15
polls.

American thinking was that if the native Sunnis could be
brought (forced) into the political process, the foreign jihadists -- alien
to Iraq -- would have to either start a civil war among the Sunnis that they
couldn't win, or reduce the violence to a level which the Sunnis could
tolerate in their political mode. There was no expectation that the violence
would simply end -- only that in due course it would subside.

From
the Sunnis' standpoint, the election represented a turning point, but not an
irreversible one. Put differently, the Sunnis got to where they were by
waging an insurrection and appearing willing to wage it indefinitely. Hated
by the Shia and Kurds for their role in Saddam Hussein's regime, the Sunnis
understood that, other things being equal, it was their turn to be oppressed
and the United States wouldn't lift a finger to help them.


Therefore, launching an insurrection created a situation in which they
would be neither simply ignored nor reduced to victim status. The
insurrection was the Sunnis' bargaining chip. Indeed, the jihadists, with
their willingness to go to any length to fight the Americans -- and Shia --
were the Sunnis' ultimate weapon. No one could control them but the Sunnis
-- and that only delicately. Using the insurgency and the jihadists, the
Sunnis maneuvered the Americans into a position in which their relationship
with the Shia and Kurds would not provide a sufficient base for managing
Iraq. They created a situation in which the Americans needed the Sunnis in
order to pacify Iraq -- and therefore were willing to protect Sunni
interests against the Shia.

Truth be known, the Americans were not
all that unhappy being forced into this position. The Americans had
developed a complex dependency on the Shia in the fall of 2003 and urgently
wanted Shiite acquiescence. Had the Shia risen, the U.S. position would have
been untenable. Needing Shiite support, Washington had effectively guaranteed
the Shia control of Iraq -- a price it was not happy to pay. The American
concern was not the Shia per se, but their Iranian allies.


Washington's fear was that containment of the Sunni uprising would
create an Iranian satellite in Iraq. That would have had massive
repercussions throughout the region -- particularly for Saudi Arabia, which
fears growing Iranian power. Now, it should be remembered that the Iraqi
Arab Shia are not identical to Iranian Shia. There are serious tensions
between the two groups, which are ethnically, theologically, culturally and
linguistically distinct. So a Shiite government in Iraq is not simply an
Iranian satellite. However, it could well be an Iranian ally, and that was
not the outcome the United States wanted.

Of course, the United
States was also concerned about Shiite ambitions to transform Iraq from a
secular state to an Islamic one -- the last thing Washington needed was
another Iran. So the United States needed to almost double-cross the Shia
without actually doing so -- and cooperating with the Sunnis gave Washington
the opportunity to do just that.

Thus, as much as the United States
-- and the Bush presidency -- was hurt by the Sunni insurrection, the
insurgency carried with it a silver lining. The United States demonstrably
had to contain the Sunnis, and the only option it had was political:
championing Sunni interests against the Shia. The most glaring example of
this was Bush phoning the leader of Iraq's Islamist Shiite-dominated United
Iraqi Alliance (UIA) and urging him to make concessions to Sunni demands in
order to break the deadlock in the constitutional negotiations. Ali
al-Adeeb, a Shiite member of the constitutional committee, said Aug. 26 that
Bush asked Abdel Aziz al-Hakim, leader of the Supreme Council for Islamic
Revolution in Iraq, to accept compromises that deal with purging the Baath
party from public life. While the United States could not be accused of
simply double-crossing the Shia, it could use the Sunnis' demands as a
platform from which to try to reshape the new regime so that it had a
built-in degree of complexity that would prevent outright Shiite control.
That, in turn, would prevent outright Iranian domination.

The Sunnis
still see the insurgency as their only bargaining chip. They want to
demonstrate that they can moderate it, but they do not -- at this point --
want it to fade. The more al-Zarqawi does, the greater the U.S. dependency
on the Sunnis. They don't want al-Zarqawi to get out of control -- as
stated, he could threaten their own interests -- but they don't quite want
him to go away. The Sunnis will walk a fine line until they reach an
acceptable political settlement with the Shia that can be guaranteed in some
way.

