MY PERSPECTIVE ON THE MOVE OF RUSSIA & ALLIES (IRAN) INTO SYRIA

I believe this move was necessitated by Russia's realization that the Syrian Regime, supported by Iran and Hezbollah was no longer capable of sustaining itself and if left alone would fall. Accepting a moral defeat is a difficult thing for Putin and the Iranian leadership especially these days.

At the same time, having power on the ground in Syria and taking charge of loyal forces on the ground would allow Russia to position itself as the primary international player in Syria in any settlement discussion and the key player that can provide security to any new government.

What are the benefits to Russia and Iran? Is it worth the cost and risk?

I don't think the benefits are worth the cost and risks to both nations but may be important to the corresponding political leaderships. Yes it is useful for Russia to maintain influence in Middle East Affairs and to have a base on the Mediterranean, and it is useful for Iran to have an expanding influence in its neighborhood and a link to the Mediterranean & Hezbollah via southern Iraq & Syria.

However, at this time when both nations are much challenged economically and politically, adding further burden for peripheral stages is not intelligent. But both political systems need to keep their voters busy with regional political & military challenges, to take the minds of their voters away from the lousy local economy. Otherwise how can the conservative Iranian political elite explain why sanctions were lifted but the economy is still getting worse? What explanation can Putin give other than Russian National Interests should take priority over the economy?

I don't believe Russia will execute a land offense with Russian or Iranian troops that is not their primary objective. Their primary objective is to keep their local voters support, keep minds off the local economy and avoid a moral defeat in Syria, and it would be really great if they can end it in a way that they can claim victory.

It is worthwhile remembering some lessons from recent history, in Iraq the easiest move for the USA was to conquer the country. However to keep hold of it, the USA moved and located over 250,000 troops and a much bigger military machine behind them and spent over a trillion dollars and still pulled out after three years.

The Iranians and Russians cannot take over Syria and keep it with 30/40 airplanes and 30,000 Iranian & Hezbollah boots on the ground. Not to mention the fact that the weak economies of both nations will not be able to absorb a fraction of what the USA paid in Iraq.

The best possible scenario for Russia and Iran today, would be that they show great force and determination and then manages to get Europe, the USA, Turkey, Saudi and the Syrian opposition on the table to negotiate a settlement which most likely will dispose of Al Assad but guarantee that the new Syria has a close working relationship with Russia.

The nightmare scenario for Russia would be that Europe/USA/Turkey and Saudi decide that there is no hurry, let Russia fight ISIS and the other opposition groups. Let them sink in the Syrian swamp and suffer like the USA did in Iraq (does that not remind you of the USA & Vietnam then Russia & Afghanistan??) and sometime in the future, when the Russians are tired and looking for an exit, the USA and Allies can extract much better terms from them in any settlement, and in the meantime consume them from starting problems in other places. That is, unless the GCC wants a settlement in Yemen, the EU needing a solution to the refugee problem and Turkey finding regional peace and reduced tension economically useful, which would play in Russia's favor, otherwise see you in three years...

THE NEW ARAB WORLD

THE TRANSITION TO THE NEW ARAB WORLD

Egypt led the New Arab World from the late days of its monarchy to the late days of President Sadat, propelled by the largest and most sophisticated Arab Economy.

However Egypt's share of total regional GDP sank and is still sinking as a result of the disastrous socialist economic policies introduced by President Nasser. Starting with the nationalization of private enterprises and the criminalizing of private ownership to the closing of the economy to the global market place.

Many other Arab countries followed Egypt's path; countries like Iraq, Syria, Algeria, and Libya and as a result all suffered the same fate, losing economic wealth and hence political and military influence.

At the same time other Arab nations maintained a minimum degree of stability, preserved their private economy and encouraged it to grow, allowed competition to flourish and welcomed private and foreign capital. Those nations continued to grow and over time greatly increased their share of total regional GDP. Key amongst those were the GCC Nations. Helped by oil wealth, the GCC nations were able to grow their share of total Arab GDP from very little in the 1950's to about 40% of the total Arab GDP. Other nation's that did well were Morocco in North Africa and Jordan in the Levant. As a result, those nations were able to increase their relative political and military influence.

