Regime overthrow in Iran? Don’t get too excited (yet)


The US State Department seems to be openly welcoming the outbreak of spontaneous demonstrations in Iran selling it as the early steps of regime change. In fact it is more likely to help President Rouhani force economic changes he has been prevented from making due to deep seated corruption within the regime itself. Rouhani has tried to make economic changes for years to boost the economy but the regime has kept monopoly power over multiple industries which has impeded his ability to do it.

The Iranian banking system holds 10s of billions of dollars in non-performing loans which is weighing down the economy and undermining the potential for private-sector-led recovery. Given the increasing vulnerability of Iran’s financial system, the government urgently needs to restructure and recapitalize the banks. Iranian banks were weakened by a sluggish economy caused by the sanctions, state interference in lending decisions and lax regulations causing excessive competition with unlicensed financial institutions.

The country’s recovery could well slow since Trump has raised the possibility that sanctions could be reimposed or new sanctions introduced. It should come as no surprise that this has deterred many banks and other foreign companies from operating in Iran.

The Iranian government directly owns and operates hundreds of state-owned enterprises (SoE) and indirectly controls many companies in the private sector. Inflation (9%), price controls (e.g. milk, energy) designed to tame it and rising unemployment (12.4%) are really behind the protests than a direct call to overthrow the Islamic Republic. Still don’t rule out the US State Department rubbing its hands with glee to try to throw a spanner in the works. Easier done by crushing its economy by redeploying sanctions given the financial system is in such a precarious position.

We shouldn’t ignore the timing of the assasination of former Yemeni President Saleh in the last month. His death now gives Saudi Arabia more will to take heavier action against the Iran backed Houthi in Yemen. Now that Saudi Arabia has recently cleaned house with the arrests of royal family members to tighten the inner circle, it almost seems the stars are aligning for the ante to be upped on Iran.

While much has escaped the mainstream media, at the narrow Bab al-Mandeb Strait separating Yemen and Djibouti/Eritrea, multiple US, Saudi and Emirati warships have been attacked by Houthi rebel forces. In January 2017 a Saudi al-Madinah frigate was sunk in the strait. An Emirati HSV-2 swift naval craft was also put out of action in late 2015. Cargo ships (10% of global trade) make their way up the Red Sea via the Bab al-Mandeb Strait to the Suez Canal, could suffer if tensions rise here.

While many are distracted by the decision to move the US Embassy to Jerusalem as an unnecessary ‘in-the-face’ action, most Gulf States want Israel on their side to help them defend against and ultimately defeat Iran. It is only 7 months ago that the Saudis pushed to expel Qatar from the GCC for keeping cosy relations with Iran and supporting Hamas and the Houthi in Yemen. The South Pars/North Dome Gas Condensate field – the world’s largest natural gas field –  is jointly owned by Iran and Qatar which means divided loyalties between the GCC and Tehran.

Get ready for lots of fake news. Something tells CM that there is something more sinister at play.

A vote for Palestine or a vote against America? Double standards hidden in other votes


Why is anyone surprised by the UNGA vote on the recognition of Jerusalem as the capital of Israel?  At the UN General Assembly emergency meeting on Thursday to “null & void” the move – 128 votes in favour and nine against, while 35 countries abstained. While it can’t be vetoed it is not legally binding in any way. If one was to break down the vote of the permanent members then without question most of those issued from Russia or China are to stick it to the Americans more than support/reject the cause itself and vice versa . When Turkey’s foreign minister starts talking of not selling out democratic rights of others perhaps he should look to his own boss and question the dictatorship, the lack of freedom of press or an independent judiciary that exists in his own country?

People can stick it to Trump all they want, but a decision was made in mid 1990’s by US Congress, with a clause that had to be signed every 6 months by whomever was President to delay invocation of this act. Between 1998 and 2017, there have been 37 presidential waivers, with the last one expiring a week ago. Trump has just put the ball into motion. After all Presidents Bill Clinton, George W Bush and Barack Obama have all explicitly said on record that “Jerusalem has and always will be the capital of Israel” The irony of chastising the current president for doing what others said speaks of the hypocrisy of bashing a politician for fulfilling a promise. If only the global political class could catch this disease?!?

While it is hardly a surprise to see Trump’s reaction ‘to take names’ the flip side is that he should allow each UN member state to vote how they wish – period. He would be better off not pointing out the obvious. Indeed if “he doesn’t care” he should just act silently. The message will ring louder. All this posturing only seeks to make him look like a spoilt kid taking his toys home (then again one wonders if that is half the reason he does it. UN votes are meaningless to begin with and seldom have they ever achieved anything worthy.

