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July 25, 2008

The Geopolitics of Iran
by John Mauldin

For nearly 30 years, long before it was a charter member of the "Axis of Evil," Iran and the US have been locked in a hate-hate relationship. Walk down the street any Friday afternoon, and you're as likely to hear "Death to America!" as "Hi Ali, how are you?" Three decades of animosity, an externally opaque society, and no trade relations between the two countries mean that many of us have just the barest understanding of what's really going on over there. But whether it's a negotiated settlement with the US over Iraq, or a war-risk premium for crude oil, to threats and counterthreats with Israel and the US, Iran's decisions have enormous impact on the global economic system. All of the sudden, the picture of the "mad mullahs" you get from the papers seems expensively inadequate.

To understand Iran's impact on the world you need someone that wades through the complexities and distills out the salient facts. My friend George Friedman and his intelligence team at Stratfor are my go-to source for this kind of insight and understanding. For your financial analyses (I certainly hope!) you don't rely just on your daily newspaper's business section; if that's where you're getting your news on global events, well, hmmm....

Take a look at George's latest Geopolitical Monograph on Iran in the Special Edition of Outside the Box. This is part of a special series for Stratfor Members only - that George was kind enough to share this week. It's just stunning to me how the battles between Persia and Babylon are playing out yet again with Iranian involvement in Iraq. If you've ever wondered why the Iranians seem to have a bunker mentality, read this Monograph, and you'll see why. Want to understand why Iran works through proxies like Hezbollah? Here's your answer. Spend a few minutes on an invaluable investment in understanding Iran's global role.

The Geopolitical Monograph series is just one of the features of my Stratfor Membership that makes it so valuable to me. George's team also puts out daily analyses and a weekly Intelligence Guidance that highlight the critical geopolitical events that can move markets. You can get the same geopolitical intelligence I use via this special offer available to my readers. Click here for the full details, and start adding an intelligence perspective to your investing.

John Mauldin, Editor
Outside the Box

The Geopolitics of Iran:
Holding the Center of a Mountain Fortress
By George Friedman

To understand Iran, you must begin by understanding how large it is. Iran is the 17th largest country in world. It measures 1,684,000 square kilometers. That means that its territory is larger than the combined territories of France, Germany, the Netherlands, Belgium, Spain and Portugal - Western Europe. Iran is the 16th most populous country in the world, with about 70 million people. Its population is larger than the populations of either France or the United Kingdom.

Under the current circumstances, it might be useful to benchmark Iran against Iraq or Afghanistan. Iraq is 433,000 square kilometers, with about 25 million people, so Iran is roughly four times as large and three times as populous. Afghanistan is about 652,000 square kilometers, with a population of about 30 million. One way to look at it is that Iran is 68 percent larger than Iraq and Afghanistan combined, with 40 percent more population.

More important are its topographical barriers. Iran is defined, above all, by its mountains, which form its frontiers, enfold its cities and describe its historical heartland. To understand Iran, you must understand not only how large it is but also how mountainous it is.

Iran's most important mountains are the Zagros. They are a southern extension of the Caucasus, running about 900 miles from the northwestern border of Iran, which adjoins Turkey and Armenia, southeast toward Bandar Abbas on the Strait of Hormuz. The first 150 miles of Iran's western border is shared with Turkey. It is intensely mountainous on both sides. South of Turkey, the mountains on the western side of the border begin to diminish until they disappear altogether on the Iraqi side. From this point onward, south of the Kurdish regions, the land on the Iraqi side is increasingly flat, part of the Tigris-Euphrates basin. The Iranian side of the border is mountainous, beginning just a few miles east of the border. Iran has a mountainous border with Turkey, but mountains face a flat plain along the Iraq border. This is the historical frontier between Persia - the name of Iran until the early 20th century - and Mesopotamia ("land between two rivers"), as southern Iraq is called.

