Iraq, Syria, ISIS And The Plan [ANALYSIS]

Back to Iraq – Weekly Geopolitical Report by Bill O’Grady, Confluence Investment Management

President Obama has decided to build a coalition to dislodge the Islamic State (IS).1 The U.S. is leading the coalition, but American efforts will be limited to air power. In this report, we will offer a short synopsis of the war plan. This analysis will be followed by a broader discussion of U.S. Middle East strategy, including a history of American policy. We will move to discuss the most likely outcome from these efforts and conclude, as always, with market ramifications.

The Plan

President Obama has been reluctant to increase American involvement in the Middle East. One of his key goals was to end the Iraq War; another was to “pivot” toward Asia, which would require less involvement in the Middle East. Even a brutal civil war in Syria didn’t prompt strong American action. Perhaps more interesting, Bashar Assad’s use of chemical weapons in Syria, which crossed President Obama’s “red line,” didn’t bring a military response (see WGR, Syria and the Red Line, 5/6/2013). Thus, two weeks ago, when the president declared a new offensive against IS, it marked a major change in foreign policy. However, it is a rather limited response. The U.S. does not intend to deploy ground troops beyond advisers and spotters. Instead, Secretary of State Kerry is trying to put together a coalition to destroy IS.

The response thus far has been less than enthusiastic. Syria is very supportive of the program, assuming that the Assad government approves airstrikes in its territory. However, the regime has indicated that any military activity not approved by the Syrian government will be considered as an attack on Syria. Russia has supported Syrian’s position on airstrikes. The Assad government would love to see the U.S. use air power to attack all the rebels, including IS but also other Islamic and secular groups. The U.S. has no interest in supporting the survival of the Assad regime but doesn’t want to create conditions that will be worse than the Assad government.

Turkey’s participation has been limited. IS had held 49 Turkish government workers hostage and fears for their safety left Turkey reluctant to participate. However, even with the recent release of these hostages, it appears that Turkey is not planning a full-throttled response to IS; it is possible the deal that released the hostages led to this limited action.

Egypt has also declined the invitation to join the coalition, suggesting that it is occupied with its own terrorist movement, the Muslim Brotherhood (MB). This, of course, is a direct slam against the Obama administration, which supported the Arab Spring that brought the MB to power in the first place. In addition, the Obama administration was not very pleased with Gen. Sisi’s ouster of the MB and his takeover of the government.

Jordan will also remain on the sidelines, suggesting that it has to manage Palestinian concerns in the aftermath of the recent conflict in Gaza between Israel and Hamas. This position is a way of expressing displeasure with the lack of U.S. influence over Israeli policy. At the same time, the U.S. has operated training camps for friendly Syrian opposition groups in Jordan for some time. We suspect King Abdullah is worried about sparking an IS reaction in Jordan and thus has demurred.

Iraq is officially supportive, although comments from leaders suggest that support only exists if U.S. policy doesn’t harm their particular religious affiliations, Shiites or Sunnis. The president did wait until Iraq had formed a government before holding his nationally televised address to the U.S. to announce his policy against IS.

The Arab League offered tentative support, prepared to assist “in many aspects” but without specification. These nations, which include Saudi Arabia and the Emirate States, have two concerns. On the one hand, they fear an IS backlash in their own nations if the insurgency were to grow. At the same time, IS acts as a strong proxy against Iranian designs for the region and thus there are reasons to support the insurgent group.

Iran isn’t part of the coalition but may be the most important nation in the region in terms of dealing with IS. The U.S. is negotiating with Iran over its nuclear program and appears to be working to normalize relations. Confronting IS would clearly help stabilize Iraq and support Iran. However, opposition from Sunni states has prevented Iran’s inclusion into the coalition fighting IS. This situation will reduce the odds of success.

