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""Actually, if truth be told, I think Ahmed has actually used the Iranians for our benefit," ~ piasa

Interesting excerpt from item below:

"As for Iran, Friedman is not as concerned as many other observers about its nuclear-weapons program. Iran has actually been quietly helpful to the U.S. both in the war on terror and in Iraq."

Barron's Magazine Saturday, 2-19-05
World of Worry - Problems abound around the globe, but Stratfor thinks we fret over the wrong ones

By JONATHAN R. LAING

INVESTORS HAVE A WORLD OF WORRY to fret about these days, from the Middle East to Korea. But they're mostly worrying about the wrong things, contends George Friedman, who heads the private intelligence-service Stratfor. The Austin, Texas firm has prospered since we first publicized it just weeks after the Sept. 11 attacks.

Collecting real-time information from the Internet and from informants around the world, Stratfor forecasts and geopolitical analyses have become staples in stories on the war on terror. Likewise, Friedman's commentary is sought by news shows and Fortune 500 clients -- including some of the largest financial institutions. His views are frequently provocative and idiosyncratic, but always stimulating.

His forecast for 2005, conveyed via telephone, proved to be no exception. Our talk spanned the globe, building from progress in the Middle East -- despite new violence in Lebanon -- through North Korea's rumblings, on to why investors should be cautious on China and Russia.

As a political scientist and admirer of realpolitik, Friedman feels that the U.S.'s aggressive action and military presence in Iraq has inestimably helped the war on terror by, among other things, motivating reluctant allies like Saudi Arabia, Egypt and Pakistan and erstwhile enemies like Syria and Iran to help the U.S. by cutting off their support of al Qaeda and serving up better intelligence to Western governments.

"I call it the coalition of the coerced, but the tempo of timely arrests of al Qaeda operatives around the world, and the fact that the U.S. suffered no terrorist attacks running up to last year's election, can in good part be attributed to better intelligence from the Islamic world," Friedman avers. "Our victory in Afghanistan was insufficient.

We had to show the Islamic world that we meant business by putting large numbers of troops into the Mideast, into harm's way, rather than cutting and running such as the U.S. had done previously in its rapid pull-out from Beirut in the 1980s and Somalia in the '1990s."

In this context, Friedman sees Syria's and Iran's recent announcement of their united front and the assassination of former Lebanese leader Rafik Hariri as an attempt by the two nations to strengthen their bargaining position with the U.S.

He claims that the bombing that killed Hariri was likely contracted out to Syria's and Iran's favorite terrorist organization, Hezbollah. He adds, "Syrian intelligence doesn't do suicide bombings like we think the Hariri assassination was, but Hezbollah most certainly does. The two countries, by killing someone the U.S. really likes, seem to be sending a message that if pushed too hard by the U.S., they will react."

China's economic and social horizons are brimming with trouble.

While Friedman cautions against excessive euphoria over the recent elections in Iraq, he contends that the situation there is beginning to stabilize. Moreover, he expects that the war will begin to recede from the headlines. The virulence of the Iraq insurgency took Stratfor somewhat by surprise. But, he adds, the violence has been largely confined to the Sunni Triangle. (See "Winning in Iraq" in the June 14, 2004 Barron's on the strategic reasons Friedman supported invading Iraq.)

Moreover, the training of the Iraqi security force is starting to bear fruit, particularly since the number of Sunni recruits has been cut back, due to their dubious loyalties [Saddam is Sunni].

Friedman also expects to see more involvement by Iranian-trained Shiite militia units in patrolling some of the hot combat zones now that the Ayatollah Ali al-Sistani slate appears to have won a victory.

He expects U.S. casualties and troop levels to start trending lower in the months ahead; among other things, U.S. forces will likely be shifted to larger, well-protected bases more remote from Sunni cities.

As for Iran, Friedman is not as concerned as many other observers about its nuclear-weapons program. Iran has actually been quietly helpful to the U.S. both in the war on terror and in Iraq, and has a major stake in creating a dependable ally on its western border in the form of a Shiite-dominated united Iraq.