The one region of the western border that does not adhere to this model is in the extreme south, in the swamps where the Tigris and Euphrates rivers join to form the Shatt al-Arab waterway. There the Zagros swing southeast, and the southern border between Iran and Iraq zigzags south to the Shatt al-Arab, which flows south 125 miles through flat terrain to the Persian Gulf. To the east is the Iranian province of Khuzestan, populated by ethnic Arabs, not Persians. Given the swampy nature of the ground, it can be easily defended and gives Iran a buffer against any force from the west seeking to move along the coastal plain of Iran on the Persian Gulf.

Running east along the Caspian Sea are the Elburz Mountains, which serve as a mountain bridge between the Caucasus-Zagros range and Afghan mountains that eventually culminate in the Hindu Kush. The Elburz run along the southern coast of the Caspian to the Afghan border, buffering the Karakum Desert in Turkmenistan. Mountains of lesser elevations then swing down along the Afghan and Pakistani borders, almost to the Arabian Sea.

Iran has about 800 miles of coastline, roughly half along the eastern shore of the Persian Gulf, the rest along the Gulf of Oman. Its most important port, Bandar Abbas, is located on the Strait of Hormuz. There are no equivalent ports along the Gulf of Oman, and the Strait of Hormuz is extremely vulnerable to interdiction. Therefore, Iran is not a major maritime or naval power. It is and always has been a land power.

The center of Iran consists of two desert plateaus that are virtually uninhabited and uninhabitable. These are the Dasht-e Kavir, which stretches from Qom in the northwest nearly to the Afghan border, and the Dasht-e Lut, which extends south to Balochistan. The Dasht-e Kavir consists of a layer of salt covering thick mud, and it is easy to break through the salt layer and drown in the mud. It is one of the most miserable places on earth.

Iran's population is concentrated in its mountains, not in its lowlands, as with other countries. That's because its lowlands, with the exception of the southwest and the southeast (regions populated by non-Persians), are uninhabitable. Iran is a nation of 70 million mountain dwellers. Even its biggest city, Tehran, is in the foothills of towering mountains. Its population is in a belt stretching through the Zagros and Elbroz mountains on a line running from the eastern shore of the Caspian to the Strait of Hormuz. There is a secondary concentration of people to the northeast, centered on Mashhad. The rest of the country is lightly inhabited and almost impassable because of the salt-mud flats.

If you look carefully at a map of Iran, you can see that the western part of the country - the Zagros Mountains - is actually a land bridge for southern Asia. It is the only path between the Persian Gulf in the south and the Caspian Sea in the north. Iran is the route connecting the Indian subcontinent to the Mediterranean Sea. But because of its size and geography, Iran is not a country that can be easily traversed, much less conquered.

The location of Iran's oil fields is critical here, since oil remains its most important and most strategic export. Oil is to be found in three locations: The southwest is the major region, with lesser deposits along the Iraqi border in the north and one near Qom. The southwestern oil fields are an extension of the geological formation that created the oil fields in the Kurdish region of northern Iraq. Hence, the region east of the Shatt al-Arab is of critical importance to Iran. Iran has the third largest oil reserves in the world and is the world's fourth largest producer. Therefore, one would expect it to be one of the wealthiest countries in the world. It isn't.

Iran has the 28th largest economy in the world but ranks only 71st in per capita gross domestic product (as expressed in purchasing power). It ranks with countries like Belarus or Panama. Part of the reason is inefficiencies in the Iranian oil industry, the result of government policies. But there is a deeper geographic problem. Iran has a huge population mostly located in rugged mountains. Mountainous regions are rarely prosperous. The cost of transportation makes the development of industry difficult. Sparsely populated mountain regions are generally poor. Heavily populated mountain regions, when they exist, are much poorer.

Iran's geography and large population make substantial improvements in its economic life difficult. Unlike underpopulated and less geographically challenged countries such as Saudi Arabia and Kuwait, Iran cannot enjoy any shift in the underlying weakness of its economy brought on by higher oil prices and more production. The absence of inhabitable plains means that any industrial plant must develop in regions where the cost of infrastructure tends to undermine the benefits. Oil keeps Iran from sinking even deeper, but it alone cannot catapult Iran out of its condition.

