FORECASTS & TRENDS E-LETTER
By Gary D. Halbert
December 30, 2002
Introduction
If you watched the news over the holiday, it is clear that the US and Britain
are accelerating the movements of troops and equipment to the Middle East,
obviously in preparation for a possible war with Iraq. Many of you reading
this E-Letter are in favor of such a war and many are not. Regardless of your
view, a war with Iraq is probably going to happen.
In the last week, Stratfor.com published the analysis which follows.
Rather than try to summarize it for you, I have chosen to reprint it intact.
Stratfor is an excellent source for geopolitical intelligence and information.
Here is their latest thinking on the war with Iraq.
QUOTE “Summary
The United States is under pressure to provide
intelligence that shows Iraq possesses weapons of mass destruction. This
leaves Washington with a problem. The main threat comes from Iraqi chemical
weapons, which must be attacked early in a war. If Washington makes public
information on where chemical weapons are located, Baghdad can move those
weapons around. If the United States provides intelligence, it must follow up
rapidly with attacks. For this and other reasons, the pressure to launch the
war is growing as diplomatic pressure to avoid the war is beginning somewhat
to abate.
Analysis
When chief U.N. weapons inspector Hans Blix
delivered his report to the U.N. Security Council last Thursday, he took the
U.S. position, saying that Iraq's 12,000-page weapons declaration contained
serious omissions. He did not, as U.S. Secretary of State Colin Powell had,
use the term ‘material breach,’ which is the magic word for war. Blix was in
no position to use that term: He is a technician reporting to the Security
Council. He reports the facts. It is up to the Security Council to draw
conclusions from those facts -- conclusions that are political in essence.
What was most striking was the quiet that followed Blix's report and Powell's
evaluation. Russia pointed out that it was not up to the United States, but
the Security Council to determine whether a material breach had occurred.
Moscow focused on procedure, not on substance. As for the rest of the
permanent Security Council members, there was mostly silence. That silence is
ominous for Iraqi leader Saddam Hussein.
The focus has shifted away
from the question of Iraq's compliance with the inspection regime; it is now
obvious that Baghdad is not compliant. The question now is whether Iraq
actually has weapons of mass destruction, and the spotlight is on U.S.
intelligence. First Blix, then Iraq, challenged the CIA to reveal information
on Iraq's weapons program, but the CIA has a couple of reasons for hesitating:
1. The agency has an institutional aversion to revealing its sources and
methods. Information comes from sources within Iraq, monitoring of
telecommunications, penetration of Iraqi computer systems and so forth. Every
bit of information provided can compromise a source.
2. Iraq's weapons
of mass destruction capabilities are heavily focused in the area of chemical
weapons. These chemicals, contained in drums and shells, can be moved easily
and quickly. They will be one of the first targets of U.S. air attacks. Any
report filed by the CIA would give Baghdad the opportunity to move them
quickly. In fact, even if the inspectors find these chemicals and report them,
the Iraqis still would have time to move them before the United States could
act. Therefore, providing intelligence on the location of chemical weapons
would undermine the United States' ability to destroy them.
Officials
in Baghdad understand this. Having lost the first line of defense, they've
moved to the second. Having been shown to be uncooperative, they are trying to
shift the focus of the question to their actual possession of weapons. This
creates a minor problem for the United States. If Washington provides accurate
intelligence, it could lose a target. If it fails to provide accurate
intelligence, a case could be made that Iraq has no WMD. The United States,
therefore, will focus on the non-cooperation issue while trying to work
through back channels with France and Russia, which know about Iraq's
capabilities through their own intelligence and, of course, because they
provided some of the production facilities themselves.
The point here
is that the situation is shifting perceptibly from a diplomatic to a military
issue. The United States has, with some real skill, gone a long way in
defusing opposition to an attack. There is no enthusiasm for it and most
nations will not participate, but there is now a sense that war no longer can
be resisted. The standard position that is emerging, from France to Syria, is
that (1) war is coming, (2) other countries don't want to be deeply involved,
yet (3) they don't want to be left out of the spoils. That's about as good as
it's going to get for the United States this time around.
Which brings
us to timing. Blix is supposed to file a definitive report by Jan. 27. The
United States will push to make that a negative report. Washington also will
use the interim period to perpetuate the atmosphere of resignation that has
gripped most third parties in the last few weeks. We expect the U.N. Security
Council will declare Iraq in breach of the resolution and will develop some
vague language under which the United States can launch an attack without an
actual U.N. endorsement. That will do for the United States.
All forces
for a ground assault have not yet moved into place. Britain still is moving
equipment in, as is the United States. U.S. reservists and National Guardsmen
are being told that they will be mobilized around mid-January. Many of these
will replace regular troops that are going overseas and others will be
providing increased security in the United States. But others, particularly
Marines, will be sent overseas, including to Iraq. If they are mobilized in
mid-January, they will not arrive for several weeks -- and they will need
several more weeks of training in-theater for acclimation and integration into
the war plan.
The United States on several occasions has made it clear
that an air war can begin before all forces are in place. That appears to be
the strategy. As long as the U.S. Air Force is ready in Turkey, Qatar, Diego
Garcia and other air bases from which strategic bombers can operate, and as
long as both carriers and platforms capable of firing cruise missiles are
ready, the air war can be launched. The current speculation is for the air war
to begin within days of the Jan. 27 deadline. We expect that to be the case:
The days from Jan. 29 through Feb. 3 will provide excellent conditions for air
strikes.
