Iran Poses Huge Threat to World Stability and Markets
Revisiting “Gold Has Bottomed”

By the Curmudgeon with Victor Sperandeo



With Israel PM Benjamin Netanyahu's controversial speech to Congress against the Iran nuclear deal this Tuesday, one might think that obtaining nuclear weapons was the only concern the world should have with Iran.  Nothing could be further from the truth!  Largely due to the chaos/ power vacuum in Iraq resulting from the U.S. March 2003 invasion,  the Islamic Republic of Iran now claims an arc of influence that stretches from the Mediterranean to the Red Sea and Gulf of Aden, according to recent Wall Street Journal article.     

“Iran is more powerful than any time in the past 30 years,” Alaeddin Boroujerdi said from his office in Iran’s parliament, where he heads Iran's foreign policy and national security committee.

In this post, we examine Iran's direct military involvements in three Middle Eastern countries, its secretive anti-Semitic/anti-Israel terrorism throughout the world, and the domestic tensions it faces on opposite sides for a negotiated nuclear agreement.  Victor takes a historical perspective of Iran as a major global force, and warns of a possible nuke escalation involving Saudi Arabia.  He also provides fresh comments on gold's recent rally failure and Friday's close decisively below the $1200 per ounce support level.

Iran's Direct Military Involvement in the Middle East:

For years, Iran preferred to direct proxies, such as Hezbollah in Lebanon and Hamas in the Gaza (Palestinian ruled) area between Israel and Egypt.  Over the past year, Iranian military advisors have gotten directly involved in Iraq, Syria and Yemen.  Let's take a look at Iran's moves in those three countries:

1.  Iranians coordinate as many as 100,000 Iraqi fighters mobilized by Iranian-allied Iraqi clerics with a religious order to confront Islamic State (IS).  Emergency religious edicts issued by Shiite clerics in Iraq last year urged all able-bodied men to join the fight against Islamic State, whose extremist Sunni beliefs classify Shiites as apostates who should be killed. Tens of thousands of Shiite men have volunteered to fight IS in Iraq.

The U.S. military, which advises Iraqi forces and conducts airstrikes in parts of Iraq, has not been asked to assist in the offensive against the Islamic State in Tikrit, 80 miles north of Baghdad.  "This is the most overt conduct of Iranian support in the form of artillery and other things," Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, told Congress this week. 

The Pentagon has said it is not coordinating directly with Iran's military. That could be a problem for American forces if Iran plays a role in a planned offensive this spring to liberate Mosul, Iraq's second-largest city.  "It's going to complicate things," said Mark Hertling, a retired Army lieutenant general who commanded coalition forces in northern Iraq in 2007 and 2008.

2.  During Syria's grinding four-year internal war, Iranian military advisers have helped defend President Bashar al-Assad by coordinating a mix of paramilitary groups that include Hezbollah fighters from Lebanon, Shiite militias from Iraq and fighters from Afghanistan, say rebels and regime-aligned fighters.

3.  In Yemen, a Shiite movement styled on Hezbollah called the Hoothis have ousted the Yemeni president and the government with the help of Iranian-provided weapons and money.

Iran has these militia groups working together across borders, providing each other training and reinforcements, as well as putting to work in one battlefront lessons learned in others.  The militias have been organized into a quasigovernmental military force by Hadi al Ameri and Abu Mahdi Mohandes, close allies of Iran. Mr. Ameri has long been a fixture of Iraqi politics, serving as transportation minister under former Prime Minister Nouri al-Maliki, a position he used to help arrange for the carriage of weapons and fighters to Syria, Iraq and U.S. officials said. He now heads Iraq’s largest militia, the Badr Brigade.

Iran’s involvement stokes sectarian tensions that deepen regional conflict: Its Shiite allies fight Sunnis who, in turn, feel threatened by Iran’s growing influence. That has made Sunni regional powers Saudi Arabia and Turkey anxious, and may be fueling support for Sunni extremism in both Iraq and Syria.

