A Bad Penny Returns
Over the weekend, another of the places in which I have served as a consultant and analyst – Iraq – had been added to the list of places where political unrest has been dumped on existing regional instability.
In the current climate, this is translating into yet another element contributing to volatility in the oil market with potential for adding to an upward pressure on prices.
If the environment was not already unstable, elections in Iraq have cast a new shadow on an already volatile Middle East. With over 90% of the votes counted, a new wrinkle is added to the region.
Muqtada al-Sadr is back. His political alliance has emerged as the leading vote getter in the Iraqi parliamentary elections.
Not that the radical Shiite leader was ever completely out of the equation. He had remained a force within the country but has been politically sidelined by both the US and the government of Prime Minister Haider al-Abadi.
The set is now staged for a protracted conflict in determining the structure of the central government in Baghdad and the impact of neighbor Iran.
Sadr does not run for office. That means his strength comes from being the religious kingpin behind the scenes, using a position as moral leader to mold public opinion. This is a role in which Sadr has been quite successful.
Best known as the leader of two movements of his Mahdi militia army against the US during the Iraqi occupation, Sadr also has moved away from Iran. That puts him in stark contrast to Abadi, who has fashioned a government attempting what many of my regional contacts consider a “bridge too far” – alliances with both Washington and Tehran.
That could mean a rupture is brewing within the Shia world. This has been made more likely by initial statements of opposition from Iranian Supreme Religious Leader Ayatollah Ali Khamenei. Khamenei’s criticism comes from how Sadr constructed his political movement.
Sadr’s Sairoon (“Marching Forward”) electoral ticket put together a patchwork alliance drawn from several religious and sectarian quarters. But its principal ally was the Iraqi Communist Party. And that association prompted Khamenei to condemn it outright, pledging that Iran would never permit any communist participation in the government of its neighbor.
Iraq is a Shiite-majority country and that has allowed Teheran considerable leverage on what takes place on the other side of the Shatt al-Arab. Sadr has further enflamed Iranian reaction with a dramatic overture to Saudi Crown Prince Mohammad bin Salman.
In an election that marked a protracted lack of focus on issues and an even more dramatic low turnout at the polls, Sairoon played the populist card. Emphasis was on condemning corruption (which is endemic in the country), while playing on domestic moral and social issues. In short, Sadr masterfully remade the recent Western populist impulse to serve the purposes of an Iraqi election.
Yet apprehension was apparent as a combination of a boycott, and popular disapproval for a campaign largely bereft of substance on the issues, resulted in less than half the electorate even turning out (latest estimates put voter participation a barely 44.5% of those registered).
What results is now commonplace in Iraqi elections. Despite finishing in first place, Sairoon will pick up only about 16% of the legislative seats in what remains a deeply fractured Iraqi election process.
This sets the stage for another protracted (and certain to be contentious) attempt to fashion a coalition government. In a country that has had a pro-Iranian central government, and three other leading factions closely to Teheran, Sadr will be walking a political tightrope.
When the dust clears, Abadi may yet emerge once again as Prime Minister. However, this time around, as one of my Iraqi colleagues wryly puts it, “If he survives, Abadi’s wings are going to be clipped.”
That translates into an even more paralyzed central administration with Sadr’s populism and Iran’s drive for regional hegemony colliding in Baghdad.
Add Middle Eastern Tensions, To Taste
This is the third whammy to hit in a week. First was Trump’s unilateral decision to remove the US from the JCPOA (P5+1+Iran nuclear accord) and threaten new sanctions against Teheran. I shall have more to say about what is going on beneath the surface of this development in upcoming ECRG Intelligence editions. That discussion will include elements from my ongoing conversations with both Iranian and European contacts.
However, given the already major cross-border Golan Heights clashes between Israeli and Syrian-based Iranian forces testify, that decision from Washington (with apparently no objective other than an unrealistic expectation of regime change in Teheran) is having an immediate spillover effect in raising the threat level.
Second, the Hamas-led insurrection underway in Gaza against the US move of its Israeli embassy to Jerusalem is heating up a much wider regional reaction. Massive popular protests are now taking place as far as Istanbul in reaction to the Israeli killing of scores and wounding of thousands from attacks on the border wall.
Hamas is supported by Iran and has been a source of discord among both Shiites and Sunnis in Iraq. If the adage that problems come in threes is any indication, the Iraqi election assuredly qualifies.
Here’s what is going to play out in the oil markets.
The Saudi-led OPEC position to maintain production limits will face pushback from both Iran and Iraq. Teheran has given indication it will not simply agree to a continuance, while Baghdad is still in support of the cap. Yet the government taking that position is in a classic lame duck situation.
This is unfolding as a clear balance is emerging in global supply while demand continues to rise. That combined with an escalating production crisis in Venezuela, rising extraction problems in both Libya and Nigeria, continuing Mexican shortfalls, and new indications that aging primary Russian fields may be reaching a downward production curve, are combining to drive the price up.
The newest OPEC estimates put $85 a barrel as the new standard.
And that is before the uncertainty from Middle East events is even factored in.