At a meeting of Middle Eastern, European, Asian, and American strategic analysts in Dubai last week, it quickly became clear that the common American view of the situation in the Persian Gulf region is only about 180 degrees away from that of the rest of the world.
Start with the notion of creating a democracy in Iraq as a way of catalyzing movement to democracy throughout the region. Analysts from the Middle East and elsewhere note that much of the current trouble is rooted in the American overthrow of the democratically elected government of Mohammed Mossadeq in Iran in the early 1950s. In his place the U.S. government installed Shah Reza Pahlevi to whom it tried to outsource hegemony over the Gulf and its vast oil wealth. When the Shah’s dictatorship was overthrown by the Islamic forces of the Ayatollah Khomeini, the U.S. government responded by eventually supporting Iraqi leader Saddam Hussein in his war with Iran. This war, of course, involved the now infamous gassing by Saddam of the Kurds of northern Iraq. Though strongly condemned by the present Bush administration, this action was neither condemned nor even recognized by officials of the Reagan administration at the time. Nor did the United States and United Nations forces attempt to establish a democracy in Iraq at the conclusion of the first Gulf War in 1992. In view of this history, there is great skepticism abroad about U.S. rhetoric on creating democracies.
On top of that, there is the practical question of compatible objectives. On the one hand, the United States is highly dependent on the royal family of Saudi Arabia. On the other, the U.S. government is calling for a democratic movement that would surely be a threat to the continued rule of that family. Few in the Middle East or Europe of the rest of Asia believe the United States really wants to see any quick demise of the House of Saud.
A second major divergence between U.S. and other views is on the question of who is winning in Iraq. The debate in Washington tends to center around whether Al Qaeda and its allies in the Iraqi insurgency have the upper hand or whether it is the government forces backed by America that are gaining ground. In Dubai, the word is that it is the Iranians who are picking up all the marbles. Observers in the region say the Iranians have thoroughly penetrated the key Iraqi government agencies, Shia groups, and militias and that they have far more effective reach and influence on the ground than the U.S. forces. In the view of the region’s experts, it is the Iranians rather than the Americans who will have the decisive influence on how the situation in Iraq evolves. This is particularly the case, because it is clear that the Americans are already beginning to plan a pull out and that they will be largely out of Iraq and region within a fairly short time. By contrast, the Iranians are there to stay, and, in the absence of a strong or even a coherent government in Baghdad, it is they who are likely to dominate the Gulf. On this view, far from demonstrating their power, the American performance in the war so far has demonstrated its weakness and declining influence.
Finally, there is the issue of the dollar and American economic power. In Washington and on Wall Street the picture of a robust and uniquely strong U.S. economy is painted. American GDP growth is high, unemployment is low, interest rates, while rising, are still relatively low and American inventive genius is said to be unparalleled. From Dubai, however, the view is that America’s large and growing trade (technically current account) deficit means that the whole performance has to be financed by a daily inflow of $3 billion of foreign capital, much of it from the Gulf states. Were this to slow up even a little bit, U.S. interest rates would shoot up and/or the dollar would fall, and the economy would take on a very troubled look.
Even more important, is concern in Dubai about the future of the dollar. With the world’s central banks flooded with dollars, many observers are beginning to predict a major dollar devaluation. Indeed, several Gulf countries are already hedging their dollar exposure by holding equivalent amounts of Euros. There is even talk of beginning to price oil in something other than dollars, perhaps a basket of currencies like the dollar, euro, and yen, for example. Indeed, as the Gulf Cooperation Council (GCC) countries move toward a common currency in 2010, many observers believe they will increasingly sell their dollar reserves for other reserve currencies, thereby putting constant downward pressure on the value of the dollar and hastening the day when it will cease to be the world’s currency.
This gap between American and foreign perceptions of reality is dangerous and needs to be closed as rapidly as possible. It’s time the U.S. media and think tanks began presenting a picture of reality seen through the eyes of people on the ground rather than through the eyes of Washington officials.
Clyde Prestowitz is President of the Economic Strategy Institute and the author most recently of Three Billion New Capitalists; The Great Shift of Wealth and Power to the East.