“Iran is both the fire brigade and the arsonist,” said Karim Sadjadpour, an Iran analyst with the Carnegie Endowment in Washington.

Iran's Quds Force backed Iraq Shiite militias and Iraqi security forces in November to liberate the central city of Baiji from the Islamic State, breaking the siege of a nearby oil refinery. A month later, the Islamic State took back a part of the city.

Last summer, when Islamic State militants first captured Mosul and got within striking distance of the Kurdish capital, Erbil, the head of Iran’s Quds Force, Maj. Gen. Qassim Suleimani, flew to Erbil with two planes full of military supplies, American and regional diplomats said. The Iranian move helped to bolster Kurdish defenses around Erbil, the officials said.

In Tikrit this week, Iranian-backed Shiite militia leaders said that their fighters made up more than two-thirds of the pro-government force of 30,000. They also said that General Suleimani, the Iranian spymaster, was helping to lead from near the front line.

“There’s just no way that the U.S. military can actively support an offensive led by Suleimani,” said Christopher Harmer, a former aviator in the United States Navy in the Persian Gulf who is now an analyst with the Institute for the Study of War. “He’s a statelier version of Osama bin Laden.”  See Victor's comments below about “spymaster Suleimani.”

Iran's Overseas Terror Targets:

The Iranian government’s extreme interpretation of Islamic law and its anti-U.S. rhetoric has aided and abetted other Islamic terrorist splinter groups as well as Hezbollah and Hamas.   For example, Iran has been implicated in the July 2012 bombing in Bulgaria that killed five Israeli's, the February 2012 attacks on Israeli representatives in Georgia and India, the failed strikes in Thailand and Azerbaijan against Jewish targets, and the foiled attempt to assassinate Saudi Arabia's ambassador to the U.S. in October 2011.  Israel's Mossad security service says that Iran was behind foiled plots to attack Jewish and Israeli targets in Kenya and Cyprus as well.

Perhaps the coup de gras of Iran's clandestine terrorism campaign is their possible involvement in the 1994 bombing of a Jewish Community Center in Buenos Aires, Argentina which killed 85 people and injured hundreds.  This past January, Alberto Nisman, the Argentine special prosecutor who for 10 years has been investigating the case, was due to appear in front of the Argentine Congress and present his evidence that Iran was behind the bombings and that the Argentine government had covered it up. Hours before his scheduled testimony, he was found dead in his apartment with one bullet wound to the head and a .22 caliber pistol strewn on the floor near his lifeless body.  Many suspected Iran to have been behind the assassination of Mr. Nisman, but the Argentine government has not ruled on whether his death was a suicide (why?) or murder.

The NY Times reported this Thursday that Sandra Arroyo Salgado (a judge and the ex-wife of Alberto Nisman) said at a news conference, “Suicide and an accident are totally ruled out, so we can only conclude that Nisman was without doubt the victim of a homicide.”  Argentina President Cristina Fernández de Kirchner has been accused of covering up Iran's involvement in Nisman's death.  Here's an overview of key developments in that case.  We leave it to the reader to form their own conclusions.

Iran's Weakening Economy vs Pressure from Hardliners Impact Nuclear Deal:

Iran's economy has been hit hard by declining oil prices and international sanctions.  “We are struggling to pay [state employees],” a government official told the Financial Times.  “The government is under massive financial pressure and has resorted to many lay-offs.”

That's a sober reminder of the pressure on Iran's President Hassan Rouhani as talks with the P5+1 group (5 permanent members of UN Security Council + Germany) over the country’s nuclear program enter the home stretch.  The two sides have pledged to secure a consensus agreement by the end of March, which could lead to a comprehensive deal by July.

This Tuesday, Israel's PM Netanyahu warned Congress that it should “insist on a better deal and keep up the pressure on a very vulnerable regime....They need the deal a lot more than you do,” Bibi said.

The Iranian President is also under pressure from religious hardliners at home who are reluctant to see compromises on the nuclear issue and are trying to make political points ahead of parliamentary elections early next year. They have sought to highlight that the President’s economic reform program has failed to alleviate the economic hardship faced by ordinary Iranians.