The Broad Outline

Iran is a fortress. Surrounded on three sides by mountains and on the fourth by the ocean, with a wasteland at its center, Iran is extremely difficult to conquer. This was achieved once by the Mongols, who entered the country from the northeast. The Ottomans penetrated the Zagros Mountains and went northeast as far as the Caspian but made no attempt to move into the Persian heartland.

Iran is a mountainous country looking for inhabitable plains. There are none to the north, only more mountains and desert, or to the east, where Afghanistan's infrastructure is no more inviting. To the south there is only ocean. What plains there are in the region lie to the west, in modern-day Iraq and historical Mesopotamia and Babylon. If Iran could dominate these plains, and combine them with its own population, they would be the foundation of Iranian power.

Indeed, these plains were the foundation of the Persian Empire. The Persians originated in the Zagros Mountains as a warrior people. They built an empire by conquering the plains in the Tigris and Euphrates basin. They did this slowly, over an extended period at a time when there were no demarcated borders and they faced little resistance to the west. While it was difficult for a lowland people to attack through mountains, it was easier for a mountain-based people to descend to the plains. This combination of population and fertile plains allowed the Persians to expand.

Iran's attacking north or northwest into the Caucasus is impossible in force. The Russians, Turks and Iranians all ground to a halt along the current line in the 19th century; the country is so rugged that movement could be measured in yards rather than miles. Iran could attack northeast into Turkmenistan, but the land there is flat and brutal desert. The Iranians could move east into Afghanistan, but this would involve more mountain fighting for land of equally questionable value. Attacking west, into the Tigris and Euphrates river basin, and then moving to the Mediterranean, would seem doable. This was the path the Persians took when they created their empire and pushed all the way to Greece and Egypt.

In terms of expansion, the problem for Iran is its mountains. They are as effective a container as they are a defensive bulwark. Supporting an attacking force requires logistics, and pushing supplies through the Zagros in any great numbers is impossible. Unless the Persians can occupy and exploit Iraq, further expansion is impossible. In order to exploit Iraq, Iran needs a high degree of active cooperation from Iraqis. Otherwise, rather than converting Iraq's wealth into political and military power, the Iranians would succeed only in being bogged down in pacifying the Iraqis.

In order to move west, Iran would require the active cooperation of conquered nations. Any offensive will break down because of the challenges posed by the mountains in moving supplies. This is why the Persians created the type of empire they did. They allowed conquered nations a great deal of autonomy, respected their culture and made certain that these nations benefited from the Persian imperial system. Once they left the Zagros, the Persians could not afford to pacify an empire. They needed the wealth at minimal cost. And this has been the limit on Persian/Iranian power ever since. Recreating a relationship with the inhabitants of the Tigris and Euphrates basin - today's Iraq - is enormously difficult. Indeed, throughout most of history, the domination of the plains by Iran has been impossible. Other imperial powers - Alexandrian Greece, Rome, the Byzantines, Ottomans, British and Americans - have either seized the plains themselves or used them as a neutral buffer against the Persians.

Underlying the external problems of Iran is a severe internal problem. Mountains allow nations to protect themselves. Completely eradicating a culture is difficult. Therefore, most mountain regions of the world contain large numbers of national and ethnic groups that retain their own characteristics. This is commonplace in all mountainous regions. These groups resist absorption and annihilation. Although a Muslim state with a population that is 55 to 60 percent ethnically Persian, Iran is divided into a large number of ethnic groups. It is also divided between the vastly dominant Shia and the minority Sunnis, who are clustered in three areas of the country - the northeast, the northwest and the southeast. Any foreign power interested in Iran will use these ethnoreligious groups to create allies in Iran to undermine the power of the central government.

Thus, any Persian or Iranian government has as its first and primary strategic interest maintaining the internal integrity of the country against separatist groups. It is inevitable, therefore, for Iran to have a highly centralized government with an extremely strong security apparatus. For many countries, holding together its ethnic groups is important. For Iran it is essential because it has no room to retreat from its current lines and instability could undermine its entire security structure. Therefore, the Iranian central government will always face the problem of internal cohesion and will use its army and security forces for that purpose before any other.

