The ‘big story’ story today is the unilateral imposition by the United States of sanctions on Iran, which (much as we predicted) were ‘supported’ in public by Europeans but with some serious concerns about their wisdom. Europeans are getting frustrated with US sabre-rattling and the tendency to 'go it alone'. While it is recognized that the US is very frustrated with UN ‘failures’ (or common sense if you are so inclined), Europeans are upset that the White House is risking prospects for a more effective multilateral sanctions regime based on a diplomatic dialogue with Russia and on a more measured assessment of what can move talks forward between Solana, the IAEA and the Iranian nuclear delegation.

The mixing of non-proliferation and anti-terrorism measures is also causing concern. European elites can still carry their publics on the former (largely because their publics are indifferent and more prepared to trust their governments) but less so on the latter. The US now appears to have constructed its nuclear proliferation sanctions regime around its war on terror agenda. This raises issues surrounding rights of national resistance, the Iraq War and extraordinary rendition that can all too easily open up the single issue aspects of the conflict with Iran to far more divisive public scrutiny.

So, although in public we get statements of support, quality journalists are being privately briefed on European ‘misgivings’. Phillip Stephens is often a good guide to British establishment thinking, In the Financial Times today, he writes that this is a ‘dreadful miscalculation’ and that ‘aside from Tehran’s certain retaliation, the likely consequence of any American attack is war AND a nuclear armed Iran.” The widespread assumption now is that the pressure on Iran is being racheted up to the point where the US is laying down a path that must lead inevitably to war. 

Even the French, who had been talking up sanctions (and seem not to have been consulted in advance by Washington), expressed a preference for doing these things through the UN. The Germans (under a very pro-US Foreign Minister in Steinmeier) said they certainly preferred multilateral sanctions.

British officials were said to have been ‘aghast’ [Financial Times] at the US' original intentions (and so were clearly being consulted). They now feel that they must support the US where they can because they appear to have persuaded the US not to accuse the entire Revolutionary Guard of being a terrorist organization (rather than just its overseas units and the international credit arrangements of the country). Brown's support was a typically British compromise: the British will roll in trying to do what is acceptable to their ally ‘de minimis but almost certainly having to ignore protests from the UK's business community and pleasing no-one.

Wiser analysts who know Iran believe that the sanctions will have minimal effect on the regime and perhaps only a relatively minor and manageable effect on the Iranian economy.

In the run-up to the imposition of unilateral sanctions, the US had been getting very jolly over the 'independent' FATF’s censuring of Iran for its deficiencies in controls over money-laundering and terrorist financing.  This has definitely assisted its friends inside Western Treasuries to press the wider banking system to cease or limit their business with Tehran.

The FATF is a leading element in the US-driven regulatory approach to capitalism.The US is now cleverly (perhaps too cleverly) cashing in the chips it has accumulated by sponsoring and promoting international regulatory networks concerned with transparency, anti-corruption and money-laundering, shifting this machinery first against insurgents such as Hezbollah and Hamas and now against state enemies such as Iran.

Stuart Levey, US Under-Secretary of the Treasury and chief ‘hawk’ on financial sanctions, predicted to the Financial Times that the FATF’s decision would accelerate the withdrawal of Western (he meant European) banks from Iran. What the FATF has really done is to create another point of tension between the regulators of capitalism and the capitalists so that the outcome is not quite so certain. Once again (a theme of our blog), we are probably seeing the very very early stages in the very slow process of the splitting of the global economic system into competing Western liberal and state capitalist structures ,though the shift could still be reversible.

The pitch from US lobbyists to the Europeans was that compliance was the only alternative to war (without ever actually and directly threatening war). Even the current unilateral sanctions do not threaten war directly, although we may have gone over a line where American and Iranian pride make the ministrations of Europeans, international agencies and the Russians fairly redundant. Squeezing Iran financially has now become indissolubly linked to the same type of propaganda and political warfare operations that were used against the House of Saud after 2001 (and earlier) and which might be regarded by its operatives as having providing them with a strategic success in that particular case. The 'hawks' believe that US power is not being misused but under-used and that a combination of non-diplomatic tools can effect changes where diplomacy fails.

Pressure on Germany is central to US strategy. This may be why a hardline Atlanticist like Steinmeier is so irritated with the US, especially as internally the Social Democrats (who sustain the coalition) seem to be shifting to the Left. The German Finance Ministry is now calling a rare meeting of banks and, no doubt, the aim will be to have the smaller banks [Deutsche Bank, Commerzbank and Dresdner Bank have already been ‘nobbled’] withdraw from Iran and get the US Treasury off its back. Sarkozy’s leadership is also placing immense pressure on the French banks and energy sector. BNP Paribas has compromised by refusing to take on new projects but has committed itself to carry on old ones. French business can be very stubborn. Canada has also prodded its banks but is not in a position to do more and Canadians, too, can also be stubborn about following American orders.

However, all banks in the G7 and those countries subject to Western pressure will be shifting the emphasis of Iranian policy from commercial to political risk, preparing for a serious UN Resolution (though it looks very unlikely today) and effecting what the US wants: the limitation of Iranian access to credit. Few politicians have asked whether all this disruption is really in the national economic interest and whether there is any real security threat to the countries concerned - this is, as we have noted, now about the workings of the Atlantic Alliance.  This is a sacred cow that no-one is ready to slaughter just yet. The crisis in NATO acts as a separate back drop to the entire performance.