The UN needs to be defunded in order to reform. It has promised many times to streamline yet it continues to expand into irrelevant quangos. The bloated tax free salaries, retirement packages and living allowances are obscene. Is there any wonder that the UN needs more funding, given 80% of the budget is swallowed up on remuneration alone? No wonder they don’t want progress.

While the truth may be that the US ‘pays’ a lot which ends up in the pockets of many countries, the US will likely go ahead and build the embassy in Jerusalem regardless. Political capital is often ‘bought’. It doesn’t make it right although one who gives to charity hopes that the money ends up supporting favorable causes. Indeed Nikki Haley when criticized for “bullying tactics” responded, “So, when we make a decision, at the will of the American people, about where to locate OUR embassy, we don’t expect those we’ve helped to target us…The free money train doesn’t go on forever.

Virtue has and never will be rewarded in politics. To make the point made by the UN’s very own website, some nations lose their right to vote because “according to Charter Article 19, cannot vote because the amount of their arrears equals or exceeds the amount of contributions due from them for the preceding two full years.” So in short if you don’t pay your dues, you lose voting rights. So the UN is basically a ‘club’. Don’t pay your dues, don’t get a vote. Simple. By the same token, some clubs give special treatment for members that pay more. Platinum, Gold, Silver, Bronze etc.

Here is a telling part of the hypocrisy. Look at the efforts made by these unelected UN representatives when exploring the number of abstentions on certain issues such as “Work of the Special Committee to Investigate Israeli Practices Affecting the Human Rights of the Palestinian People and Other Arabs of the Occupied Territories : resolution / adopted by the General Assembly“ So claiming victory and gloating about the embarrassment caused to the US, why  were there 77 abstentions in 2017, 73 abstentions in 2016, 75 in 2015, 79 in 2014, 75 in 203 and 72 in 2012? Notice a pattern? Surely if the evil Israelis don’t rightly deserve to call Jerusalem the capitol and are constantly attacked by the UNHRC for human rights abuses against the Palestinians, why are so many nations abstaining when it comes to investigating these crimes? Surely such evidence would justify the actions of rejecting Israel.

Claiming yesterday as a triumph for the world, the UN is still exposed for what it is. Few bother to look at how nations truly feel when exploring one derivative deeper. The lack of international will is telling. Then again when we only need look at the track record – WHO appointing Robert Mugabe as an ambassador, the proposal to  send in the blue helmets to quell crime in Chicago and the multiple scandals, the complete lack of governance and accountability with respect to the IPCC.

So until all those that vote to punish Israel don’t stick to the script on every vote then the truth is indeed told. Virtue signal on the surface and hide behind abstentions where it matters to ‘keep the funds coming’. Sorry, what was this about principles?

Yemen – Saleh’s death is the dangerous slice in the Iran & Saudi sandwich


Even before the Arab Spring, CM (in a previous life) wrote that Yemen was a trouble spot. It’s former President Ali Abdullah Saleh (Sunni) has died of natural causes – he was assassinated in a spate of tribal violence in the capital Sana’a yesterday. No stranger to being an oppressive tyrant during his rule, after being ousted in the Arab Spring he was in recent years working with the Houthi tribe (Shi’ite) to regain power before switching back to a US backed Saudi-friendly deal maker. He proved that power is more important than religious sect. However the Houthi weren’t prepared to suffer a turncoat who betrayed them so Saleh was duly dealt with.

Why is Saleh’s death important? What it now does is give Saudi Arabia more will to take more decisive action against the Iran backed Houthi. It is no surprise that Saudi Arabia has cleaned house with the arrests of  royal family members to tighten the inner circle. It smells like the early stages of broader tit-for-tat skirmishes before all out conflict ensues. Yemen is often argued as a proxy war between the two.

While many are distracted by the US Embassy to Jerusalem as an unnecessary ‘in-the-face” action, it is a very firm line in the sand to where the US cards already lie. No big surprises. For now most Gulf States want Israel on their side to help them defend against and ultimately defeat Iran.


At the narrow Bab al-Mandeb Strait separating Yemen and Djibouti/Eritrea, cargo ships make their way up the Red Sea to the Suez Canal, could become a major choke point. This year multiple US, Saudi and Emirati warships have been attacked by Houthi rebel forces. In January 2017 a  Saudi al-Madinah frigate was sunk in the strait. An Emirati HSV-2 swift naval craft was also put out of action in late 2015.