Geopolitical Imperatives

For most countries, the first geographical imperative is to maintain internal cohesion. For Iran, it is to maintain secure borders, then secure the country internally. Without secure borders, Iran would be vulnerable to foreign powers that would continually try to manipulate its internal dynamics, destabilize its ruling regime and then exploit the resulting openings. Iran must first define the container and then control what it contains. Therefore, Iran's geopolitical imperatives:

1. Control the Zagros and Elburz mountains. These constitute the Iranian heartland and the buffers against attacks from the west and north.
2. Control the mountains to the east of the Dasht-e Kavir and Dasht-e Lut, from Mashhad to Zahedan to the Makran coast, protecting Iran's eastern frontiers with Pakistan and Afghanistan. Maintain a line as deep and as far north and west as possible in the Caucasus to limit Turkish and Russian threats. These are the secondary lines.
3. Secure a line on the Shatt al-Arab in order to protect the western coast of Iran on the Persian Gulf.
4. Control the divergent ethnic and religious elements in this box.
5. Protect the frontiers against potential threats, particularly major powers from outside the region.

Iran has achieved four of the five basic goals. It has created secure frontiers and is in control of the population inside the country. The greatest threat against Iran is the one it has faced since Alexander the Great - that posed by major powers outside the region. Historically, before deep-water navigation, Iran was the direct path to India for any Western power. In modern times, the Zagros remain the eastern anchor of Turkish power. Northern Iran blocks Russian expansion. And, of course, Iranian oil reserves make Iran attractive to contemporary great powers.

There are two traditional paths into Iran. The northeastern region is vulnerable to Central Asian powers while the western approach is the most-often used (or attempted). A direct assault through the Zagros Mountains is not feasible, as Saddam Hussein discovered in 1980. However, manipulating the ethnic groups inside Iran is possible. The British, for example, based in Iraq, were able to manipulate internal political divisions in Iran, as did the Soviets, to the point that Iran virtually lost its national sovereignty during World War II.

The greatest threat to Iran in recent centuries has been a foreign power dominating Iraq -Ottoman or British - and extending its power eastward not through main force but through subversion and political manipulation. The view of the contemporary Iranian government toward the United States is that, during the 1950s, it assumed Britain's role of using its position in Iraq to manipulate Iranian politics and elevate the shah to power.

The 1980-1988 war between Iran and Iraq was a terrific collision of two states, causing several million casualties on both sides. It also demonstrated two realities. The first is that a determined, well- funded, no-holds-barred assault from Mesopotamia against the Zagros Mountains will fail (albeit at an atrocious cost to the defender). The second is that, in the nation-state era, with fixed borders and standing armies, the logistical challenges posed by the Zagros make a major attack from Iran into Iraq equally impossible. There is a stalemate on that front. Nevertheless, from the Iranian point of view, the primary danger of Iraq is not direct attack but subversion. It is not only Iraq that worries them. Historically, Iranians also have been concerned about Russian manipulation and manipulation by the British and Russians through Afghanistan.

The Current Situation

For the Iranians, the current situation has posed a dangerous scenario similar to what they faced from the British early in the 20th century. The United States has occupied, or at least placed substantial forces, to the east and the west of Iran, in Afghanistan and Iraq. Iran is not concerned about these troops invading Iran. That is not a military possibility. Iran's concern is that the United States will use these positions as platforms to foment ethnic dissent in Iran.

Indeed, the United States has tried to do this in several regions. In the southeast, in Balochistan, the Americans have supported separatist movements. It has also done this among the Arabs of Khuzestan, at the northern end of the Persian Gulf. And it has tried to manipulate the Kurds in northwestern Iran. (There is some evidence to suggest that the United States has used Azerbaijan as a launchpad to foment dissent among the Iranian Azeris in the northwestern part of the country.)