Although the U.S. invited NATO to join the coalition, only the U.K., Germany and France have expressed interest thus far. None would be expected to make a major contribution.
There is clearly a lack of enthusiasm for this mission. The difficulty in creating a strong coalition is due mostly to divisions within the region. We view the primary division as sectarian. The Sunnis and Shiites are in opposition across the region and are trying to woo the U.S. into “tipping the scales” against the other. For example, airstrikes that keep the Assad regime in power will be opposed by the Sunni states and supported by the Shiites. Both sides use non-state proxies to undermine the other, although it is rather obvious that the Iranian-backed Shiites are generally better organized. Hezbollah, the primary Iranian proxy, is better controlled than the Sunni jihadists, who have a history of turning against the authoritarian Sunni regimes in the region. Still, the Sunni states support various jihadist groups simply because they are useful in combatting Shiite influence.

U.S. Strategy in the Middle East: A History

America’s primary interest in the Middle East is to ensure that the West has access to the region’s oil. During the Cold War, preventing the Soviets from gaining control of these key oil flows was critical. Since the end of the Cold War, the U.S. wants to ensure that no regional power dominates the area. Ideally, the U.S. wants to stand as a balancing power. When properly executed, the powers in the region are balanced against each other and a type of armed peace exists. When one power becomes dominant, the U.S. will generally intervene. The U.S. was willing to allow Iran and Iraq to fight a bloody, eight-year war to a stalemate; by fighting each other, the U.S. was able to maintain order at a relatively low cost. During the war, the U.S. aided both sides on several occasions.

Maintaining balance is why the U.S. intervened to oust Saddam Hussein’s forces from Kuwait in 1991. Allowing Iraq to absorb Kuwait would have changed the balance of power in the region and could have led to further belligerence from the Iraqi leader. At the same time, President Bush refrained from ousting Hussein for fear of creating a power vacuum and upsetting the balance of power in the region.

For the most part, one could argue that the U.S. was serving the interests of the Sunni states during the Cold War. Relations with Iran were completely broken by the hostage crisis and remain so today despite ongoing nuclear talks. However, in the aftermath of the first Gulf War, belligerent behavior from Saddam Hussein against ethnic and sectarian opponents, the Kurds and the Shiites, led the U.S. to establish “no-fly” zones. Although this action did not help the Shiites significantly, it allowed the Kurds to build a nearly autonomous region protected by U.S. airpower. In addition, harsh economic sanctions crippled the Iraqi economy. Regional Sunni powers were concerned about the deterioration of Iraq but the Clinton administration decided that maintaining these restrictions were justified.

President Bush’s decision to oust Saddam Hussein in 2003 led to a major disruption in the balance of power in the region that continues to the present. Removing Hussein unleashed a power vacuum that has led to the de facto partition of Iraq into Kurdish and Shiite regions. IS has created a proto-state that includes western Iraq and eastern Syria. It has been successful in creating this proto-state because former Iraqi PM Maliki so alienated the Sunnis in Iraq that they were willing to accept IS and its brutality as an alternative to the Shiite-dominated Iraqi government. Although the new leadership under PM al-Abadi promises more inclusion, we fear that Iran wants Shiite dominance and won’t tolerate a broad-based Iraqi government.

The Problem of American Policy

In analyzing U.S. foreign policy, we rely heavily on Walter Russell Mead’s archetypes (see WGR, The Archetypes of American Foreign Policy, 1/9/2012). In general, we believe that Americans want leaders to have a moral compass; they are comfortable with Wilsonians (idealists) who seek to spread American values abroad. However, in practice, these leaders tend to lead the U.S. into wars that are either not key to American interests or have no clear end. Vietnam, Kosovo and Iraq are all examples of such conflicts. On the other hand, leaders who are obviously Hamiltonians (realists) tend to be more effective foreign policy leaders but their policies are usually disliked by the public.