Safe access to the strait is crucial at present because of Egypt’s reliance on imported LNG to maintain stable electricity supply. One LNG tanker heads to Egypt each weeknight through the canal. Just under 10% of global trade goes through it as well. Any blockage or restricted access would force ships to sail the long way around the Horn of Africa adding another 40% to the journey. This would have significant impacts on shipping and trade. Markets aren’t factoring anything at this stage.

The problem with naval conflict is that Yemen is backed by Iran which in turn is one of Russia’s best clients. Iran possesses the SS-N-22 Sunburn missile which is a supersonic anti-ship missile which even the US has no answer for. In recent years this has been upgraded to the Super Sunburn (P-270) which is even more lethal. It is a ramjet which travels at Mach-3 meaning if fired inside a 100km range then the target is likely to be toast (video here). It can be launched from a ship, submarine or land.


Iran could blame a whole host of tribes (Sunni or Shia) sick of being under the jackboot of effective Saudi control/influence for an attack.

On December 2, Israeli jets bombed an Iranian military weapons base in Syria. Israel has warned Iran it won’t tolerate any military presence on Syrian soil. We shouldn’t forget that China has also deployed its special forces to Syria to help Assad. Clearly the Chinese see a good opportunity to clean up some of the spoils in the region. China is always happy to help out nations that are under sanction. It adds more mess into the geopolitical sphere.

While the GCC has stepped up its air attacks on Yemen post the death of Saleh, he was the only one that has been able to unite the country. Indeed it is possible that the secession of the south becomes an issue. At the time of reunification of North and South Yemen in 1990 many in the south felt their northern neighbors were pillaging too much of their oil reserve wealth. Even their private land was appropriated and spread among the Sana’a elite. Now that Saleh has gone, and Yemen fragmented again, we may see old scores settled. The Southern Movement (loyal to exiled President Hadi) in Yemen wants to take back what was stolen from them. So Saleh’s death may open a vacuum of more instability.

Iran would relish the opportunity of a fractured Yemen to further build its influence. Bab al-Mandeb may become a flashpoint to fight the proxy war. It is extremely messy, creates proper disruption and pushes Saudi Arabia and Iran closer to conflict.

Which ever way you cut it, diplomacy in the Middle East (what little there is) looks set to worsen. In a sense we are dealing with two large clients of Russia (Iran) and America (SA). Now China is siding with Russian interests by using it as a test run of its military muscle. China isn’t committing anything major but it wants to be at the negotiating table when it all goes pear shaped.

It smells very similar to the lead up to the Arab Spring. More turmoil and complacent markets which are not quite absorbing the realities of “local problems” spreading to another neighborhood. Sure we’ve seen many leaders overthrown in Libya, Tunisia, Egypt and so on in the last uprising but the pressure on Saudi is mounting hence the recent crackdown internally.

The other dark horse is Erdogan in Turkey. He is facing a corruption probe over money laundering to help Iran evade sanctions and he seems keen to externalise his problems so he can shut down the local threat. He is threatening to cut off ties with Israel if the US relocates the embassy but for a man with clear ambitions to revive the Ottoman Empire that fell less than 100 years ago that is a mere formality in the future.

The flashpoint remains Yemen. It has the perfect storm of a pawn in a global game of chess. While it whiffs of local tribes seeking revenge there are too many willing to help them achieve their aims which only plays to the broader ructions throughout the rest of the Middle East. Last week Houthi rebels launched a missile attack against the UAE nuclear power plant under construction. Power corrupts. Absolute power corrupts absolutely

Thoughts for the day – Group think, crypto and taxi drivers


It is important to challenge convention. I have had countless questions from people on bitcoin and crypto lately. Sort of reminded me of the above. Perhaps the golden rule of investing doesn’t lie in complex models and sci-fi scenario analysis but the simple question of whenever an overwhelming majority think something is great, it is time to take the opposing view and vice versa. I haven’t been in a taxi yet to confirm Bitcoin is overdone. As I put it – gold needs to be dug out of the ground with effort. The thing that spooks me about crypto (without trying to sound conspiracy theorist) is that state actors (most top end computer science grads in China end up working in the country’s cyber warfare teams), hackers or criminal minds (did you know 70% of top end computer science grads in Russia end up working for the mob (directly or indirectly) the value of coins in the system could be instantaneously wiped out at the stroke of a key. We’ve had small hiccups ($280m) only last week. So as much as the ‘security’ of these crypto currencies is often sold as bulletproof, none of them are ‘cyberproof’.