This major transition of economic fortunes over 40 years has put in motion a need for transition in the Arab League's Leadership responsibilities starting with a transition period where Egypt was not willing to give up the role but not able to afford it, through a period where other Arab Nations such as Iraq of Saddam Hussein, challenged to take that role by forces. A transition period where Egypt was not ready to hand over its leadership and the GCC led by Saudi was not ready to take the responsibility. But also a period where the balance of economic and military power had not shifted far enough to make the decision a no brainer. A period where the Arab League's efforts were scattered, indecisive and with no clear direction.

Finally though, with the recent troubles in Egypt as a result of the Arab Spring, and the start of the Saudi led military intervention in Yemen this leadership transition issue has been settled. Egypt officially passed the lead role responsibility to Saudi Arabia supported by its GCC alliance and Saudi officially accepted responsibility of that role. And in the absence of the trouble makers (Muammar Al Qaddafi of Libya, Saddam Hussein of Iraq and Assad of Syria), the Arab league officially endorsed the new leadership and showed its acceptance via the latest Arab Summit's attendance, conformity, decisiveness and support to the Saudi led action in Yemen. The world has also taken notice and demonstrated acceptance via the support it gave the Saudi led Yemen intervention and in passing the Saudi proposed Security Council resolution.

Inside the GCC the leadership role was always that of Saudi Arabia, however, a transition has happened in the second position within the GCC. A position Kuwait held in the early days, because it held the second largest economy through the 70's and 80's. However Kuwait has since fallen to third position after the UAE which has over taken Kuwait as the second largest economy for exactly the same reasons that Egypt, Iraq and Syria lost relative economic importance (Kuwait being the most closed GCC economy with the largest government ownership of the economy) and the UAE was propelled forward for exactly the same reasons that propelled the GCC forward.

Regionally the biggest loser was Iran. Again for the same reason, nationalization, elimination of private ownership, corruption and closing its self from the global economy. IRAN has dropped way down from its peak at the time of the Shah, when it was by far the largest regional economy, with the largest political influence regionally and globally and the strongest regional military capability. Today Iran is moving closer to being an irrelevant economy globally and with much reduced influence regionally.

From an Iran that moved with no resistance to capture the contested UAE Islands to an Iran that couldn't provide the necessary air support to its ally government in Baghdad against ISIS. An IRAN that had to accept the fall of its sponsored government of Al Malki and seek or accept the help of its declared enemies (UAE/Jordan/France and USA) in providing air cover to the Iraqi forces supported by Iranian backed militia's to help them survive and resist ISIS. An Iran that basically had to surrender Iraq to the USA and Arab coalition because it could not economically and militarily afford to keep it.

How can an Iran this weak, with a nonexistent air force, protect or defend its navy or operate in long distance military action. Iran that has just lost Iraq because Iraq today needs the USA and the Arab coalition to defend its borders, to fight ISIS and to keep its internal national unity. For the Kurdish North and the Sunni Centre will not accept a federal Iraq without USA and GCC guarantees. Iran has also lost Sudan, Hamas, its foothold in Yemen and soon its foothold in Syria and Lebanon. With Hezbollah losing as a result of a weaker ally (Iran), and the burden of the weight and costs of its military intervention in Syria, while at the same time dealing with the challenge to its leadership posed by the increasing power of the traditional Arab Shiite leadership.

Iran's economic slide is not going to stop anytime soon. Iran still needs to reconcile its Iran Spring issues, build the necessary consensus to reverse its current economic policies, by privatizing its Government owned economy, opening the market to foreign capital, encouraging local private ownership etc. However that alone will not be enough, Iran needs to do all of this much better than its other regional challengers in order to not only to stabilize its economic slide but seek to recover lost ground. Iran in my opinion is out, busy internally for the next 15-20 years.

