Are Iranian president Ahmadinejad and Ayatollah Khamenei more rational than we think they are? - Image credit: AFP/Getty Images via @daylife
It makes intuitive sense that Iran shouldn’t be allowed to acquire nuclear weapons, but what if that notion is wrong? What if letting Iran develop and test a nuke actually made the Middle East more stable?
That’s the thought-provoking position taken by prominent international relations scholar Kenneth Waltz, who thinks once Iran got a nuke, it would balance Israel’s nuclear might, with deterrence kicking in to finally make the Middle East a peaceful place. With oil falling below $80 a barrel last week, eliminating the geopolitical premium would add further downside catalysts, putting pressure on oil companies and Gulf States.
Waltz’s argument is based on the idea that nuclear weapons foster stability, which on the face of it sounds wrong. “Power begs to be balanced,” he wrote in his latest essay inForeign Affairs titled Why Iran Should Get The Bomb. Waltz suggests that “Israel’s nuclear monopoly […] has long fueled instability in the Middle East” by giving Israel asymmetrical power, and thus capacity to strike at its enemies with impunity when they attempt to question that power. This happened in 1981 with Iraq, in 2007 with Syria (when both of them tried to develop nuclear capabilities), and is being talked about now, with Iran.
At the same time, sanctions “primarily harm ordinary Iranians,” while history proves that they do little to derail nations from pursuing their nuclear ambitions, Waltz explained, citing the case of North Korea. Indeed, sanctions can have the opposite effect, while they push up the price oil (and favor major producer like Exxon Mobil, BP, and Chevron), sanctions make Iran “feel more vulnerable, giving it still more reason to seek the protection of the ultimate deterrent,” according to Waltz, who is a member of the University of California, Berkeley and Columbia University, a WWII veteran, and the founder of the neorealist school of international relations.
By reducing military imbalances in the region, allowing Iran to get a nuke could actually stabilize the Middle East. Waltz notes that “there has never been a full-scale war between two nuclear-armed states,” citing the case of China (which “became much less bellicose after acquiring nuclear weapons in 1964) and India and Pakistan (“in the face of high tensions and risky provocations, the two countries have kept peace”).
The reasons why we’re so afraid that Iran might get a nuke is that we have come to understand its leaders as irrational, while they are anything but such, Waltz says. Iran’s foreign policy isn’t run by “mad mullahs” but by “perfectly sane ayatollahs” that know how to use inflammatory and hateful rhetoric to gain advantage at the negotiating table. But, at the end of the day, they have shown no “propensity for self-destruction.”
Earlier this year, for example, Tehran threatened to close down the Strait of Hormuz in response to the European Union’s proposed sanctions (set to go into effect on July 1). Oil prices spiked, delivering windfall profits to oil companies while hurting consumers around the world. Iran realized what it was doing, but they never actually closed the Strait, knowing that it would result in a “swift and devastating American response.”
In the same way, Iran isn’t looking for self-destruction by pursuing nuclear weapons, according to Waltz, rather they are looking to increase their defensive capacities.
In what I believe is Waltz’s most controversial paragraph, the scholar writes:
Nevertheless, even some observers and policymakers who accept that the Iranian regime is rational still worry that a nuclear weapon would embolden it, providing Tehran with a shield that would allow it to act more aggressively and increase its support for terrorism. […] History shows that when countries acquire the bomb, they feel increasingly vulnerable and become acutely aware that their nuclear weapons make them a potential target in the eyes of major powers.
While it makes sense to think that Iran’s leaders are rational enough to understand that developing a nuclear weapon and deploying it against Israel would assure their destruction, it is difficult to believe that it wouldn’t embolden them. Tehran’s actions have made it clear that they want to become a regional power, and having the threat of a nuclear strike as an ace in their sleeve will definitely give them more leverage when acting and negotiating.
