Wall Street and Iraq Jude Wanniski August 20, 2002

There are still plenty of reasons for the stock market to go up and down that are independent of what happens in the Middle East, but the question of whether or not President Bush will pull the trigger on Iraq is now the most dominant. Congress is not in session. The Fed has done what it has done. The August 14 SEC deadline on accounting verifications is past. Corporate earnings are providing no surprises. It is also obvious that the Wall Street rally has coincided with the public-relations offensive from Baghdad and the voices of dissent on military action coming from Brent Scowcroft and House Majority Leader Dick Armey. The decline in the price of gold is another sign that chances of war are lessening, not increasing, while the rise in the price of oil can be explained by the federal government`s purchases of oil in anticipation of oil shortages that would certainly occur if there is an invasion. If there is no disruption because of war, oil would slump back by several dollars a barrel. 

The invasion may of course still take place, but there is now a reasoned calculation that it will not occur anytime soon, not before the November elections. My own assessment is that there will be no military attempt at a "regime change" unless it is somehow initiated by an Israeli pre-emptive strike against Iraq fomented by allegations that Iraq is about to strike Israel. Chances of this happening are close to zero. U.S. intelligence services are well aware that while Iraq may possess the ingredients for chemical or biological weapons, they have never been able to "weaponize" them. Whatever facilities they had during the 1980`s were demolished after the Gulf War and as the chief weapons inspector Scott Ritter has been saying to anyone who will listen, it would take a great expense to reconstitute them and would be easily spotted by our satellites. 

The biggest problem for the warhawks in the Bush administration is the open invitation of Baghdad to have the U.N. weapons inspectors come in without restrictions or conditions. The U.S. position in the Security Council remains that there are still unacceptable restrictions or conditions in the Iraqi foreign minister`s latest letter to UN General Secretary Kofi Annan, dated August 15. There were no restrictions that I saw in the first letter, except to suggest the UNMOVIC executive director, Hans Blix, sit down with the Iraqi counterparts and let them know what he needs to conclude the inspections. That was too much for the U.S., as it is clear the warhawks led by Richard Perle, chairman of the Defense Policy Board and the brains behind the Bush national security team, do not want the inspectors to go back into Iraq. They know they will not find anything. Sen. Fred Thompson [R TN], a Perle protege, told one of the Sunday talk shows last week that it is his "worst nightmare" to have the U.N. inspectors back in, as that would only confuse the planning for a regime change. 

Iraq then shifted gears, in its latest letter advising the Blix team to come in and inspect wherever they wish, then report back to the UN Security Council on their findings. This was exactly the offer Iraq made in 1998 to UNSCOM, the predecessor to UNMOVIC. The inspectors came in and even searched the presidential palaces, which had previously been off limits. Richard Butler, the UNSCOM director, left with complaints that he couldn`t find anything because Iraq was so good at concealment. Ritter has recently been all over stating flatly that Butler was a spy for the U.S. and Brits, not an inspector. [Ritter`s comprehensive, well-written report to the U.N., presented in June 2000, is available at http://www.armscontrol.org/act/2000_06/iraqjun.asp.] According to a wire report in the back pages of the NYTimes today, an American diplomat to the UN told reporters he had just read the letter and "it didn't lead me to think it was very promising." Because the U.S. holds the presidency of the Security Council this month it is unlikely to put it on the agenda, but the other members of the Council will eventually bring it into discussion. 

Given the total opposition of the Gulf states to a U.S. attack, President Bush will have to find a way out of the corner he allowed himself to be painted into by Perle & Co. The easiest option he has is to give way to renewed U.N. inspections that can be made permanent in exchange for a lifting of the sanctions. As I wrote Monday on our public website, a go-it-alone attack on Iraq would inflame the entire Islamic world. My biggest fear would be terrorist attacks on the commercial airline industry, not by highjacking jets, but by blowing them up in the air with Stinger missiles. It would not take weapons of mass destruction to bring the U.S. economy to its knees, as Al Qaeda discovered with its box cutters. As I`ve argued before, Al Qaeda`s attack on the WTC and Pentagon on 9-11 was only meant to get the attention of our political establishment -- which previously put Israel`s interests ahead of all other considerations in the region. There would be no further Al Qaeda attacks on the U.S., I believed, if the American response was carefully considered. The fact that the President got the support of the Muslim world, especially Pakistan, before launching the war on Afghanistan was important. Getting the President to commit himself to a Palestinian state was even more critical, as the Palestinian issue is and has been at the core of all the tensions in the Middle East. Both of these steps can be credited to the patience and personal political skills of Secretary of State Colin Powell.

The sober voices in the American Jewish community have also been critical. I think back especially to the lead editorial of the Forward on October 5, 2001: "[W]e needn`t search the theology texts to divine bin Laden's motives. He's spelled them out repeatedly in various public statements. He`s on a self-declared holy war against 'Crusaders and Jews,' with a three-fold goal: 'liberating' Mecca and the rest of Arabia from American 'occupation,' 'liberating' Al Aqsa in Jerusalem from Jewish 'occupation' and lifting the Western embargo on Iraq. They`re always stated in that three-fold form, and usually in that order. The fact is, Israel is one of the issues, though not the only one, driving bin Laden and his cohorts. It is foolish to deny it; that merely undermines the credibility of Israel`s defenders at a time when Israel sorely needs defending."

All three issues, though, are related to Israel, including the Western embargo on Iraq, which would be unnecessary even in Israel`s eyes if Ariel Sharon and Yasir Arafat could come to terms on Palestine and the Islamic holy places in Jerusalem. And U.S. troops could come home from Mecca. Instead of war with Saddam Hussein that might succeed, but might also lead to Armageddon, it is peace between Arabs and Israelis where President Bush could help make history. If I'm not mistaken, the financial markets at least seem to be betting he will. I am.