Iran is largely using its nuclear ambitions as a bargaining ploy with both the U.S. and the European Union. Negotiators from Germany, France and Great Britain are attempting to play the good cop with Iran, while the U.S. remains the bad cop. In the latter role, according to Friedman, the Bush Administration may well have covertly planted the exposé in the New Yorker last fall by Seymour Hersh -- which claimed that U.S. and Israeli special-operations teams operating inside Iran had already catalogued numerous special nuclear facilities for eventual attack. "Iran's nuclear program isn't really all that viable, and the country has to know that if she continues to enrich uranium in defiance of Western desires, then the U.S., or perhaps Israel, will hit them with the big stick," he insists. "Iran isn't that stupid."

Iran has helped in the war on terror, although Pres. Mohammed Khatami may not brag about it.

Likewise, Friedman contends that the North Korean nuclear standoff has been much overhyped by the world media. "It's merely a beautiful bargaining strategy on the part of a country with the economic importance of Chad to make itself into a centerpiece of world diplomacy," he observes. "None of the weapons are usable, since North Korea would be turned into glass within minutes should the country lob a missile at somebody."

The bizarre economic policies of Kim Jong Il have, in fact, bolstered rather than threatened the survival of his regime, despite the existence of widespread malnutrition and grinding totalitarian mind-control in North Korea. Neither China nor South Korea is particularly anxious to assume the economic burden of this failed state, Friedman believes. Kim is hoping to use the nuclear wild card to win a peace treaty (only an armistice was signed between the U.S. and North Korea after the Korean War) and full diplomatic relations with the U.S.

Then, he continues, North Korea might be able to attract more foreign investment and economic aid, all while keeping the zany Kim dynasty in power.

Friedman sees more peril in 2005 from developments in quarters of the globe that have received less media attention. China, for example, this year could see significant deceleration in its torrid economic growth rate and may well be on the cusp of a meltdown, he says. Moreover, Friedman contends that China is likely to become more bellicose and nationalistic as its economic malaise swells, because foreign aggression has been a tried and true method for deflecting people's attention from problems on the home front.

To be sure, Friedman's pessimism about China's prospects places him at odds with the conventional wisdom pushed by virtually every U.S. corporate chieftain and by scores of news commentators.

Dear Leader as paper tiger: North Korea would be "turned into glass" if Kim acts out.

"Today's China boom can only be compared to the dot-com frenzy of the late '90s in the hype and conviction that China will somehow defy all the rules of normal economic cycles," he avers. Yet many observers are still agog over China's low labor costs, the gleaming office buildings of Shanghai, the state-of-the art plants rimming its eastern cities, huge currency reserves and surging trade surpluses.

Friedman sees growing imbalances, seething social discontent and a rotting financial structure. In fact, to Friedman, the current China exhibits unsettling similarities to Japan in the late '80s, just before the sun set on the latter economy.

China, like Japan of yore, is experiencing an insensate real-estate boom and looming overcapacity in its industrial base.

The financial structures of both countries suffer from the rot of loan misallocation, a shaky banking system and a huge overhang of bad debts, Friedman notes. Likewise, much of today's economic growth in China is profitless, due to both the weight of moribund state-owned enterprises in the economy and a mania for market-share growth at the expense of economic returns.

Finally, Friedman claims that many China enthusiasts are ignoring the demographic time bomb of an aging population as a result of China's one-child-per-family crackdown. The more rapidly advanced graying of Japan has already put a damper on Japan's consumer spending.

Signs of trouble in China are beginning to accumulate just below the surface of glossy economic growth, Friedman asserts. The economy continues highballing along, despite all government attempts to rein in growth by a small interest-rate hike and restraints on lending to some key industrial sectors. China can't afford too much monetary restraint; any large increase in interest rates could trigger a cascade of loan defaults and pop the credit bubble.