It isn’t immediately clear how oil markets would react if the U.S. publicly acknowledged it would stand down and let Iran acquire a nuke. The prospects of peace should put downward pressure on oil prices, while fostering production in the region (which would favor oilfield service providers likeSchlumberger and Halliburton), but fear that Iran might use the weapons to further bully its neighbors could cause prices to spike. And, if there were an escalating conflict, fear of a nuclear war could send crude to unsustainable levels for the global economy.
While it is an interesting thought experiment, I don’t agree with Waltz that nuclear weapons would foster peace in the Middle East. While it is unfair and arbitrary that nation states currently in possession of nuclear weapons should be the only ones to have them, a world with less, not more, nukes would prove more stable. At the same time, trying to stop Iran via sanctions, sabotage, and assassinations has only fueled more, not less, volatility and geopolitical risk. It isn’t entirely clear what the best option is, but allowing Iran to join the nuclear club doesn’t seem like the best one.
Jul 9, 2012 - 13:21
Atomic facilities able to resist major tremors
Beznau is one of the five nuclear facilities in Switzerland (Keystone)
February 29, 2012
Staying power
Beznau in northern Switzerland is now the world’s oldest nuclear plant.
The nuclear power station in Oldbury in England was shut down on February 29. Beznau, in Switzerland, has taken its place as the oldest operating nuclear plant in the world. A record not many people are inclined to celebrate these days. (SF/swissinfo.ch)
Switzerland’s nuclear power plants could withstand a severe earthquake without consequences for the public or the environment, according to the Swiss Federal Nuclear Safety Inspectorate.
On Monday, the nuclear watchdog announced that Switzerland’s nuclear power plants had provided proof that the cooling systems for their reactors and the associated spent uranium storage pools could resist a so-called “10,000-year” earthquake and any subsequent flooding.
They would also be able to stay well within the limit set for radiation exposure in the event of a major quake, according to the inspectorate.
The results of the evaluation confirmed that there is no reason for the five existing Swiss nuclear facilities to be taken out of service at this time, concluded the regulatory authority.
“The Swiss nuclear power plants demonstrate a high level of safety - also in international comparisons,” said inspectorate director Hans Wanner.
Although their ability to withstand an earthquake was demonstrated, all five plants were asked to provide additional information.
Fukushima
The results of the five installations’ ability to withstand major earthquakes are also only temporarily valid, said Georg Schwarz, head of the inspectorate's nuclear power plant division.
The regulator had instructed the five Swiss plants to provide proof of their resistance to earthquakes following the March 2011 nuclear disaster in Fukushima, Japan.
It is unclear how the report will affect the Federal Administrative Court’s March ruling to close the Mühleberg atomic plant near Bern. The judges ruled that the facility will lose its operating licence at the end of June 2013 on safety grounds.
Among the safety issues cited in the decision were the existence of fissures in the reactor’s core shroud, inconclusive evaluations of security in the event of an earthquake, and the absence of a cooling system independent of the River Aare.
In response to the Fukushima disaster, parliament last year voted in favour of a government plan to abandon the use of nuclear power in Switzerland by 2034.
Criticism
Anti-nuclear campaigners have criticised the report.
The non-governmental Swiss Energy Foundation said the conclusions are contradictory and ignore results of a study commissioned by the safety watchdog in 2007.
"Today's statements by the inspectorate are based only on preliminary findings," a statement argues.
It remains unclear how well the nuclear power plants really can withstand tremors, according to the critics.
Greeenpeace described the report as ill-advised.
The Gold Manipulation 'Conspiracy Theory' is About to Become 'Conspiracy Fact'
Posted by Wealth Wire - Wednesday, July 11th, 2012
This latest price weakness is confusing many market participants and causing further jitters to some owners of gold.
Our conversations with people in the industry and our own experience makes us confident that this is another paper driven sell off drive primarily by speculative, leverage interests on the COMEX.
Bullion dealers and banks have not changed their long term outlook for gold and are ignoring the considerable “noise” of recent days suggesting that further falls are likely.
Further falls are indeed possible especially if those players with concentrated short positions continue to press their advantage and squeeze nervous hand longs.
