WarSclerotic

Reuters AlertNet – ANALYSIS-Israel-Iran standoff challenges Mideast, investors.

By Alastair Macdonald

PALMACHIM, Israel, March 29 (Reuters) – Children skip over the beach at Palmachim as parents ponder a lazy Mediterranean sunset; far away, in London, or New York, traders scan other horizons, of economic data, watching for growth, or debt crises.

They may all be looking the wrong way.

Looming over the dunes behind the Israelis at play, the dump-truck shapes of U.S.-made Patriot missile batteries betray the presence of Palmachim air base — a keystone of the Jewish state’s defence should the war ever come with Iran that lurks, for now, just under the radar of the world’s financial markets.

In Washington this week, Israeli Prime Minister Benjamin Netanyahu called Iran’s nuclear programme “an unprecedented threat to humanity”. He has likened Tehran to Germany in 1938, as it plotted the Holocaust. His words, aimed at Barack Obama’s bid to buy time for sanctions, reminded the U.S. president of Israel’s readiness to stop talking and act in its own interest.

“Israel expects the international community to act swiftly and to act decisively to thwart this danger,” Netanyahu said.

“But we always reserve the right of self-defence.”

Financial markets moved not a jot on those comments.

Yet Israeli forces are training for a possible long-range strike on Iran, their submarines have sailed routes that could take them to the Gulf and civil defence authorities have tested bunkers, air raid sirens and gas masks. Intelligence sources talk of covert action under way to hit Iran’s nuclear industry.

People living across the Middle East are anxiously aware of Israel’s record of air strikes on suspected nuclear sites, in Iraq in 1981 and in Syria less than three years ago. That such an attack might trigger a long missile war across the region or action by Iran’s guerrilla allies is a familiar fear to many.

Traders, notably in oil, always price in some supply threat after years of angry words between Tehran and Israel. But beyond that, investors face a deep conundrum.

The likelihood and timing of any conflict, as well as its geographical scope, duration and outcome, are all hard to judge.

At their bluntest, investors’ big questions are: Will Israel strike? Will it go it alone? When? And what will happen next?

The safest bet replies (probably) are: Very possibly; Quite possibly; Maybe within a year; and, well, Heaven knows. Though not even Netanyahu can know all the answers.

LOOKING FOR CLUES

Scenarios for war range from Israeli strikes (from the air, by special forces or both) that Iran might not even respond to — perhaps denying their impact, or even concealing them — to, in the grimmest forecasts, a prolonged missile duel that might, in time, even tempt Israel to use its assumed nuclear option.

That’s a pretty perplexing spread of long-term imponderables but there are more immediate questions that may help narrow it.

— Is Iran satisfying Western powers and Israel that it is halting progress toward nuclear weapons capabilities? Tehran, of course, says it is not seeking nuclear arms at all, but the coming months may see a change in Western, and Israeli, perceptions.

— How far are Netanyahu and his Defence Minister Ehud Barak, who lead rival parties, committing themselves in Israeli eyes to action against Iran if sanctions fail, in their view, to stem the perceived threat? The more cautious their statements, the more they may be seeking room to step back from the brink.

— How far are Israel and Washington in step on Iran, and if they are not, is Obama willing — or even able — to hold back an Israeli strike that might prove popular with U.S. voters?

Much of the information available to Reuters from parties involved is divulged in private, off-the-record conversations with senior officials. Some of that information can be trusted. Some is doubtless part of the bluffing game among the powers.

Telling the difference is the hard part.

American sources have told Reuters since Vice President Joe Biden’s uncomfortable visit to Israel in early March that they believe Israel gave an undertaking not to take overt action against Iran before a U.S. move to force Tehran to change tack by means of international sanctions had had a chance to work.

Israeli sources see it rather differently, suggesting no guarantees are on offer when Israel’s very survival is, in its own eyes, at stake. But restraint, at least in the coming months, to avoid outraging allies abroad, would make sense.

At the same time, Israeli analysts who claim some access to Netanyahu and Barak’s thinking, reckon Israel is ready — and that when action comes it will surprise in both its timing and nature, as befits Barak and Netanyahu, both former commandos.

Bluff? Maybe.

MIXED SIGNALS

Under the previous, centrist-led coalition of Prime Minister Ehud Olmert, Israeli officials prepared a defence policy paper that suggested the Jewish state might be ready to settle into a regime of mutual deterrence with a nuclear Iran.

As he prepared to resign, Olmert, once among Israel’s keener hawks, said the idea of attacking Iran alone was “megalomania”.