The new regional winner is Turkey, it has managed to find a way of achieving minimum social peace via a democracy and focus on economic development. It has used the national consensus to join the EU, to drive its economic and political reform agenda. Turkey has managed to grow to the 14th largest economy in the world, slightly bigger than Saudi Arabia (but with ⅓ the per capita GDP). With this economic growth came increase regional and global political influence and increase military strength and confidence. The Turkish economy today is critical to many parts of the Arab World. The Kurdish Zone in the Arab World is today tied economically more to Turkey than the Arab World and nations in the Levant will find themselves with stronger economic ties to the Turkish economy.

With leadership finally settled in the Arab World, and regional power shifting to the GCC and Turkey and with Iran more and more internally focused. With the change in mind set that was forced on the leaders of the Arab World as a result of the Arab Spring movements and the new found energy and aspiration of the Arab Street as a result of the same. The region should in my view have seen its worst days, and should slowly move to stabilizing the current conflicts and focus its energy on economic growth, especially that its new leadership, unlike Nasser's Egypt or Khomeini's Iran has no political agenda to sell to the world except the need to focus on peace and prosperity.

THE REGIONAL COLD WAR BETWEEN IRAN & ALLIES AND GCC & ALLIES

One Must See The Arab Spring In Conjunction With The Regional Cold War Between Iran & Allies and GCC & Allies

The ideal for someone like me is for the Arab spring to have by now produced a new and an advanced form of government and politics in its countries and those nations would by now have started to settle down and slowly reap the benefits of their efforts. The reality as we all by now know is history takes its sweet time and forced change may produce change of leadership but real change will still take its sweet time.

France with all its dynamic leadership of change via revolution, when compared to the more conservative English gradual change approach, is not in any form more democratic than the UK today but the UK’s road was much smoother.

However, sometimes leadership keeps the lid so tight that an explosion is the only way a society has to free a political leadership's blockage on gradual change. 

Ideally again, if we were in a vacuum with no regional or global challenges, and if change had to occur by force because of tight lid leadership, then others should leave that society to itself to slowly settle down and find its new rhythm and tune and extend help if they can and when asked without taking sides with any of the internally competing forces. Very much like the world has acted in the case of Tunisia, allowing the country to settle down naturally and slowly fine tuning its future, with very little external interference.

But unfortunately, Tunisia is the exception, it is much more mature socially than most of the Arab Spring Nations, its political elite are sufficiently intellect and its brotherhood party realized early on the dangers and difficulties of leading alone. This helped maintain a minimum of nation solidarity and kept the Tunisian brotherhood party in politics even if they lost the lead role. Tunisia also is lucky enough for not being a primary geography in the regional Cold War that is being fought for years now between Iran & Allies, and the GCC & Global Coalition.

Syria, Iraq, Yemen and Egypt are however very much front line battle territories and hence, even if the GCC did not interfere and left them to find their new balance, Iran and Allies wouldn’t. 

So if those nations needed to explode, should we leave them alone and allow them to fall to Iranian's sphere of influence? Or not? And how has the GCC & Global Alliance fared so far as compared to Iran and allies?

I would say the GCC cannot disengage from its regional responsibilities and must seek to influence the shape of its region and neighborhood. And judging from how I read things, I would say we have done OK. 

The GCC & Allies have stabilized and secured Egypt (see last paragraph for details on this), they have allowed Iran to put itself into an expensive, exhausting trap that Iran will only come out of a loser, by it taking the responsibility for the leading group's in control of Syria, Iraq and Yemen.

Being the lead supporter to a weak falling State experiencing a severe civil war is extremely expensive. It requires military boots on the ground, advisors, military equipment, economic help to support the population living under that government's protection, keeping vital infrastructure running, basic food available etc., a very expensive exercise and as the Americans have found out in Iraq, you can spend hundreds of billions, lose troops and still come out as the party responsible for the mess.

Iran today is suffering from a weak oil market that will stay this way for many years to come. It is engaged with boots on ground and advisors and responsibility for the state guardians in three large regional territories with a complex multi-party civil war being fought in each. An Iran that in itself has growing internal struggles, disastrous finances and a challenge with the global community. 