However, the fundamentals remain very sound with broad based global demand coming from store of wealth buyers in European countries, in the Middle East and in Asia and particularly China.
There is also increasing demand from hedge funds (Soros, Einhorn etc) and institutions such as PIMCO and the Teacher Retirement System of Texas.
David Einhorn warned of inflation yesterday and was asked on CNBC “what we would do since it is going to be bad, how do we play that?”
Central banks are just one facet of this central bank demand and their demand remains very small when juxtaposed with the increase in global money supply in recent years and when compared to their foreign exchange reserves.
The notion that central bank demand is propping up the gold price is simplistic and misleading.
Similar theories were proposed in recent years – with some claiming when gold was at $1,000/oz that ETF demand or Indian demand was propping up the gold price.
Such analysis failed to appreciate the broad global based nature of demand for gold then and fails to appreciate the broad global based nature of demand today.
It also fails to appreciate that while gold demand has increased – it has increased from an extremely low base and remains tiny vis-à-vis the size of other capital (equities, bonds etc) and currency markets and remains infinitesimal vis-à-vis the multi trillion dollar derivative markets.
GoldCore like other bullion dealers internationally have seen a noted increase in demand for physical bullion coins and bars in recent days.
The ‘Liebor’ scandal is the latest scandal to befall Wall Street and City of London banks and official regulators and central banks. It is creating further mistrust of our already wounded financial and monetary system.
The Libor fixing scandal is amusing as everybody - all the talking heads and ‘experts’ are “shocked, shocked” to discover that this benchmark interest rate underlying trillions of dollars worth of financial transactions worldwide was being manipulated.
This is despite more astute analysts such as Gillian Tett and others warning that rigging was taking place and LIBOR was a fiction as far back as in 2007.
A lack of transparency, a lack of enforcement of law and a compliant media which failed to ask the hard questions and do basic investigative journalism led to the price fixing continuing and the manipulation continuing unchecked on such a wide scale for so long - until it was exposed recently.
Similarly, the gold market has the appearance of a market that is a victim of “financial repression”.
Given the degree of risk in the world – it is arguable that gold prices should have surged in recent months and should be at much higher levels today.
The gold market has all the hallmarks of Libor manipulation but as usual all evidence is ignored until official sources acknowlege the truth.
However, like LIBOR the gold manipulation 'conspiracy theory' is likely to soon become conspiracy fact.
It will then – belatedly - become accepted wisdom among 'experts.' Experts who had never acknowledged it, failed to research and comment on it or had simply dismissed it as a “goldbug accusation.”
Financial repression means that most markets are manipulated today - especially bond and foreign exchange markets.
Many astute analysts are asking today (see Commentary) - why would the gold market be completely immune to such intervention and manipulation?
The last thing insolvent banks and governments want is a surging gold price.
Perverted and ‘unfree’ markets create profound risks financial systems and economies and for all investors and savers. They also present opportunities.
As ever, it is prudent to be on opposite side of official manipulation as ultimately the free market forces of supply and demand will always win out.
Smart money internationally remains short fiat currencies and long gold.
Jim Rogers - Financial ‘Armageddon’ Will Happen
Despite EU Deal
Jim RogersEven as markets cheered the agreement by European leaders to allow the direct use of the bloc’s bailout funds to recapitalize struggling banks, well-known investor Jim Rogers told CNBC the move does nothing to help solve the region’s biggest problem, which is its high debt levels.
“Just because now you have a way to get them (the banks) to borrow even more money, this is not solving the problem, this is making the problem worse,” Rogers said on Friday.
“People need to stop spending money they don’t have. The solution to too much debt is not more debt. All this little agreement does is give them (banks) a chance to have even more debt for a while longer,” he added.
After negotiating late into the night, European policymakers agreed on Friday morning that the bloc's bailout fund, the European Stability Mechanism (ESM), would be able to lend directly to recapitalize banks without increasing a country's budget deficit, and without preferential seniority status.