Falling oil prices, down about 50% since July, have further added to budgetary pressures and forced Iran's government to find other sources of income.  The judiciary has also vowed to step up the collection of tax revenues, which many businesses have long tried to evade.

Iran’s precarious finances were highlighted in recent remarks by Oil Minister Bijan Namdar Zanganeh, who described the “horrendous” state of the industry. “This ministry has problems paying employees, let alone making investments [in oilfields],” he told parliament. 

The government insists it is sticking to its plans to reduce inflation and stimulate growth. But economists fear that if a nuclear deal is not reached, the economy could suffer. “These policies could reverse if nuclear negotiations fail,” one analyst said.

Victor: Iran as a Major Global Player/ World Power:

The Prophet Muhammad, full name "Abū al-Qāsim Muḥammad ibn ʿAbd Allāh ibn ʿAbd al-Muṭṭalib ibn Hāshim" (570 CE - 632 CE or "Common Era") from Mecca, unified Arabia into a single religious polity under Islam.   The Persian Empire was first established 2500 years ago by "Cyrus the Great."  

Persia (now known as Iran) has been growing its territory, influence and impact.  It can now be argued that Iran dominates, owns or indirectly controls more land than at any time since Cyrus the Great and several leaders of empires that came immediately after.  As per the quote in the Introduction above, Iran is more powerful now than at any time in the last 30 years.

Today, it is thought that Iran has ambitions to rebuild its former Persian empire, similar to Putin’s “greater Russia” aspirations.  With a nuclear bomb, Iran would indeed join a select club, and aside from Pakistan, would be the dominant country in the region.

Iranians are Shiite's (AKA “Shia's”) while ISIS/IS are Sunni's, which are the overwhelming majority of Muslims.  To a person of a different faith, the difference seems small, but to Muslims the differences are as great as life and death.  The key point is that Muslims want the world to be ruled by Allah, the Quran, and Sharia law.  The only real question is who is going to control/lead the Muslims in the execution of Sharia law.

Iran has been the most aggressive Islamic country in building their Shiite brand via direct military involvement (Iraq, Syria, Yemen) and sponsoring terrorism wherever it exists (mostly via Hezbollah and Hamas).  Meanwhile, IS has created a reputation as the most barbaric to execute Muslim laws based on their (perverted?) interpretation of the Quran.  [We provided an in depth analysis of IS in last week's column].   These two "Islamic" factions are now fighting each other in Iraq led by the infamous General Suleimani (AKA the Iranian spy master).  

No doubt Iran will win and thereby control Iraq and its oil. In that case, the Shiite influence will grow and the Sunni influence diminish, which is what scares Saudi Arabia.  Saudi's are predominantly Sunni's (according to one estimate 23% of Saudi's are Wahhabi Sunni with 52% non-Wahhabi Sunnis and only 23% Shia).  

Prince Saud al-Faisal, the Saudi foreign minister, complained to U.S. Secretary of State John Kerry this week about the Iran led Tikrit operation in Iraq, saying Iran’s role there was an indication of what he called Tehran’s “hegemonic” tendencies.  Saudi is also very concerned and worried about Iran's nuclear build-up.  In 2010, it was reported that (now deceased) King Abdullah repeatedly urged the United States to attack Iran to destroy its nuclear program, according to leaked U.S. diplomatic cables. 

I believe that if Iran's nuclear program is not severely curtailed or stopped by the P5+1 or Congress, it's very likely that Saudi would use their massive wealth to buy nuclear weapons.  If that happens, the Middle East nuclear proliferation will begin in force! 

You might then have people who believe: "it's good to die for the cause to achieve a better after life," with nuclear weapons.  

The bottom line:  Iran is making a strong effort to control the Middle East upfront now, instead of behind the scenes with proxies doing their bidding. They will continue to be the real long term player, while IS will likely fade as they are developing too many enemies (e.g. Jordan, Egypt, and Turkey along with western countries like Japan, US and Europe).