So, the Shia become the dominant power in Iraqi politics. The
Kurdish position is protected. The Sunnis get their piece of the government,
and al-Zarqawi loses his base of operations as Sunni confidence rises. There
is, however one huge loser in this scenario: Iran. Iran should be going wild
over what is happening in Iraq, and indeed it is. We must never forget Iran's
war with Iraq and the trauma it created in Iran. Iran is obsessed with the
ideal of a neutral or pro-Iranian Iraq. The U.S. maneuverings with former
Baathists terrify the Iranians. They have minimal confidence in the
political cleverness of Iraqi Shia, given the historical record. A coalition
of Americans and Baathists is Tehran's worst nightmare. Depending on Iraqi
Shia to protect their interests in the face of this coalition -- interests
the Shia in Iraq don't always share -- is not something they can do.


It is therefore not an accident that, as their primary national security
interests have been torn to shreds, the Iranians have tried to raise the
ante. In ranting about the Jews and the Holocaust and moving Israel to
Alaska, the Iranians are trying to play the North Korea game. The North
Koreans maximize their leverage by appearing to be nearly a nuclear power
and more than a little nuts. This brings the U.S. -- and a bunch of other
nations -- to the table to negotiate with them and give them money or grain
or other little gifts.

The Iranians have deliberately made it clear
that they are going to get nuclear weapons and have hinted that they might
already have them. Then, Iran's president started playing the role of Kim
Jong Il, making it clear that he is crazy enough to use nuclear weapons.


One of the unremarkable constants in the Middle East of late is how
hands-off a position the Israelis have been taking on everything.
Threatening not-so-subtly to take action against Israel is old hat, but
doing so against the background of increasingly touchy nuclear negotiations
is another issue entirely. When the Iranian president began saying that
Israel should be wiped off the map -- or at least moved to Alaska -- the
Israelis obediently perked up and began dusting off battle plans to
neutralize (read: nuke) Iran, with March bandied about as a realistic
timeframe.

There are many things that could complicate U.S. goals in
the Middle East, but none would do so more efficiently than Israeli missiles
striking Iran. Since the last thing the United States needs is an Israeli
preemptive strike on Iran, and the second-to-last thing the United States
wants is a new war in Iran, the Iranians are betting that the Americans will
try to placate them as Washington does with North Korea.

What the
Iranians want, of course, are guarantees on future Iraqi policy. They also
want to make certain that their Baathist enemies are never again in a
position to return to power. And they are expecting the United States to
guarantee all these things. Of course the Sunnis are expecting the United
States to guarantee their interests. The Kurds have always relied on the
United States. And the Israelis want to make sure that the Iranian nuclear
threat is not left to them to handle. Each has its own threat. The Sunnis
can crank up the insurgency. The Shia can invite in more Iranians. The Kurds
can try to instigate an uprising in Turkey (or Iraq, Iran or Syria). The
Iranians can threaten Israel with nuclear weapons, and the Israelis can
threaten a preemptive strike.

Washington does not want any of these
things. That means the United States must juggle a series of nearly
incompatible interests to get a situation where it can draw down its troops.
On the other hand, the Shia need the Americans to protect them from the
Sunnis and the Iranians. The Sunnis need the Americans to protect them from
the Shia. The Kurds need the Americans to protect them from the Turks (and
the Sunnis). The Iranians need the Americans to protect them from the
Israelis. And the Israelis generally need the Americans.

So, there
is enough symmetry in the situation that the Bush administration might just
be able to pull it off. What "it" consists of is less clear and less
important than the balancing act that precedes it. It is in that balancing
act that the United States reduces its forces, pushes al-Zarqawi to the
wall, plays Iraqi and Iranian Shia against each other and gives the Iranians
enough to keep them from going nuclear before Washington is ready to deal
with the issue on its terms. It is dizzying, but that's what happens when
war plans don't work out on the field the way they did in the computer --
which is usually. The administration has actually crafted something
resembling a solution, or a solution has presented itself. Between that and
polls that are a bit above awful, there is a chance the situation could work
out in the administration's favor.

However, as all of this suggests, a
final agreement is not only nowhere in sight, but not even in mind.
Any conclusive agreement that would be acceptable to one group would be
unacceptable to at least one other. In fact, the only thing that all of the
domestic players agree on is that Washington has a role to play as the
ultimate guarantor of any new government. The United States has no problem
with this save one condition: that Washington is not responsible for
day-to-day security. That in turn requires one item: a functional, united
Iraqi army. That too has a precondition: a united army must include the
Sunnis. Again, there is a follow on: the only Sunnis with military expertise
are the Baathists.

