After communism and capitalism, there is asterism.

Sunday, July 24, 2005

Axis of Oil - Tying the Strings

In my letters to the FT I argued that the consequence of a failed state in Iraq could create a war that would suck in the regional countries. I also vaguely hinted that such a regional war could be the basis of a greater world war because of all the oil interests in the region.

Now recent news has clarified the picture greatly.

Firstly, with the elections, the US has effectively handed control of Iraq to the religious Shi'ite parties and given Iran a direct political interest in Iraq. With the news of the pipeline agreement I quoted below, Iran has a now significant economic interest in Iraq. As Stirling Newbury at BopNews said, this is now the age of Peak Oil. In this age there are more customers for oil than the world has capacity to supply. The future is now a competition by world powers to secure fuel suplies at source. In this race China has thrown in its hat with Iran with a 25 year, $70 Billion Oil and Gas supply agreement. With Iran's pipeline agreement with Iraq, a new 'Silk Route' has been created. The old Silk Route was an ancient trade route that linked Arabia to China. The new silk route will be a pipeline that pumps oil from Iraq, via Iran to China and goods will fly back from China to the Middle East.

Throw into this the US, which is still rattling its sabres over Iran and the Chinese Nuclear threats over Taiwan sounds much more ominous.

This threat by General Zhu Chenghu came at a strange time. The Financial Times was right to point out that there is no logic for China to ruin its favourable trading status with the US by threatening nuclear war over Taiwan of all things!

Given that China is now dependent on Iran for its fuel supplies for the next 25 years, an American tactical nuclear strike on Iran would be a bit of an inconvenience to say the least. In this context the threat by General Zhu is clear. Mess with with China's core interests (be it Taiwan or Iran) and China will not hesitate to use its nuclear weapons.

On the other side a Chinese-backed nuclear-armed Iran unified with Iraq will create a new super power that will make Israel and the US in turn all but irrelevent in the region.

The Cuba Missile Crisis is a walk in the park compared to this!


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