Aug 4th 2015

A Republican President and the Next War

by Daniel Wagner

Daniel Wagner is CEO of Country Risk Solutions, a Connecticut-based cross-border risk advisory firm and author of the book Managing Country Risk. CRS provides a range of services related to the management of cross-border risk. He is also Senior Advisor with Gnarus Advisors.

How many combustible ingredients does it take to create a war? In this case, three. Just combine collapsed global commodity prices, sprinkle in a highly controversial agreement between the West and Iran, and add a Republican president in the U.S., and voila! Can you think of another way to pump up the global economy while stopping Iran's growing influence in the Middle East and reversing America's isolationism? Let's break this down.

Ingredient one: Many commodity prices have tumbled to multi-year lows, with crude oil and molybdenum down 54%, iron ore down 67%, nickel down 40%, and sugar down 38% in the past 12 months. Gold, platinum, aluminum and copper have all taken a significant hit. Commodity producing countries have suffered greatly, and many of their currencies have tanked, with the Russian rouble down 68%, the Brazilian real down 51%, the Angolan kwanza down 29%, and the Australian dollar down 22% over the past year. As long as China continues its downward economic slide, commodity producing countries will continue to get hammered. The ride is nice on the way up, but it is really painful on the way down. Many of the people in these countries, and the governments themselves, are asking how long this slide can last.

Ingredient two: The Iran deal can really only go one of two ways in the U.S. Congress - either it is approved outright (which seems highly unlikely), or a rejection is sent to President Obama, who will promptly veto it. Given current sentiment in Congress, and an increasingly reticent U.S. populace (the more they learn about it, the less they like it ), an override of that veto indeed seems possible. If it is overridden, the Iranians may be expected to ramp up their nuclear program and their trouble making throughout the Middle East (the latter should happen, regardless). If it is not overridden, and a Republican becomes president in the U.S. next year, he (or she) is likely to place reneging on the deal as job number one.

Ingredient three: A Democratic presidential candidate has only succeeded in following a Democratic president into the White House twice since 1828, when the modern two-party system began -- only in 1836 and in 1940 (when Roosevelt succeeded himself for an unprecedented third term). Democrats have failed to succeed themselves in the White House in four of their last five attempts. History is not on their side, particularly as it appears that much of the country is ready for yet another tidal political shift.

Nearly all of the Republican presidential candidates have been vociferous in their hatred of the Iran deal, and if a majority Republican Congress is elected in 2016, the Iran deal will probably have a short life -- if it has one at all. Moreover, the Republican field has not exactly been shy in announcing their intention to 'make America proud again' ('pride' in this case means 'muscle flexing' and future military misadventures).

So, if a 'pride' seeker makes it to the White House -- regardless of whether a majority Republican Congress accompanies him (or her) -- military engagement of some sort seems inevitable. Apart from the Islamic State, there is no other target more tempting for a hawkish new president than Iran. Perhaps he (or she) will want to engage them both, at the same time. Stranger things have happened.

The combustible mix of plunging commodity prices, significant opposition to the Iran deal, and the likelihood that a Republican will be the next U.S. president has set the stage for the distinct possibility that the U.S. will once again become engaged in a major military conflict. Since America's founding, the country has been involved in a total of 16 wars, and Republicans have been president 10 out of the 16 times, so there is an historical predisposition for Republicans to become involved in wars more than Democrats.

Throughout history, there are many instances when war has prompted the rise of commodity prices ranging from oil to cotton to wheat to cocoa. Is it far-fetched to imagine that war could be waged simply to ensure a rise in the price of oil? We need look no further than America's invasion of Iraq to know the answer to that, but it had a hugely significant impact on a whole range of commodity prices (the inflation adjusted price of oil was $36 in 2003 and $100 by 2008; corn was $98 in 2003 and $287 in 2008 , and gold was $441 when the war started in 2003 and $1083 exactly five years later ). If most of the world's major commodities are depressed, given the way world works (oligarchs, power brokers, lobbyists, and all that), it is not fantasy to imagine it could happen again.

In short, we are facing a potentially highly combustible mix of factors that could lead to war in 2017. As long as China continues its slide (and it will), no one expects commodity prices to rise. Whether the Iran deal is approved or not by the U.S. Congress this year, it is likely to be 'addressed' by a new president and Congress in 2017. And if history is any guide, a Republican will be sitting in the White House in January 2017. Add to that another historical fact: the U.S. is well overdue for another recession, which could occur as soon as next year. Put it all together and there is ample reason to believe that America will be fighting a new war in 2017.



Daniel Wagner is CEO of Country Risk Solutions and author of "Managing Country Risk", please see below for link to Amazon. For Country Risk Solutions' web site, please click here.

You can follow Daniel Wagner on Twitter: www.twitter.com/countryriskmgmt


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