And so, the ideal politician talks like a Wilsonian but acts like a Hamiltonian. This may have been one of President Reagan’s strongest attributes. His calls for the Soviets to “tear down this [Berlin] Wall” raised hopes of the free world. However, he rapidly withdrew from Lebanon in 1983 after a suspected Hezbollah attack killed 241 American servicemen, acknowledging that America had no compelling interest in that particular conflict.

President Obama likely falls into the Hamiltonian/Jeffersonian camp in most instances. Jeffersonians lean isolationist, which can be found in the current president’s decisions. His refusal to become heavily involved in Libya (until the French and British were unable to finish what they had started) and his reluctance to help Ukraine are Jeffersonian in nature. At the same time, much of his reluctance to increase U.S. involvement seems to be rooted in fears that there is little good the U.S. can accomplish in many circumstances. The aftermath in Libya supports that idea.

Still, he has put prominent Wilsonians in key diplomatic and security positions. For example, Samantha Powers is U.S. Ambassador to the U.N. and Susan Rice is National Security Advisor. Both are considered strong Wilsonians, arguing for U.S. intervention against genocide and belligerent behavior against civilians. To some extent, it appears that the president is uncomfortable with his Hamiltonian/ Jeffersonian leanings and thus has placed Wilsonians in key positions. These appointments may be to provide political cover or they may reflect personal divisions within the president’s personality.

The president’s action in Iraq, limiting American involvement to air power only, is a classic compromise between the Wilsonian and Hamiltonian archetypes. The decision to intervene against IS is mostly being done for humanitarian reasons. For all the hand wringing, IS is probably less of a direct threat to the U.S. than other groups. Like the Taliban in Afghanistan, IS appears more concerned with creating a local nation than attacking the U.S. In addition, it does appear that, with only minor American help, IS struggles against the Kurds and Shiite-dominated areas. At the same time, IS is threatening to become a permanent, hostile power and could destabilize the region. Thus, containing IS makes sense.

The Projected Outcome

Given what we now know, what is the most likely outcome from this conflict? For IS to be defeated, the Sunnis will have to become jaded with IS and turn on it, much like the U.S. was able to separate out al Qaeda from Sunni tribes during the surge in Iraq in 2007. There is a possibility this could occur but it will likely require the U.S. to support the creation of a separate Sunni state in western Iraq. We doubt the Sunnis will trust the Shiite-dominated government in Baghdad. So far, the Obama administration has tried to maintain the territorial integrity of Iraq. This stance, though understandable, is probably no longer feasible.

Without a separate Sunni state, we fear that a long conflict is the most likely outcome. Air power alone won’t oust IS from the areas it controls. We don’t see surrounding nations inserting troops to eliminate the threat either. The only non-U.S. militaries that could effectively attack IS are probably Syria and Iran. In the interests of having Sunni states in the official coalition, these nations are excluded. And so, we would expect the sectarian divide to undermine efforts to attack IS. Essentially, the administration faces a series of difficult decisions. It can either (a) put U.S. ground troops into the theater,2 allowing both the Sunni and Shiite powers to undermine the American war effort and prolong the conflict; (b) side with the Shiites in Iran and Syria who could effectively fight IS but would ensure the wrath of the Sunni states and undermine the efforts of the Shiite states, fearing that a victory over IS would boost the Shiite position in the region; or (c) do nothing and allow IS to establish a state. None of these choices are appealing, which explains why the president has opted for limited air operations.


Whenever military operations commence in an area, unexpected events can occur. For now, we would not anticipate any disruptions in Middle East oil supplies from the conflict in the short run. A spike in oil prices would be a serious risk factor to the global economy. However, as we have seen in many of these “small wars,” mission creep is a major risk and thus we could see a situation in which American ground troops are inserted into the conflict. We expect the president to resist such actions but it cannot be ruled out if circumstances change. Over the long run, we look for conditions to deteriorate further which is supportive for oil prices.

Bill O’Grady

September 22, 2014

Iraq, Syria, ISIS And The Plan [ANALYSIS]