It also seems (looking at the small print) that the FATF has made its decision not on evidence so much as the Iranian refusal to engage with it – somewhat understandably from an Iranian perspective, given the FATF's past history and the general use of ‘single issues’ for propaganda purposes. In fact, the technocrats at the Iranian Central Bank are as concerned as anyone else in the regulatory banking fraternity about money-laundering (the tax evasion involved in links with Dubai and other Gulf states is not helpful in managing the Iranian economy).  However, the US has politicised global regulation and the technocratic aspirations of Iranian bankers are overwhelmed by the need to fight a war on two fronts against both their President's populism and US militancy.

This is, of course, all leading up to the G7 Summit where the US and France want the entire West to come into line as a bloc with a confrontational stance against Iran. They are almost making it a sign of loyalty to the greater mission - a unified liberal West. Much rides on this group reinventing the West around a ‘hawk’ definition of itself.

To this end, Sarkozy has been busy being seen shaking hands with Olmert who will have come away from his Moscow talks with Putin somewhat concerned at the turn of events, a turn no doubt the more worthy of concern because Larijani was ‘removed’ after that Summit. The assumption must be of the emergence of an informal Russian support for a growing regional and equally informal alliance between Damascus and Tehran that looks set to include Ankara and possibly Baghdad if matters continue along current trends. A Middle Eastern version of the SCO or the Caspian Group would cap Russia's apparent strategy of inveigling small groups of countries in unstable areas into mutual interest alliances built around limited but shared security and energy interests. 

The British are standing back from the ‘hawk’ position, mollifying it, maintaining links with moderate Arab states and sustaining talks with Germany. This 'moderate' wing of the West is no less anti-Iranian but sees matters in terms of negotiation and diplomacy - and, tactically, of turning reformers within Iran into agents of compromise. It is implicit that the UK and the State Department are joint moderators of the more aggressive instincts in the White House (associated with Cheney). Few British are convinced that the US has the moral or organizational ability to take on Iran militarily, especially given the volatile state of its electorate, while some former British political elite figures involved in foreign affairs are quietly not a little bitter about US conduct under the Blair Administration.

The ‘rest of the West’ (British, Arabs and non-‘hawk’ Europeans) will try to maintain Western unity around the containment and persuasion of Iran, but this unity will not extend to war and the Iranians know it. The result of the ‘snap’ election in Poland takes out one troublesome ‘hawk’ player in the largest minor European nation in favour of a more mainstream conservative (confusingly called liberal). Disdain for American policy is growing rather than diminishing in that half of Europe that opposed the Iraq War and resented extraordinary rendition, although European ‘hawks’, inspired by Sarkozy, are equally hardening their positions.

Finally, within the West, the non-US corporate community is getting very irritable. Some energy corporations are being directly targeted by the ‘hawks’, notably Total of France. Shell, definitely an internationalist and Atlanticist corporation, has sent ‘signals’ by indicating that record oil prices were being driven by speculation and political tension (code for American approaches to regional issues) and not because of lack of supply.

As for the non-West, countries like Russia, it seems determined not to be sucked into the Western dilemma. India was marked out as a key ally for democracy by the US and as a bulwark against Iran and an Islamised Pakistan or Central Asia, and as counterweight to Russia and China. Almost certainly as a negotiating pitch over the nuclear issue, Indian politicians are taking a renewed interest in the proposed Iran-Pakistan-India gas pipeline.

The point is that, whatever the complex internal politics of India involving the nuclear deal and Communist participation in the governing UPA, the Indian Government is quite prepared to accept relations with Iran in the national interest even if they irritate the US. India is only one of many major emerging countries that no longer feel that they have to be led by the US in assessing who is a friend and who is an enemy. Similarly, Pakistan has placed its economic development above the demands of its alliance with the US by stating its intention to sign a MoU on the pipeline with Iran in November.  China, of course, is unimpressed with the US move and Russia unenthusiastic to say the least, so a UN Security Council majority for anything that even matches the US initiative now looks even less rather than more likely.

If we were to summarise all this, it might be that a particular radical liberal ideology, centred on the White House but extending through key activist agencies such as US Treasury and US Justice, has developed an extended position on America’s and the global interest that is now systematically alienating moderate allies - and suspicious third world giants. It is straining the assumption of a shared Atlanticism in Europe and it is creating the very early stage conditions for alternative economic and security arrangements around the world that will be centred on energy assets, a return to state capitalism and a possible withdrawal from the dollar bloc. In this situation, Iran has minimal interest or political will in conceding ground. Things are beginning to look very bad for those who want peace.

[This is the second of a two part posting on the geo-political background to the current Iranian crisis. It is now our view that the matter between the US and Iran is unlikely to be resolved through dialogue and co-operation and that the likelihood of war has advanced in the last twenty-four hours, unless the Atlantic Alliance splits on the issue or the Russians can come up with a decisive initiative acceptable to both sides. The former is unlikely.]