Of all the possible Iraqi arrangements, the one
that terrifies Iran is the one that is actually happening: a political
agreement, with the support of all the local players, that involves a
united, functional military complete with unrepentant Baathist elements.
Memories of the 1980-1988 war are suddenly running a lot closer to the
surface. Iran's biggest problem in challenging this scenario is that it does
not have an effective lever. All of the Iraqi power brokers have signed on
for their own reasons, and no one -- even the Iraqi Shia leadership --
believes Tehran would offer a better deal.

Which means that the only
power Tehran can talk to is the one player that has no interest in talking to
it if Iraq is about to be settled: the United States.

Since
Washington is trying to avoid an Israeli preemptive strike against Tehran,
the United States suddenly has an interest in making Israel feel better. To
do that, it needs to get the Iranians under control. To do that, it needs to
talk to the Iranians. And now we have Iran with something the United States
wants (an Israel that is not about to go ballistic) and the United States
with something Iran wants (an Iraq that Iran can tolerate).

The
United States is not going to hand Iraq over to Iran, but should Tehran
choose to complicate matters, neither is the United States going to be able
to withdraw its forces.

Within that imbroglio there is room for
compromise: have the United States -- via a permanent occupation --
guarantee Iraqi neutrality. An Iraq with 165,000 U.S. troops is in neither
Iran's nor the United States' interest, but an Iraq with 40,000 troops at
bases in the western Iraqi desert is. It is enough of a force to prevent
unsavory governments from arising, but not enough to make Iran fear that
Tehran could be flying the Stars and Stripes after a hectic weekend.

Send questions or comments on this article to analysis@stratfor.com.

The Shanwei Shootings and China's Situation

By George Friedman

Last week, a group of Chinese villagers
staged a demonstration against a wind-power project near Shanwei, a town in
Guangdong province about 100 miles from Hong Kong. In the first incident,
protesters blocked access to the site of the wind-power generation project.
The next day, Dec. 6, demonstrators returned. According to Chinese official
reports, they were led by three men -- Huang Xijun, Lin Hanru and Huang
Xirang -- and were armed with knives, steel spears, sticks, dynamite and
Molotov cocktails. Members of the local People's Armed Police fired tear gas
at the crowd, hoping to break things up, but the three leaders rallied the
crowd to continue what, depending on who was telling the story, was either a
protest or attack. According to the description of events given by the
Chinese government, the demonstrators started to throw explosives at the
police as night fell. The police opened fire. Official reports said that
three people were killed, eight wounded.

The protests in Shanwei had
gone on for quite a while before coming to a head last week. The land for
the power project was confiscated a few years ago. The farmers who worked
the land were never compensated for their dislocation. They formally
petitioned for their money in 2004 but were ignored. Public demonstrations
began in August 2005, continuing intermittently. With no compensation
forthcoming, the protests escalated and then exploded, with last week's
incident marking the first reported shootings of demonstrators in China by
official security forces since Tiananmen Square in 1989.

The shooting
is new. The pattern is not. There has been intensifying unrest in China over
the past year -- frequently, as in this case, over issues that have been
simmering for years. This has been particularly true for peasants who have
seen their land confiscated by the government for industrial projects. Money
is issued to local officials by state-owned enterprises and other investment
groups to cover the cost of the land. That money passes through the regional
and local bureaucracies. By the time it should reach the owners, there often
is nothing left; it has been stolen by officials at various levels. No one
denies the farmers' claims to the land, but no one acts to compensate them.
The laborers go from being small farmers to being destitute.

This is
a critical process at the heart of Chinese industrialization. The purchase of
land, including forced sale, is considered necessary for Chinese economic
development. However, Chinese economic development is driven as much by
corruption as by land. The government in Beijing has no particular desire to
see the farmers dispossessed; on the contrary, the money is made available
for delivery to the farmers. But the diversion of funds is hard-wired into
the process. It is one of the primary means for capital formation in China.


