A Geopolitical Plus Jude Wanniski June 2, 2004

It is of course sad to say that the worse President Bush and his team of neo-con warriors look in Iraq, the better it is for the financial markets and the economy. A week ago we noted the price of gold approaching $400 again, attributing much of the sharp rise to the administration’s sharp warnings of domestic terrorism this summer. Now it turns out Attorney General John Ashcroft was probably reading more into the scandal of Iraqi prisoner abuse than he should have, with Homeland Secretary Tom Ridge keeping his cool. Political terrorism, especially terrorism involving suicidal acts, only occurs when all peaceful means of making a political statement have been exhausted. Islamic militants do not have to blow up any buildings here to get the attention of the American people when the news from Iraq is running their way.
 
The unexpected effectiveness of the Shia cleric al-Sadr’s militia not only gave the Islamic world something to cheer about, but also caused a policy shift that makes it perfectly clear that a permanent American imperial presence is not in the cards. The revelations of prisoner abuse at the prison camps in Iraq came along at just the right time to undermine the latest rationale for the war: that coalition liberators were putting an end to Saddam Hussein’s abuse of prisoners in the torture and rape rooms of Abu Ghraib. And just when the neo-con schedule called for the installation of an interim government in Baghdad headed by Ahmet Chalabi – who may be the most hated Muslim in the Arab world outside Iran – it turns out that Chalabi has been turning U.S. secrets over to his friends in Tehran, secrets he could only have heard from his Pentagon champions. This was icing on the cake, plenty of reason for the price of gold to head back toward $390 and oil to drop below $40. Yes, OPEC Arabs have agreed to boost output, but would they have if the political tide were still running against the Islamic world in Baghdad? The composition of the interim government arranged by UN envoy Lakdahr Brahimi will still be questioned, but "there is a real opportunity for an open political discourse to finally take place in this country," he said at a briefing in Baghdad.
 
Geopolitical risks are falling, not rising, and while there may be some further incidents threatening global commerce in the next several weeks as June 30 approaches, it is more likely the financial markets will be able to take Iraq out of their calculations. Steven Weisman of The New York Times has it about right today when he said the interim government may be a “charade,” but that it is probably a necessary charade to get to the reality of elections next January, when a secular Iraq should be on the road to a democratic government. There still will be Osama bin Laden, al-Qaeda and the grievances of the Palestinian Arabs clouding the geopolitical picture with risks, but at least it appears now that there is light at the end of the seemingly endless Iraqi tunnel. If President Bush can find a way to gracefully separate himself from the problems afflicting the neo-cons, it could work for him too.

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