An air war would take four to six weeks. The issue is not
early suppression of enemy air defenses or disruption of communications; both
undoubtedly can be achieved on a strategic and operational level within the
first week of operation. However, in anticipation of a ground war, the United
States first will attack Iraqi ground formations, including armored,
mechanized and infantry units. Attacking large formations is inevitably a
time-consuming process involving the delivery of munitions to targets. Also, a
large number of missions will need to be carried out, battle damage
assessments made and targets revisited. The goal will be to render Iraqi
formations incapable of resisting.
We would estimate a minimum of four
weeks for the anti-ground force mission. That would move us into March for the
ground war, with March 3-5 providing a reasonable window of opportunity. The
weather in early March remains acceptable, with increasing possibilities of
spring rains and flooding. Washington would like to have the operation
completed by mid-March.
It should be noted that the actual commencement
of ground operations need not be as clean as in 1991. There are persistent
reports of Israeli and other special forces operating in western Iraq, which
is lightly held. There are similar reports of U.S. forces operating in
northern Iraq, where Turkish forces are ever-present. Thus, the war could
include effective operations in western and northern Iraq while the air war
goes on in January.
The real issue will be in the south, where the
British are leaking promises of an amphibious attack. Stratfor's war plan,
‘Desert Slice,’ which appears to be the model being pursued here, views an
amphibious attack at the Shatt al Arab as likely, if the United States cannot
squeeze enough force into Kuwait. However, during Desert Storm, an amphibious
assault was not carried out but was merely threatened in order to hold Iraqi
troops in place along the coast. In either case, the attack in the south must
take place before any flooding is possible.
Allied forces must develop
a multi-axis line of attack, including a swing to the west to supplement any
movement north along river lines. Air power will be critical in breaking up
Iraqi formations on already unpleasant terrain. That means that the southern
attack is likely to be the last axis implemented.
This returns us -- as
it has over and over again -- to Baghdad and the fundamental imponderable in
the war: morale. There is little that is less quantifiable, less predictable
and more critical in war than morale and its twin, training. It cuts both
ways: An enemy's morale and training sometimes are wildly overestimated,
sometimes wildly underestimated, but rarely are they correctly evaluated.
The battle of Baghdad depends on morale and training more than on any other
single factor. If even a relatively small force decides to stand and fight and
has basic fighting skills, then taking Baghdad will become a brutal, bloody
process. If the Iraqi army shatters under the bombing and ground assault and
simply fails to resist, then taking Baghdad still will be complex but will not
be a problem.
In 1991, the United States overestimated the morale and
training of the Iraqi army, assuming that the blooded force that fought Iran
would put up a better fight. Of course, the forces deployed in Iraq were
cannon fodder, deployed for destruction. The United States did not engage
Republican Guard units in Baghdad. The current assumption is that the victory
of 1991 in Kuwait will be replicated throughout Iraq, using the same basic
combination of forces. That might well be true, but it will not be known until
after the battle is won.
That is why the United States needs to fight
earlier rather than later. After mid-March, rains turn some of the country
into a quagmire. Later still, the temperature rises, frequently making
operations in MOP-4 chemical protection suits unbearable. The temperature in
July can reach as high as 120 degrees Fahrenheit. Whoever said that summer is
not a problem either has never worn a MOP-4 suit at Fort Benning or Fort Bragg
on an ordinary summer day or knows that the Iraqi chemical weapons stash
doesn't exist or won't be used. You do not fight in the Iraqi summer if you
don't have to.
So, given that no one knows how long the battle for
Baghdad might last or if the United States and Britain will have to pull into
siege positions for an extended period, launching the battle of Baghdad as
early as possible is a military necessity. Its very unpredictability requires
that the battle be waged as early as possible. That means that the
commencement of the war cannot be put off much past Feb. 1. If it is, the
entire war could start to slide into April and May -- and that means that if
the Iraqi army doesn't simply crumble in Baghdad, the war could extend beyond
what the United States wants. Given other requirements, follow-up operations
in the region and the intensification of activity in Afghanistan, the last
thing the United States wants is to tie forces down around Baghdad.
All
of this argues for an air war beginning in late January or early February,
operations in the west and north beginning a week or so later and an attack
launched from Kuwait by early March. A lot of slippage will not be a good idea
here.” END QUOTE
Conclusions
While not absolutely certain, the odds of war with Iraq are huge. This is one
reason why stocks have been moving lower and oil prices higher in recent
days. These trends could continue (probably erratically) for several more
weeks as war preparations continue. For stocks, it remains to be seen if the
move down will provide an excellent buying opportunity, or if the bear market
has resumed. I tend to believe the former.
Whatever turns out to be the case, the equity markets will continue to be very
volatile which argues, once again, for market timing strategies that can get
you out of the market from time to time. My new Special Report on
Market Timing is available to you free on our website at
www.profutures.com. Or call us toll free at
800-348-3601.
As for oil prices, in addition to the strike in Venezuela, much depends on
whether or not Saddam Hussein destroys his oil fields and production
facilities. If at all possible, the US will not allow him to do this, and
such a move could actually be the catalyst which starts the war.
As we close out 2002, we learn that the economy was considerably stronger than
most analysts predicted a year ago, but very consistent with what The Bank
Credit Analyst forecasted. As I will discuss in more detail next week,
BCA is mildly optimistic about the US economy in 2003.
Let me thank those of you who have read and appreciated these weekly E-Letters
this year, and even those who have e-mailed us with opposing views and
thoughts. With the audience now over 1½ million people, there will
undoubtedly be those who agree and those who disagree.
To all, let me wish you a very happy and prosperous New Year!!
Warm holiday wishes,
Gary D. Halbert
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