One of the paths to entrepreneurship in China is to become a
government official who can use one's public office for personal savings and
networking -- accumulating enough money and useful contacts to move into
business later. With massive expropriations of land over the past decade
designed to facilitate economic growth, the opportunities -- and compulsion
-- to steal money intended for farmers is powerful. In order to hold onto
his job, a government official must maintain a system of relationships with
superiors, colleagues and subordinates. These relationships are based on
money. If the official doesn't find the money to hold his place in the
bureaucracy, he will lose it. Therefore, the diversion of funds is built
into the system.

The Chinese government wants it both ways. On the
one hand, it does not want unrest among farmers. On the other hand, the
Communist Party elite in Beijing live by patronage. They have risen through
the system because of the web of relationships that makes Chinese
industrialization possible. They can, in very specific cases, take action
against cases of corruption. However, a systematic attack on the causes of
corruption is impossible, without a systematic attack on their own
infrastructure.

This is particularly true in rapidly developing
provinces like Guangdong. The interface between the new economy and the old
has become a battlefield. The old economy was land-based: Mao created a
peasant economy that was overlaid by attempts to industrialize. The new
economy regards land as an input into the industrial machine. However, given
the nature of the Chinese political system, the farmers are not simply bought
out -- they are forced off the land. And that can lead to social
explosions.



The
recent events in Shanwei are unique only in that they resulted in gunfire and
death, and because they were brought to light by the anti-Communist media.
After these reports were picked up and widely circulated by the
international media, the government in Beijing acknowledged what had
occurred, adding details that appeared to show that the demonstrators forced
the police into shooting. But later, the government announced that the head
of the police unit involved had been arrested -- which seems to imply that
the story as originally told by the Chinese wasn't altogether accurate. Why
arrest the cop if explosives were being hurled at police?

The
specifics of what happened, of course, have no geopolitical consequence.
What is important is that tensions in China have been rising steadily.
Thousands of demonstrations (74,000, according to figures released last year
by the government) have taken place -- some reportedly violent, if not fatal.
In one
case earlier this year, residents protesting corruption related to land
seizures took control of their town, forcing the police out. The Chinese
government appeared to capitulate to the demonstrators, giving into their
demands -- but weeks later, those who had participated in the rising were
quietly arrested. In another incident, which also turned deadly, brute
squads believed to have been hired by local officials and businesses
attacked protesters. There are numerous other examples to draw from.


Beneath the surface, a number of things are taking place. The
Chinese economy has been growing at a frantic pace. This is not necessarily
because the economy is so healthy, nor because many of these industrial
projects make economic sense. In fact, the government in Beijing has been
very clear that the new projects frequently don't make a great deal of
economic sense, and has been trying to curb them (though it does not
necessarily command obedience in every case from provincial or local
governments). On the other hand, China needs to run very hard to stay in
place. Within what we will call the entrepreneurial bureaucracy -- with
pyramiding, undercapitalized, highly leveraged projects being piled one on
top of the other -- new investment projects are needed in order to generate
cash that stabilizes older, failing projects. Slowing down and consolidating
is not easy when there are bank loans coming due and when money has to be
spread around in order to maintain one's position in the system.


That means that aggressive economic growth is needed. It also means
that massive social dislocation -- including theft of land -- is embedded in
the Chinese system. The flashpoint is the interface between the rapidly
spreading industrial plants and the farmers who own the land. The
bureaucratic entrepreneurs need not only the land, but also the money that
legally is due to the farmers.

China is a mass of dispossessed
farmers, urban workers forced into unemployment by the failure of
state-owned enterprises, and party officials who are urgently working to
cash in on their position. It is a country where the banking system has been
saved from collapse by spinning off bad debts -- at least $600 billion worth,
or nearly half the GDP of China -- into holding companies. This maneuver
cleaned up the banks' books and allowed Western banks to purchase shares in
them, shoring them up. But it also left a huge amount of debt that is owed
internally to people who will never see the funds. Imagine the U.S.
savings-and-loan scandal growing to a size that was nearly half of the
national GDP. As it happened, in the United States the federal government
swallowed a great deal of the S&L bad loans -- but in China, these bad loans
would just about wipe out the country's currency reserves, assuming that the
numbers provided by the government are valid.