Summit leaders also agreed that euro area rescue funds could also be used to stabilize bond markets without forcing countries that comply with EU budget rules to adopt extra austerity measures or economic reforms.
Countries such as Spain and Italy have been burdened with sky-high borrowing costs – levels seen as unsustainable for governments in the long term.
Rogers argues that the deal does not improve the solvency of indebted nations such as Spain. Spain's central government budget deficit has soared to 3.41 percent of GDP in the first five months of 2012, above the EU limit of 3 percent.
He adds that the governments need to stop coming to the rescue of failing banks, even if it results in “financial Armageddon.”
“What would make me very excited is if a few people went bankrupt or a few people started paying off their debt. We are going to have financial Armageddon anyways, when the rest of the world is not going to give these people any more money.”
“What are you going to do in two, three, four years when the market suddenly says ‘no more money’ and the Germans don’t have more money and the American debt has gone through the roof.”
Rogers says the market euphoria brought on by the news, which saw a surge in Asian stocks, the euro and risk assets like oil, will not last.
“How many times has this happened in the last three years – they (EU leaders) have had a meeting, the markets have rallied, two days later the market says wait a minute this doesn’t solve the problem,” he said.
Rogers, who is an advocate of commodities-based investing, says he is not adding any positions at the moment.
“I own commodities, I’m delighted they are going up today – they are going up a lot. I’m not jumping into anything.”
Rogers: Don't Believe the Market Surge, "Financial Armageddon" Will Come
Posted by Mike Tirone - Friday, June 29th, 2012
After hours of negotiating, European policymakers agreed on Friday morning that the bloc’s bailout fund, better known as the European Stability Mechanism (ESM), would be able to lend directly to recapitalize struggling banks. Following the news, the markets reacted happily in agreement. But one person doesn’t see it as joyfully…
Ever-skeptical investor Jim Rogers told CNBC that the move does absolutely nothing to help solve the region’s biggest problem of high debt levels.
“Just because now you have a way to get [the banks] to borrow even more money, this is not solving the problem, this is making the problem worse,” Rogers said.
Negotiations lasted throughout the night into Friday morning and finalized the agreement that these banks would be able to have money lent to them to recapitalize without increasing a country’s budget deficit and without preferential seniority status.
The market euphoria brought on by the news of the agreement by European officials surged the Asian stocks as while the euro and risk assets like oil. And Rogers believes that the surge won’t last but the advocate of commodities-based investing doesn’t hedge away from his joy that the commodities jumped a bit today after the news.
“I own commodities, I’m delighted they are going up today—they are going up a lot. [But] I’m not jumping into anything.”
From CNBC,
Summit leaders also agreed that euro area rescue funds could also be used to stabilize bond markets without forcing countries that comply with EU budget rules to adopt extra austerity measures or economic reforms.
Countries such as Spain and Italy have been burdened with sky-high borrowing costs – levels seen as unsustainable for governments in the long term.
But even with countries such as Spain having such outrageous borrowing costs, Rogers feels this new deal does not improve the solvency of its indebted nation. Clearly some have begin to forget that Spain’s central government budget deficit soared to 3.41% of GDP in the first five months of 2012. The EU limit is 3%.
He went on to say that “financial Armageddon” would be a perfectly acceptable result if it meant that governments were to stop rescuing these failing banks.
“What would make me very excited is if a few people went bankrupt or a few people started paying off their debt. We are going to have financial Armageddon anyways, when the rest of the world is not going to give these people any more money.”
Rogers presents the idea of a financial dooms day as being somewhat near, asking the question that no one seems to be considering…
“What are you going to do in two, three, four years when the market suddenly says ‘no more money’ and the Germans don’t have more money and the American debt has gone through the roof?”
If the European officials actually took a moment to look at the numbers and trends which happen during times of policy change and see that they are not a solution but rather just a temporary fix, perhaps things could change and Rogers sees it like this…
“How many times has this happened in the last three years – they (EU leaders) have had a meeting, the markets have rallied, two days later the market says wait a minute this doesn’t solve the problem.
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