But faced by leaders of the Islamic Republic who wish openly for Israel’s demise, Netanyahu might risk his own future if he is seen backing down. Still, the year-old Netanyahu government rarely commits to more than “all options are on the table”.

Netanyahu and Barak do say that a clock is ticking toward an outcome — Iranian ability, in terms of technology and supply of fissile material, to build a viable number of warheads within, say, a few months. And Israel finds that to be a mortal threat.

U.S. generals and officials have warned about “unintended consequences” from a strike that could destabilise the Middle East. They also suggest Iran’s pace of nuclear work is slowing.

But Barak has told Washington that, if an Iranian nuclear arsenal seemed like something Americans could live with, his people felt differently and valued their independence.

“From a closer distance, in Israel, it looks like a tipping point for the whole regional order,” Barak said. “There is of course a certain difference in perspective … and a difference in the internal clock, a difference in capabilities.

“There should be understanding on the exchange of views, but we do not need to coordinate everything.”

SANCTIONS SCEPTICS

Israel is backing Obama over coordinating sanctions against Iran. But, in private, few Israelis share the confidence voiced by senior figures in Washington about their efficacy, especially if they are not as “crippling” to Iran as Netanyahu wants.

As Israel’s Foreign Ministry phrases it in the bold headline over a major section on its Web site devoted to Iran: “The international community is moving toward lower-level sanctions, which are not unimportant, but may not be enough.”

That is a quote from Netanyahu to parliament on March 3. It begs the question, what next if sanctions are “not enough”?

Yet heavier sanctions might be called for, but Israeli officials are fearful that Obama could pursue such a track until, in their view, it is “too late” and Iran has, if not a weapon, the ability to make one fast.

As Barak put it, Israeli and American clocks are running on different time partly because Israel’s limited firepower means that the longer it waits as Iran, allegedly, multiplies secret sites, the less chance Israel has of damaging them on its own.

In any case, Israeli officials believe the kind of strike they are capable of mounting could only delay, perhaps by a few years, any Iranian programme. That delay, however, as with the pressure from sanctions, could, they hope, bring a durable halt to Tehran’s nuclear ambitions by bringing change in its leaders.

Hence the notion, prevalent among Israeli analysts, that a “window” for an effective strike by Israel may only be open for a year or two more. So can Obama hold it shut?

This month’s ructions in U.S.-Israeli relations offered mixed signals. The Netanyahu coalition’s unrepentant approval of new Jewish homes on occupied land around Jerusalem marred a visit by Biden that was both intended to seal peace talks with the Palestinians and get Israeli buy-in for more diplomacy with Iran, including sanctions, rather than moving to a war footing.

Some commentators saw Washington’s angry response as driving Israel toward more unilateral action. Others gave more weight to the view that Netanyahu was now less likely to annoy the United States any further by risking going it alone against Iran.

GOING IT ALONE

The latest has been a concerted effort, especially from the Obama administration, to smooth over the rough patch, and speak of the “unbreakable bond” the United States has with Israel.

Israel certainly does not seek a rift with Washington, its main arms supplier, guardian in terms of anti-missile forces and broader military protection and prime diplomatic ally. But, as Barak made clear in Washington last month, each state has its own interests.

In the case of the air strike on Syria in 2007 that targeted a suspected nuclear facility, Israel did inform Washington in advance that something of the sort was afoot — but it did not seek permission, a source familiar with the operation said.

While such a strike, which triggered no clear retaliation, might be ideal for Israel against Iran, the risk of Tehran launching either its own missiles or asking its allies in Hamas or Hezbollah to mount attacks, means Israel will be wary of any action that Washington would repudiate, or seek even to punish.

Israelis note, however, that Iranian leaders have said they would hit U.S. interests if Israel attacked. In that case, Israel may have less risk of being left to face Iran alone.

It remains a huge and unpredictable risk, however. That alone leads many to question whether Israel would take it. But those who believe they understand the enigmatic Netanyahu stress how the long term features in the prime minister’s thinking.

While U.S. officials may focus on a short domestic election cycle, Netanyahu, son of a noted Zionist historian, misses few opportunities to put his policy toward Iran in the context of millennia of struggle by the Jewish people. For example, he addressed American evangelical Christians in Jerusalem recently:

“We must prevent Iran from developing nuclear weapons,” Netanyahu said of “tyrants in Tehran” who “hope to wipe Israel off the map”. And adding biblical context, he concluded: “After centuries in exile … the people of Israel have come home and no force on earth will ever make us leave our home again.”

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