Think of why your Norton, Kaspersky or Trend Micro anti-virus software requires constant upgrading to prevent new threats trying to exploit new vulnerabilities in systems. We need only go back to the Stuxnet virus of 2010 which was installed inside computers controlling uranium centrifuges in Iran. The operators had no idea. The software told the brain of the centrifuges to spin at multiples faster than design spec could handle all the while the computer interface of the operators showed everything normal. After a while the machines melted down causing the complete destruction of the centrifuges which were controlled from a remote location.

So much in life is simple. Yet we have lawyers writing confusing sentences that carry on for pages and pages, politicians complicating simple tasks, oil companies trying to convince us their additives are superior to others and so on. The reality is we just have to ask ourselves that one question from Mark Twain,

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

Israel & Saudi cooperation a surprise to Bloomberg News


Bloomberg has written a puff piece wrapped in surprise on how the Saudi’s are likely to seek Israeli approval for a bridge which crosses from a new city Neom to Africa. There is one reason and one alone – Israel has a naval base at the Port of Eilat (in blue) at the southern tip of the country. If the height of the bridge is too low and surface naval ships can’t pass then the navy would be boxed in. Almost like ships in the Black Sea. So of course the Saudis won’t do it single handedly.

As much as people might think the Saudis hate Israel, they acknowledge the security Israel buys them vis-a-vis defending against a mutual enemy in the form of the Iranians who are active on SA’s southern border with Yemen. The Iranian Revolutionary Guard has been active in Yemen, Syria, Gaza, Lebanon and Iraq in recent decades supplying weapons and training. So sometimes mutual benefits (peace between the two countries) outweighs trying to  pull a fast one on them. It is likely the US State Department might send a friendly reminder of what is at stake geopolitically. In actual fact this discussion has been ongoing for a long time.

Hunger strike to protest conditions or his own political party?


Much publicity surrounds the hunger strike by Palestinian inmates over conditions in Israeli prisons. The movement is being led by Marwan Hasib Ibrahim Barghouti, a Palestinian political figure convicted and imprisoned on 5 counts of murder. What many press reports fail to note is that this is more about attacking Fatah than Israel, although the latter brings welcome global condemnation. Barghouti is often thought of a successor to Abbas. His move is an attempt to send a message to the Fatah leadership and to Abbas, who excluded his representatives from a recently held Central Committee meeting which didn’t give him the position of deputy chair to the Palestinian Authority. He is influential even from jail.

What The Guardian and other papers failed to qualify is the prisoners demands go to wanting more TV channels and access to “mobile” phones. Banning the use of mobile phones in prison is a no brainer. Mobile phones are often smuggled into prisons but their ban makes complete sense and interference technology is often required as a safety precaution. Prisoner phone calls are monitored for obvious reasons. Access to education is a sticking point due to the rescinding of such rights for convicted terrorists in 2011. All other inmates are entitled to government sponsored education. Palestinian prisoners are after the resumption of a second monthly visit by family members which was a benefit that the International Committee of the Red Cross (ICRC) cancelled due to budget cuts.

The Israeli Prison Services facilities, interrogation rooms, and the IDF provisional detention centers are visited by the ICRC and other bodies. They meet all international guidelines. There are 7,000 Palestinian inmates. By way of reference there are 18,000 prisoners in Israeli jails, excluding 15,000 Israeli military personnel incarcerated for being AWOL (70%) or charged with disciplinary violations (25%).

While Israeli prison conditions may not be the pinnacle of luxury, compared to countries that fail international guidelines (e.g. Thailand where more than 260,000 inmates are incarcerated in 148 prisons with an original capacity of less than 120,000) where is the international outrage over that? Thai prisoners are regularly shackled, beaten and stuffed into overcrowded cells. In Venezuela this year a mass grave with 15 bodies – several of them beheaded – was discovered inside the General Penitentiary in Guárico. Corruption, weak security details, aging infrastructure, overcrowding, poorly trained and insufficient guards allow armed gangs to exercise effective control over inmate populations. The government still hasn’t properly investigated years of ‘missing’ prisoners that have been recorded as ‘escaped’. The 15 bodies were discovered by workers who were updating the prison’s infrastructure.