A Peace Scenario Jude Wanniski February 25, 2003

Memo To: Website Fans, Browsers, Politicians
From: Jude Wanniski
Re: No War With Iraq

This is the Polyconomics client letter of February 7. I’ve written several client letters on the topic since then, with greater detail and nuance, but this report still holds up. Thursday, I will run the War Scenario.

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We continue to find ourselves in the very small minority of financial advisors who continue to believe there will be no war in Iraq. The core reason is that once President Bush committed himself to a United Nations solution to the problem of Baghdad’s weapons of mass destruction he significantly diminished his ability to act alone. He had to commit himself to the UN path in order to get the support of the Senate Democrats for his resolution to use force if diplomacy failed, and then he had to agree to a UN Security Council Resolution, #1441, which determined that if Iraq were found to be in material breach of #1441 it would face “serious consequences,” which is the reason all 15 members of the UNSC – including Syria – could vote for it. The administration hawks wanted the resolution to contain the words, “all necessary means” to force compliance, but had to settle for the notion that if there was a disagreement on a second resolution authorizing “all necessary means” they could persuade the President to forget the United Nations, going it alone.

The President could of course do that, but I believe there is no chance he would do so without a “smoking gun,” clear evidence that Saddam Hussein presents a genuine threat to the region and the world unless he is removed from office asap. Without such evidence, all it takes is for one of the permanent members of the UNSC to abstain from voting on a new resolution presented by the United States. France, Russia and China do not have to veto a resolution of this kind to kill it; they only need abstain. When in 1999 the UN acted to set up UNMOVIC to replace the discredited UNSCOM inspection team, Russia and China abstained, but because it was merely a procedural resolution, they would have had to exercise their veto authority to kill it. This makes the politics of getting a new resolution much more difficult. It would certainly mean that in the next few days Hans Blix of UNMOVIC and Mohammed al-Baradei of the IAEA would have to fail in their mission to Baghdad, to persuade Iraq to address the remaining WMD concerns.

Now Iraqi scientists who have thusfar refused to be interviewed by inspectors without a government “minder” in attendance are stepping forward with clear government encouragement. This is almost certainly the way the inspectors can be confident that the gaps that remain in the records will be explained, while at the same time holding out the possibility a smoking gun will appear from these interviews. The administration continues to say Iraq could develop a nuclear weapon in a year or so, but Baradei confirms what I’m told by Gordon Prather, that it would take several years at least for that to happen if there was no continuing inspection process, and that it would be impossible if there was a continuing monitoring system in place. In the next few weeks, Dr. Prather believes Baradei will report to the UNSC on the crisis in North Korea and that this will force the action to move away from Baghdad to Pyongyang.

The reasoning lies in the recent pronouncements of Defense Secretary Donald Rumsfeld, who says it is impossible for inspectors to find hidden WMD if a government really wants to hide them, which is his rationale for regime change. Now he could just as easily have made that “needle-in-a-haystack” argument in 1991 when the inspection process began in Iraq. If it is now allowed to be controlling as Rumsfeld insists only “regime change” will do the job, Pyongyang knows it might as well kick the inspectors out and prepare for the Bush Pentagon to come after him when it has polished off Saddam. If Saddam did not believe this inspection regime would enable him to avoid his own regime change, he would not be cooperating at ever-increasing levels.

The French have correctly argued that the UN has only the two diplomatic tools, sanctions and inspections. If the inspection process is aborted now because President Bush wants pre-emptive action in Baghdad (“the game is over,” he said yesterday), the international rule of law and the superstructure of compliance that has evolved at the United Nations will crumble. If, on the other hand, President Bush shows a willingness to proceed with the UN and the inspectors as Iraq demonstrates active cooperation, the diplomatic process could resume in North Korea. If North Korea can’t be budged, the UNSC would have a clear case of “material breach” in a fresh resolution, which would either mean a pre-emptive strike against North Korea or movement in Japan to protect itself with a nuclear program of its own.

Even a casual reading of the news relating to the Iraq decision facing the President indicates a host of other difficulties flowing from a go-it-alone decision. The cost of the war is being minimized by a great many commentators who believe it will be manageable once Saddam is removed, but that assumes terrorism directed against the United States will subside, when it should be clear that it would dramatically increase. The reason I believe the dollar is weakening against the euro is that the risks to commerce in the United States going-it-alone are much greater than if the U.S. and Europe were joined at the hip. The price of gold goes up when there is a decreased demand for dollar liquidity, and it has jumped as high as it has relative to the euro/gold price and yen/gold price because of the market’s estimation of where business risks are higher. This is what leads me to think the cost of the winning the war against Iraq would be small compared to the costs in lost federal, state and local revenues and the necessity of higher spending and increased taxation.

There is progress being made in signing up “a coalition of the willing” even without a UN resolution, with Turkey now agreeing to allow the US to open a second point of entry from its soil. But when you read the small print, you find Turkey insisting their troops outnumber U.S. troops by 2-to-1, and that they do not intend to commit more than 40,000 to the effort. The people of Turkey are still opposed by 10-to-1 margins. Now the Kurds are having a fit because they suspect Turkey is agreeing to these conditions because we have given them assurances they will be able to carve out a dominant role in northern Iraq in a post-Saddam Iraq. And while Germany does not have a veto in the Security Council, it does have one in NATO, where it has joined France in refusing to have NATO support a US/Turkey operation in Iraq.