While the GCC / Global Alliance, has prevented Egypt from failing, is sitting on the side line letting Iran fight Al Qaida and ISIS, allowing the two to battle each other to exhaustion. 

In the meantime, the GCC & Global Alliance, is sufficiently confident that when Iran & Allies started losing badly (like at one point in Iraq and Syria against ISIS), an Arab / USA / French air campaign was provided to help them not lose out totally and allow them to recover and stay in the fight!!! They engaged the Kurdish Paramilitary forces very much an American alley to engage in supporting in the fight against ISIS. Is this not confidence? 

In keeping the battle balanced, most likely the GCC/Global Alliance will at some point reduce its anti ISIS intervention to keep the battle equal until both Iran and the extremists are exhausted and the Yemenis , Syrians and Iraqi's are tired of waring and are ready to search for social peace, very much like the Lebanese unfortunate civil war experience.

By that time Iran would be socially, financially and politically exhausted, has lost economic market share regionally to GCC, Egypt and Turkey and those nations now emerging from long civil wars, would be in need of partners that are more economically focused and have the means to help them rebuilt and move forward.

A last note on why there was no choice but for the Egyptian Army and the GCC to move in to stabilize Egypt: 

Although a politically liberal thinker like me would allow a society to find its own natural balance without external intervention, in Egypt and with a regional Cold War in full force, it was not possible for the GCC and Allies to lose Egypt to Iran or to an unstable failing state (to the same extent one could leave, Syria, Libya, Yemen, and Iraq). For the social, political and economic cost to recover a highly messed up Egypt would be too much to bear and the instability it creates in the meantime, would make it difficult for the GCC and Allies to focus on containing the Iran expansion. Stabilizing Egypt and helping it recover economically while not cheap is the more efficient alternative.

Especially when the Egyptian Brotherhood party, unlike the Tunisian counterpart, was not interested (big mistake) in a national coalition that would have help involve everyone and in the process of building the new Egypt, it also started playing the Iranian card as a means of threatening the GCC & Alliance (another major mistake) leaving no other choice to the Egyptian other side, the GCC and its global coalition.  

Understanding the Arab spring developments in conjunction with the regional Cold War makes it clear that the GCC and coalition was tolerant and understanding of the Arab spring (even if not comfortable),  but this coalition also need to manage with other serious regional conflict. 

So much so that I believe Turkey's leadership (although very sympathetic to the brotherhood party) now sees this in the regional Cold War scenario, resulting in the latest Saudi /Turkish approaches and possibly forward Turkish/Egyptian approaches, I also believe the brotherhood party has learned or is in the process of understanding the mistakes and a slow reinstatement of the party in regional politics is underway.

THE KUWAIT CAPITAL MARKET: LOSING IMPORTANCE

The Kuwait Capital Market will continue to lose importance in local and GCC terms. Its share of the total GCC Market capitalization and its share of daily trades (by value) of the total GCC trading, will continue to shrink to where it will eventually be the smallest or second smallest market. This is a dramatic slide that has seen it drop from the second largest GCC Market and The Regional Capital Market, to nothing that anybody outside Kuwait needs to think about.

This loss of market share has been driven by the following key factors:

1. Loss of non-Kuwaiti companies that have decided to delist in Kuwait and list in DIFC or other more competitive markets.

2. Kuwaiti companies double listings at Dubai (DIFC) seeking to increase their exposure to regional investors and liquidity. (This has move a percentage of the daily turnover to Dubai).

3. The Kuwait Economy dropping from 2nd largest GCC Economy to 3rd largest after UAE.

4. The increasing dominance of the state in the Kuwaiti economy, hence squeezing out the private sector and producing fewer private ventures to list.

5. The new entry of CMA (Capital Market Authority) and the early learning experience of a heavy handed bureaucracy , where no one will risk a mistake and an environment where NOT WINNING IS NOT IMPORTANT, NOT MAKING A MISTAKE IS VERY IMPORTANT.