Under such
circumstances, it is no surprise that Chinese money is leaving the country,
flowing into the safe havens of U.S. T-Bills or offshore mineral deposits.
Moreover, it is not clear that China's economy is continuing to grow.
China's imports of oil have topped out and, by some reports, have started to
decline -- yet the Chinese are continuing to report unabated growth rates.
How can the economy be growing rapidly while oil imports decline? The
country lacks sufficient energy reserves to fuel such growth, nor can that
level of growth be coming from service industries. At any rate, growth rates
do not by themselves connote economic health. The rate of return on capital
is the ultimate measure of economic success. Anyone prepared to lose money
can generate rapid revenue growth. And anyone facing cash-flow crises due to
debt burden knows how easy it is to slip into revenue-growth obsession. The
Chinese certainly have.

There is, therefore, a tremendous
tension within China's new economy. The root problem is simple: Capital
allocation has been driven by political and social considerations more than
by economic ones. Who gets loans, and at what rates, frequently has been
decided by the borrower's relation to the bureaucracy, not by the economic
merits of the case. As a result, China, as a nation, has made terrible
investments and is trying to make up for it with rapid growth. That is where
things get difficult: As before with Japan and East Asia, the economy is
thrown into a frenzy of growth in efforts to stabilize the system, but that
growth throws off cash that cannot easily be capitalized and therefore is
invested abroad. Meanwhile, bad debts -- stemming from continued investment
into nonviable or unprofitable businesses, for social or political reasons
-- surge, and the government tries to come up with ways to shuffle the debt
around. In other words, the origin of the problem is simple -- but the
evolution of the problem becomes dizzyingly complex.

This leads to
stresses within the advanced economic sector. In China's case, these
manifest as competition between different political factions for access to
the funds needed to maintain their enterprises. But that is nothing compared
to the tension between the new economy and farmers and the unemployed. As the
system tries to stabilize itself, it seeks both to grow and to become more
efficient. As it grows, the farmers are forced to give up their land. And as
it seeks efficiency, industrial workers lose their jobs.

This is an
explosive mix in any country, but particularly so in China, which has a
tradition of revolution and unrest. The idea that the farmers will simply
walk away from their land or that the unemployed will just head back to the
countryside is simplistic. There are massive social movements in play that
combine the two most powerful forces in China: workers and peasants. Mao did
a lot of work with these two groups. Their interests are now converging. The
decisions of the bureaucratic entrepreneurs are now causing serious pain,
which is becoming evident in increasing social unrest. At Shanwei, that
unrest broke into the open, complete with casualties.

The important
thing to note is that both the quantity and intensity of these
confrontations is increasing. While the Western media focus on the outer
shell of China's economic growth -- the side that is visible in Western
hotels throughout major cities -- the Chinese masses are experiencing
simultaneously both the costs of industrialization and the costs of economic
failure. The sum of this equation is unrest. The question is how far the
unrest will go.

At the moment, there does not appear to be any
national organization that speaks for the farmers or unemployed workers. The
risings are local, driven by particular issues, and are not coordinated on
any national scale. The one group that tried to create a national
resistance, Falun Gong, has been marginalized by the Chinese government.
China's security forces are capable, growing and effective. They have
prevented the emergence of any nationalized opposition thus far.

At
the same time, the growth and intensification of unrest is there for anyone
to exploit. It won't go away, because the underlying economic processes
cannot readily be brought under control. In China, as elsewhere, the
leadership cadre of any mass movement has been made up of intellectuals. But
between Tiananmen Square and jobs in Westernized industries, the Chinese
intellectuals have been either cowed or hired. China is now working hard to
keep these flashpoint issues local and to placate localities that reach the
boiling point -- at least until later, when arrests can be made. That is
what they are doing in Shanwei. The process is working. But as the economy
continues to simultaneously grow and worsen, the social unrest will have to
spread.

The discussion about China used to be about "hard" and "soft"
landings -- terms that were confined to economics. The events in Shanwei
raise the same question in another domain, the political. Police shooting
down demonstrators is not an everyday event in China or anywhere else. But
it has happened, and this event didn't just come from nowhere. The question
of soft and hard landings now must be considered more literally than before.


And in China, hard landings over the past couple of centuries have
been bloody affairs indeed.

Send questions or comments on this article to analysis@stratfor.com.