The Iranian counter to all this has several dimensions:

1. Maintain an extremely powerful and repressive security capability to counter these moves. In particular, focus on deflecting any intrusions in the Khuzestan region, which is not only the most physically vulnerable part of Iran but also where much of Iran's oil reserves are located. This explains clashes such as the seizure of British sailors and constant reports of U.S. special operations teams in the region.
2. Manipulate ethnic and religious tensions in Iraq and Afghanistan to undermine the American positions there and divert American attention to defensive rather than offensive goals.
3. Maintain a military force capable of protecting the surrounding mountains so that major American forces cannot penetrate.
4. Move to create a nuclear force, very publicly, in order to deter attack in the long run and to give Iran a bargaining chip for negotiations in the short term.

The heart of Iranian strategy is as it has always been, to use the mountains as a fortress. So long as it is anchored in those mountains, it cannot be invaded. Alexander succeeded and the Ottomans had limited success (little more than breaching the Zagros), but even the Romans and British did not go so far as to try to use main force in the region. Invading and occupying Iran is not an option.

For Iran, its ultimate problem is internal tensions. But even these are under control, primarily because of Iran's security system. Ever since the founding of the Persian Empire, the one thing that Iranians have been superb at is creating systems that both benefit other ethnic groups and punish them if they stray. That same mindset functions in Iran today in the powerful Ministry of Intelligence and Security and the elite Islamic Revolutionary Guards Corps (IRGC). (The Iranian military is configured mainly as an infantry force, with the regular army and IRGC ground forces together totaling about 450,000 troops, larger than all other service branches combined.)

Iran is, therefore, a self-contained entity. It is relatively poor, but it has superbly defensible borders and a disciplined central government with an excellent intelligence and internal security apparatus. Iran uses these same strengths to destabilize the American position (or that of any extraregional power) around it. Indeed, Iran is sufficiently secure that the positions of surrounding countries are more precarious than that of Iran. Iran is superb at low-cost, low- risk power projection using its covert capabilities. It is even better at blocking those of others. So long as the mountains are in Iranian hands, and the internal situation is controlled, Iran is a stable state, but one able to pose only a limited external threat.

The creation of an Iranian nuclear program serves two functions. First, if successful, it further deters external threats. Second, simply having the program enhances Iranian power. Since the consequences of a strike against these facilities are uncertain and raise the possibility of Iranian attempts at interdiction of oil from the Persian Gulf, the strategic risk to the attacker's economy discourages attack. The diplomatic route of trading the program for regional safety and power becomes more attractive than an attack against a potential threat in a country with a potent potential counter.

Iran is secure from conceivable invasion. It enhances this security by using two tactics. First, it creates uncertainty as to whether it has an offensive nuclear capability. Second, it projects a carefully honed image of ideological extremism that makes it appear unpredictable. It makes itself appear threatening and unstable. Paradoxically, this increases the caution used in dealing with it because the main option, an air attack, has historically been ineffective without a follow-on ground attack. If just nuclear facilities are attacked and the attack fails, Iranian reaction is unpredictable and potentially disproportionate. Iranian posturing enhances the uncertainty. The threat of an air attack is deterred by Iran's threat of an attack against sea-lanes. Such attacks would not be effective, but even a low-probability disruption of the world's oil supply is a risk not worth taking.

As always, the Persians face a major power prowling at the edges of their mountains. The mountains will protect them from main force but not from the threat of destabilization. Therefore, the Persians bind their nation together through a combination of political accommodation and repression. The major power will eventually leave. Persia will remain so long as its mountains stand.

John Mauldin
Frontlinethoughts.com

Note: John Mauldin is president of Millennium Wave Advisors, LLC, (MWA) a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staff at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above. Mauldin can be reached at 800-829-7273. MWA is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS) an NASD registered broker-dealer. Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Funds recommended by Mauldin may pay a portion of their fees to Altegris Investments who will share 1/3 of those fees with MWS and thus to Mauldin. For more information please see "How does it work" at www.accreditedinvestor.ws. This website and any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement or inducement to invest with any CTA, fund or program mentioned. Before seeking any advisors services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Please read the information under the tab "Hedge Funds: Risks" for further risks associated with hedge funds.

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John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.

Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above.

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