Curmudgeon Note:  On Saturday, Nigerian militant Islamic group Boko Haram has pledged allegiance to Islamic State, according to an audio statement. If confirmed, the agreement with Boko Haram would mirror the steps taken by IS affiliates in Libya, Algeria, Egypt, Afghanistan and beyond. In each case, a group’s leaders swore allegiance in a public message posted online. Weeks later, the oath was formally accepted by the Islamic State, in a statement issued by the group’s spokesman.


Oil Shock and Possible Wars:

Add Russia into the possible war mix and you have a futureoil shock in waiting."  When is anyone's guess.  The U.S. has been mostly on the sidelines after its military withdrawal from Iraq. The Obama administration has chosen a foreign policy of staying out of these problems, and reducing our military strength at the same time.  While that might be good in the short run (to control government spending), it's not good in the long run to maintain control and stability in the region.

The more Iran gets involved, and the U.S. continues to "play nice" with Iran, the more the problem of radical Islam expands and grows.  Also, the Israelis will have to take steps to eventually bomb Iran's nuclear facilities if Iran is not stopped.  They have threatened to do that before but were cautioned by the U.S. to use restraint.  Israel know it will be war either way. Better now before Iran gets closer to having a nuke?

Iran's Impact on the Markets:

The more tension Iran creates, the more difficulty the Central banks will have in manipulating economies and markets.  If U.S. economic growth slows from the low 2% rate in recent years, the global economy could become quite unstable, especially if Middle East conflicts continue to flare or spread to Egypt, Libya, Algeria and Afghanistan (countries where IS is said to now have a presence).

All wars create inflation as nations spend money "directly" to pay for it.  Currently printing money has not created spending or inflation because the money has to be borrowed first to create inflation and that's not happened on a large scale.  Moreover, the lack of any real U.S. fiscal policy has stopped many entrepreneurs from creating new businesses.  According to a recent editorial in Investors Business Daily:

 "Or is the Fed alarmed that, according to a new report from the Tax Foundation, we now have the fewest corporations since 1974 and they are disappearing at the rate of 60,000 a year, taking jobs with them?"

The result is a lackluster U.S. economy:  borrowing, building, hiring and GDP growth are not happening during the current “economic recovery.”  With the U.S. and world economy so fragile, if Iran creates global turbulence (or even uncertainty), there's no shock absorber or cushion for the global economy.  With zero interest rates and massive amounts of QE for over six years, global central banks have used up their ammo and won't have anything left in their arsenals to stop a worldwide economic decline.

Gold Comments:

This brings us to Gold as the asset (along with Silver) that protects against unexpected war and inflation.  I previously wrote that I believe gold had bottomed.  However, if gold makes a new low based on the 11/6/14 intraday low of $1131.50,  then by definition the trend is still down and the bear market will continue.  The yellow metal must hold above the lows to have truly bottomed!

Gold still has a chance of not making new lows, as it is still outperforming the Commodity Indices (CI's). The DJ UBS CI is down (2.2%) YTD, while gold is down (1.6%) YTD.  The dollar is up 8.4% YTD at new highs, which bodes poorly for all commodities which are priced in dollars.

On Friday 3/6/15, of the 41 futures I follow domestically (which include: Stocks, Debt, Currencies, Softs, Precious and Industrial metals, Livestock, Energy, and Grains) only 10% of them were up (Coffee, Soybean meal, Live Cattle and Natural Gas).   Meanwhile, the U.S. dollar made new multi-year highs.  The reported U.S. non-farm payroll number of 295,000 new jobs led to concerns that the Fed would raise short term rates in June.  While that's only a "maybe," it resulted in a stock market sell-off with T-Bonds/T-Notes also down sharply and yields up.  There was no “risk off” asset class on Friday, other than the U.S. Dollar!

In 2014, Gold was down -1.65%, so also acted relatively strong vs most major commodity indexes, which were down- 19% or more. This is what it is, as markets have never been easy. So for those who are strict to rules and discipline, I’ll let gold do the talking.  After all, a wish or forecast is not a claim on reality.

Till next time...


The Curmudgeon


Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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