6. As small and medium size companies exit this market and larger companies seek second listings for better liquidity and cheaper capital, local investors will find it necessary to use other regional markets to find the needed diversity and liquidity as a result the Kuwait capital market will become irrelevant to local , regional and global investors.

The only way Kuwait can have a chance to reverse some of its Capital Market loss is by creating internal competition in the capital market arena with at least:

1. Three competing stock markets (UAE has three).

2. A minimum of three competing clearing companies.

3. New licenses for regional and Global bookers.

4. Encourage stock markets to enter into regional or global alliances.

5. License regional and global investment banks.

6. Add global expertise to the Capital Market Board.

The above strategies will work better if coupled with a national strategy to move economic activity from state ownership to private sector in a competitive environment and where the state bureaucracy has sufficient internal competition (see my separate notes on this subject).

A good well managed Capital Market as an industry can decouple itself from its local economy by attracting regional and global businesses if it can operate effectively and efficiently.

IRAQ, IRAN & USA

Looking at the current situation in Iraq, my view is America is regaining Iraq. To a large extent, from an Iraq that looked very much in the hands of Iran, to a federal Iraq that requires American presence to keep its three primary components together and help provide the needed, internal security and preserve its boundaries. Reluctant as the pro Iran south is, they have or will very soon realize that they will lose the country without the help of USA/GCC Coalition. Iran alone cannot provide the resources to stop ISIS (the battle from the sky is a USA led global coalition), the Sunnis will only collaborate with American and GCC support and guarantees and the Kurdish North has existed only with American help. The American army will most likely maintain bases in the north and centre of Iraq and the new Iraq will need America to maintain its integrity, internal and external security and this is becoming clearer by the day.

Iran is stretched to the limits of its military and financial resources in regional conflicts, has its own problems internally and with the global community and a very troubled economy. Not that Iran will lose all, it will have friends and allies in Iraq but like Lebanon it will have influence but not the country.

Looking further down the road, I don't see Iran achieving any meaningful gains regionally. For a nation or a regional power can only sustain its role or expand it with an expanding sustainable economy that is growing faster than its other regional competitors, to support and finance such an expansion.

I see weak oil for years to come. Iraq, Yemen and Syria as financial liabilities and a very badly managed, very wasteful Iranian economy. An economy that is losing economic market share of the total regional GDP against much better managed GCC and Turkish economies. 

EXTREME OPPOSING FORCES DO UNITE SOMETIMES

Extreme opposing forces many a time unite when they are faced with a very strong moderate (centre) coalition.

• "#Hizballah" and"#General Aoun" in Lebanon

• "#DAAISH" and "the #Syrian Regime" in Syria

• #Russia and #Iran and North Korea

• IRAN and #AlQaida in #Afghanistan

I can imagine a time when a possible DAAISH / IRAN / RUSSIAN coalition might seem feasible one day in Syria and Iraq.

BRINGING EFFICIENCY TO THE PUBLIC BUREAUCRACY

There is only one effective strategy to improve the efficiency of government and BRING EFFICIENCY TO THE STATE BUREAUCRACY that is of course beyond shrinking the GDP contribution of the state to the minimum (when measured as a percentage of the total GDP).

IT IS BY PUTTING THE BUREAUCRACY IN COMPETITION WITH ITSELF. Every other solution is an exercise of bureaucratic play and in the best of times is only of use if applied in a bureaucracy that is already in a sufficiently competitive environment. Issues like the right man for the right job, quality of leadership, efficiency, management, strategic planning etc. are all useless in a large bureaucracy that has no directly competing bureaucracies. "Like no amount of strategic thinking, planning or training will make a Monopoly as efficient as a NON MONOPOLY."

THE BUREAUCRACY is always more efficient when "THE STATE owns responsibility for the smallest percentage of economic output" and "The BUREAUCRACY has the highest level of competition within the same Eco- system"

Such as different state bureaucracies competing against each other, in the case of the United States of America or the different Emirate Bureaucracies, (as in The United Arab Emirates), competing against each other under a loose federation.  Where the weaker influence of The Central Government and the stronger influence of the competing local bureaucracies leads to higher efficiency of the State Bureaucracy and of THE TOTAL ECONOMIC SYSTEM.

