Iraq's Elections and Dollar Panic, by Lord William Rees-Mogg

{ed. note: Below I'm pleased to present the latest from Lord Rees-Mogg. And if you start to see new voices popping up, don't be surprised. I'll be explaining more later in the week. regards-- Dan} The countdown to the election in Iraq has begun. It is now two months to January 30th. ashington, supported by London, is determined that there should not be any postponement, though it is recognised that the security position will still be precarious, particularly in the Sunni triangle and in Baghdad itself. The hope is that a reasonably fair and orderly election will take place in the Shiite South and the Kurdish North. The central area will be patchy, with the risk of suicide bombers attacking people who try to cast their votes. If the election is adequate, though flawed, the expectation is that a Government will emerge, hopefully based on the Shiite moderates and the Kurds. If the Parliament that results is short of Sunni representation, that will be the responsibility of the Sunnis themselves. No doubt the insurgents will boycott the election, and will try to get as many people to join the boycott as possible. It is hard to exaggerate the importance of January 30th. If the election were postponed, this would be a destabilizing event for the whole region, for the moderate King of Jordan, for the Saudi Arabian regime, and for Israel. The shock waves would be felt in Europe. Tony Blair has an election in May. A failure of the Iraq election would be used against him, though not by the main opposition, the Conservatives, who have supported the war, if unenthusiastically. With four years of his second term to run, the political damage that might be done to President Bush would be limited, but the damage to U.S. foreign policy would be serious. There does not seem to be any alternative strategy. For the U.S. the elections, and the establishment of an independent and democratic Iraq, are the strategy. Obviously there would be renewed nervousness in the oil market. At present there are expectations that oil prices will fall in the first and second quarters of 2005, with the price failing by the end of the year to around the $40 a barrel level, or perhaps a little above that. Failure of the Iraq election would change that expectation. The rise in the oil price would reduce global growth and raise inflationary pressures. Real GDP growth in the U.S. is in any case expected to fall somewhat in 2005, but the reduction would be greater. The dollar slide is in any case expected to continue, but the breakdown of the Iraq policy would be a traumatic shock; the slide might be converted into a panic. The U.S. Defence Science Board reported this week that U.S. credibility among Muslims is down to zero. That is hardly an exaggeration. However, the U.S. reputation could start to recover if the January 30th election in Iraq produces a proper Government, and if the Palestinians, earlier in January, elect a new President the U.S. can talk to. The Middle East outlook for 2005 is pretty bad, but these two January elections do offer some hope. Copyright, 2004. Agora Financial Publishing