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The Iraqi government has given cleric Muqtada Al-Sadr an ultimatum, disband or be banned from future political involvement, and the subsequent standoff is at the center of what the future holds in Iraq.
As the election season in the U.S. heats up, and the Bush presidency winds down, there is clearly a rising urgency to leave things as tidy as possible for the next occupant of the White House, Democrat or Republican. And that means that the Al-Sadr situation has to get cleaned up. The problem with Al-Sadr, though, is that he is reportedly bankrolled and heavily supported by Iran.
That's why a Debka.com report that Iran and Syria are starting to worry about a possible U.S. attack on certain Iranian military installations caught our eye. To be sure, Debka is a hit and miss operation, and its reports often tend to fade into the woodwork, much like the operations of Israel's Mossad, which Debka is always rumored to be a unit of.
That being said, from a trading standpoint, a rise in violence in Iraq, and a widening of the conflict to include an attack on Iran, would make things complicated, and likely would be a source of short term volatility, something that a bottoming process in stocks does not need.
So here are the salient points, according to Debka, in what it calls an "exclusive" report.
Recent visits by U.S. Defense Secretary and Vice President Dick Cheney to the Middle East are at least partially related to the Al-Sadr problem. According to Debka, "Tuesday, April 8, US Iraq commander, Gen. David Petraeus and ambassador to Baghdad, Ryan Crocker, will stress in their report to Congress that Iran is waging war on America in Iraq, say sources in Washington, London and Baghdad."
This pronouncement, if it comes to pass, will likely have repercussions, and is based on the fact that "US intelligence learned that Iran had intervened directly in the Iraqi government’s crackdown on renegade militias in Basra and southern Iraq, by directing and provisioning those militias through the Revolutionary Guards’ al Qods Brigades." As a result, Debka reports "Official sources in London predict that Iran’s intervention against the American effort to stabilize Iraq may well prompt a US attack on the military installations in Iran which are orchestrating the interference."
What makes the report interesting is the fact that several sources announced on Monday that President Bush would make an address to "the American people" on Iraq on Thursday morning.
Furthermore, Debka put together the following scenario:
"1. US is preparing to attack the Iranian military installations linked to subversion in Iraq. The operation will widen out into strikes on the Islamic Republic’s suspect nuclear sites.
2. Israel will use the chance for a concurrent attack on Syria.
3. Israel will attack Hizballah’s strongholds in Lebanon.
4. A broad, coordinated US-Israeli offensive will be mounted against Iran, Syria and Hizballah."
Conclusion
Making bets on reports issued by Debka.com is always risky, and we are not suggesting that any does so by any means. Yet, there are some interesting things to consider here.
First, no matter what anyone says, the U.S. surge strategy, which was combined with rising cooperation from former Sunni militants, did have a calming effect on Baghdad and Iraq, for a while. Only lately, when some in the Shia community seem to have been felt alienated, according to multiple media reports, has the violence returned.
Clearly the most visible Shia at this stage of the game seems to be Al-Sadr, who is widely linked to Iran.
For us, more than anything else, this story is important because of the timing, especially to a crucial stage in the U.S. election, and to the increasing activity of key figures in the White House and their travels to the Middle East. Then, of course, was the visit between Putin and Bush over the weekend, not to mention the upcoming "address" by President Bush on Thursday.
Second, Debka's conclusions are difficult to confirm, given the nebulous nature of their sources, and the fact that much of what they report is very deep "spook" and cloak and dagger stuff that often seems part of the plot of a Daniel Silva Gabriel Alon novel.
Nevertheless, if any of this turns out to be true, as it seems plausible enough, it would likely be a big surprise for the financial markets, which are just starting to show signs of a feeble recovery. So you can put this one in the realm of something to keep an eye out on, but not necessarily double mortgage the house and go on margin issue.
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The PowerShares Defense And Aerospace ETF (AMEX: PPA) is lagging the market's rebound, making it worthwhile watching as things heat up in Iraq.
Chart Courtesy of StockCharts.com
If the situation in Iraq gets hotter as the U.S. tries to consolidate power in the area before the end of the Bush presidency, it would seem to benefit defense and aerospace companies.
Yet, despite reports of rising violence in Iraq, and rising tensions with Iran, PPA remains dormant. The fund remains some 17% below its September 2007 high, having topped out a full month before the S & P 500, which is down 11.5% from its October 2007 high.
It's hard to correlate reports of rising tensions with poor performance from this sector, which suggests several things:
One would be that the reports have little substance to them. Another would be that the reports are so obscure that big money players have yet to hear them. While a third option would be that the big money is busy trying to hold itself together as it reels from the effects of the subprime mortgage crisis.
If any one of those scenarios is true, then the lackluster performance of the defense sector makes sense. A more interesting scenario, though, would be that the big money is expecting the U.S. to scale down operations in Iraq at some point in the future, and that demand for defense products may start to decline to something less than it was at the peak of the offensive.
In other words, the defense stocks might be sending a message that Iraq's most demanding days may have passed. And that's as surprising as any other scenario, and is worth taking a step back and giving the whole thing some thought. |
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