Hence the key reason for the (Higher Than Its Peer's) efficiency of the UAE economy is it's autonomous and aggressively competing five state regions with very strong local power and the very light hand of the central government. In this capacity I know of no other nation with this degree of decentralization of power to autonomous regions or states, the only close new emerging example is the EU, however the UAE has been at it longer than Europe and has a more capable Central Government when it comes to Federal Finance, Currency, Foreign Policy, Defense etc.. and yet the ease and transparency of operating as one a NATION.

It is this single fact that was never intended as an economic strategy but came as a result of political lobbying to produce the UAE as a country by unifying seven independent Sheikdoms that were only willing to give up so much in exchange for a larger unified state. A design that was originally seen as a weakness however was the best that could be achieved at the time, turned out to be the UAE's best unintended economic master plan.

A plan that created seven municipalities with so much power to the extent that each has a counsel very similar to a cabinet competing with each other for business, tourism, logistics, residency etc.. with at least FOUR Competing seaports, THREE Competing Airports, THREE Competing Stock Exchanges, Multiple Competing Free Zones, Competing Health and Education Systems, Policy services, Four Competing National Airlines etc.

It is this before anything else, before, leadership, talent, Democracy, State Planning etc. that is responsible for the economic performance of the UAE. It's also fair to say that politicians and bureaucrats don't like this design and don't like competition if they have the choice, but they will adapt to it if they have to. Hence nations will not get this design unless a single visionary leader demands it or more likely, is forced by circumstances. It's like private businesses don't like competition and will try to seek monopoly or dominance through patents, mergers & acquisitions, size of capital required or licensing.

Conclusion:

Nations that will eventually succeed to regional leadership and dominance economically are those that have the smallest bureaucracy (as measured by the % of total GDP it is responsible for) and the bureaucracy that has the highest intensity of competition within the same "Eco System",   Nation or Economic Zone etc., (when measured in comparison to the intensity of the internal competition of its directly competing bureaucracies).  Every other action or asset or skill is secondary and negligible.

TO EVERY COMMITMENT THERE IS A LIMIT AND THE WISE KNOW WHEN TO LET GO

Last month's market events reminded us again of the rule:

“That An Honest Person's word is ONLY AS GOOD AS HIS MEANS TO BACK IT, and his commitments should be only understood ON THAT BASES."

Understanding it otherwise is a stupid mistake of the inexperienced. Like the banker that accepts the guarantee of an individual to an amount that is way beyond that person’s current net worth.

To understand OPEC's statement that it will act to stabilize and assure a healthy development of Oil markets, or the Swiss Central bank to stand behind a reasonable parity between the Swiss Franc and the Euro to mean that OPEC will support oil price stability when there is a major STRUCTURAL OVER SUPPLY or UNDERSUPPLY is a mistake of the inexperienced OR TO BELIEVE THAT THE SWISS CENTRAL BANK CAN BAIL OUT THE EURO when it needs a FUNDAMENTAL REALIGNMENT is a similar mistake.  

It's like believing that when the world wants gold against its Dollars the U.S. Government can supply it all without a devaluation (US dropping the gold standard after the Vietnam war) or the UK government can Bail out the Poundwhen Markets decided to sell it  (when George Surusmade a few billion profit betting against the Pound) .

Those statements when coming from "A CREDIBLE SOURCE" should be understood as within reason and against normal market volatility and NOT when markets need a new price level to solve a chronic economic situation or supply problem. In those circumstances allowing a new price level to work its magical free market solution to solve the problem is the only wise solution.

Example: OPEC deciding to allow higher oil prices to incentivize capital markets to assist in the discovery ofnew supplies that can help bring down oil prices to acceptable levels was the only solution, OPEC DID NOT AND STILL DOES NOT have the means to do that alone, and the same is true of the oversupply in the oil markets today, the only solution for it is to allow lower oil prices to remove excess oil from the market or the Swiss central banks ability to bail the Euro Zone as opposed to allow the EURO to finds its new equilibrium.