Stratfor has also noted a dramatic jump in riots, strikes, bombings and the like throughout China that have largely gone unnoted or unreported by the bedazzled world news media. Social tensions only figure to grow as a result of increasing layoffs at the state-owned enterprises and yawning disparities in wealth between China's populous agrarian hinterlands and the thriving coastal cities.

U.S. troop casualties in Iraq should drop this year as soldiers move to better-protected bases.

He claims that paranoia on the part of party authorities seems to be growing apace, as evidenced by their increasing resort to security sweeps against dissidents. The government's fear of riots following the recent death of Zhao Ziyang, the disgraced former general secretary of the Communist party and a hero of the democratic movement, was just one example of this new attitude, says Friedman.

Friedman also expects Chinese authorities to increasingly fan nationalistic fervor in an attempt to defuse growing tensions at home. The recent spate of saber-rattling with Taiwan is just one example. China's dispute with Japan over exclusive economic control of a large swath of ocean waters south of Japan must be seen in the same light. "The Japanese are widely disliked in China, so the Chinese authorities can always use Japan as a potent symbol of why the Chinese people must remain unified," Friedman claims.

At present, capital inflows into China remain enormous from the nation's positive trade balance, foreign direct investment chasing the Chinese dream and currency speculators betting on a revaluation of the yuan. But Friedman points out that capital flows can turn on a dime -- as witness the capital flight suffered by other East Asian nations in 1997 and 1998.

In recent months, Chinese companies and other entities have begun to make substantial investments in overseas natural resources, land and tech companies. Most observers see this as an indication of China's growing economic might. Still, Friedman wonders if this foreign direct investment might be an incipient sign of capital flight by Chinese businessmen looking for a safer and more profitable home for their money.

"Just like the controversial Japanese acquisitions of Pebble Beach and Rockefeller Center in the late '80s, might the recent deal Chinese computer maker Lenovo reached to buy IBM's personal-computer business be a sign of trouble at home rather than self-assertion of a growing economic powerhouse?" he asks.

Watch Putin's actions against Russian companies -- not his lips.

Likewise, Friedman thinks Vladimir Putin's Russia may be a growing problem for the West -- after more than a decade of grudging Russian acquiescence to U.S. great-power supremacy and fumbled attempts to "Westernize" its economy and political systems. Russian authorities today see market capitalism as something of sham that brought riches mostly to the oligarchs and Western financial interests.

Even worse for Putin, Western political influence is growing in states that made up much of the former Soviet Union. The Baltic States of Latvia, Estonia and Lithuania recently joined both NATO and the EU. Pro-Western governments are in place in the former Soviet republics of Georgia and, most ominously from Russia's standpoint, Ukraine. Elections this year could push other former Soviet states Moldova, Armenia and Kyrgyzstan into the Western camp. Meanwhile, Americans now are stationed in former Russian bases in Central Asia as a result of the U.S. war in Afghanistan.

Putin has fought back by increasing centralized control of the Russian economy -- the recent state expropriation of key assets of Yukos must be seen in this light -- and re-establishing Kremlin control of regional governments. But Putin may not be able to keep the centrifugal forces at work inside Russia at bay, Friedman claims.

Stratfor has picked up indications from Russian intelligence sources that Chechen separatists may be planning to take over a strategic missile base or nuclear power plant to force a Russian withdrawal from Chechnya. Other Muslim areas in the Russian federation are becoming more defiant, says Friedman.

Facing a desperate, disintegrating situation, the Kremlin will, at a minimum, try to overthrow the Georgian government and block the Ukraine from joining NATO, Friedman says. He also expects Putin to try to re-establish state control over such corporations as Unified Energy Systems (Russia's power monopoly); Transneft (the oil transport monopoly); and private oil companies Sibneft and Surgutneftegaz. In addition, Putin has defied the U.S. by threatening to sell various strategic weapons systems to Syria and China, Friedman claims.

Let it never be said that we don't live in interesting times.