AS IRAQ BURNS, THE HEAT GOES UP

By Ruma Dubey

Life is so unpredictable. We think we have things in control and life hooks a googly, showing us just who is really in control.

We were set for a dream run with Modi coming to center stage, looking ahead at the Budget. We expected the rupee to only grow stronger and people had started talking of even Rs.55 per US $. In the euphoria, there were even talks of Sensex hitting a lunatic 1 lakh or 80,000 – it had become like a free for all; sky was the limit for this unbridled optimism. And one fine day, from glee, it suddenly turned into gloom, with Iraq driving out the bulls; at least for now.  Crude oil has started escalating and rupee has started falling; the markets have also reacted with a slip into the red with the ugly head of geopolitical tension submerging all things green.

Once again the Middle East has become a veritable tinder box, threatening to blow up any time.  Things had never really become ‘normal’ in Iraq, Pakistan, and Afghanistan while Syria continued to burn. But as the D date for US to pull out from Iraq draws closer and closer, Iraq is in complete turmoil.  And now it is like a ticking time bomb, with the country facing the very real risk of being split into three.

Those in India are flummoxed – what happened suddenly? Why should the centuries old conflict between the Shias and Sunnis affect us here in India? So here is a quick run through the story of Iraq today, to help us grasp the ground reality and take decisions accordingly.

The militants that we see causing havoc in Iraq currently are a breakaway group of Al Qaida. They are a group of Sunnis and they call themselves the Islamic State of Iraq and the Levant (Isil).  Levant is the traditional name of Greater Syria, which stretches from Southern Turkey to Egypt on the eastern hemisphere.  Isil, also known as Islamic State of Iraq and Syria (ISIS) started getting stronger in Syria. In fact those in Syria (Sunnis) and the Sunnis in Iraq felt a kinship because both are victims of discrimination. This crisis in Iraq is actually a consequence of the ongoing crisis in Syria.

The Sunnis of Syria are fighting against the regime there – Assad who leads a Shia population; that’s the root of the civil war there in very simplified terms. On the other hand, in Iraq, the Prime Minister, Nouri-Al-Maliki, slowly excluded all Sunni presence from its Govt, making it almost completely run by Shia’tes. Maliki was in exile from Iraq and he was harboured by Syria.  Iran is a Shia –dominated country and naturally, its allies are Assad and Maliki.

So this Isil group came across the border from Syria, naturally with support from Sunnis of Iraq and captured a large part of northern Iraq, after they had taken control of northeastern Syria. Isil wants to establish a new Islamic state which straddles both the countries.  The insurgents have threatened to push to regions further south dominated by Iraq's Shia.

Given this turmoil in the region, the next question – how does all this affect the oil prices and consequently the currency and stock markets?

All this is currently happening in the northern region of Iraq while production of oil is in south, which is away from the conflict zone as such. But the tension has affected sentiments all across and there is impending worry that whatever little oil gets out could also get stopped.  Production has not yet stopped but the oil prices have zoomed up purely on apprehension that the Middle East crisis could get bigger – so it is basically fear and uncertainty affecting the crude prices currently. There will be a crisis only if Baghdad collapses because that is where major oil refineries are located. Thus oil, like the stock and the currency, are all speculative markets driven by expectations.

So then the next question – what are the speculative forces in these markets fearing? The fear of this insurgency spreading all across to Iraq. The Isil have seriously maimed the military forces and that is what scares. If Iraq collapses, it could have a knock-down effect all across the already fragile Middle East. Kuwait shares a border with Iraq and it could face the maximum brunt. The Isil released a public map of their plan – it aims to push through Kuwait's oil fields to build an Islamic caliphate across the Middle East. On the other hand, Saudi Arabia has been supplying arms and money to ‘moderate’ groups in Syria and it denounced Isil/ISIS as a terrorist group. Isil has already announced that its enemies are both the Saudi-backed Syrian rebels and the Saudi regime. The fear that this conflict could place nearly half of the world’s supply of oil in jeopardy is what has spooked one and all.

The ‘split’ which everyone fears about is three way - Kurdish north with Kurds in Syria, the Shia-dominated south with Iran and the northern Sunnis with those of Syria. This is too drastic – the worst case scenario.

USA is caught in a bind – if it supports Mailiki, the entire Islamic world around – Qatar, Kuwait, UAE, Saudi could get mighty miffed as it could send a message that USA is supporting Shia’s. This in turn will give birth to more insurgents, a great recruiting ground for Isil.  Thus any support from USA or Iran could ignite further anger amongst Sunnis across the world.

Thus the crisis in Iraq this time is truly serious and we need to wait and watch beyond our new Govt.