Bavar-2: Iran's Flying Boat

Iran's Defiance!

In his latest piece, Wall Street Greek Global Affairs Columnist Daniel Padovano reviews Iran's latest asymmetrical warfare mechanism, the Bavar-2, Iran's flying boat. Three small squadrons of these pesky crafts threaten to disrupt the Strait of Hormuz should conflict erupt between Iran and its foes.

Daniel Padovano is an accredited historian and professor, with specialty in modern Middle Eastern and North American affairs. He is a regular columnist of the globally syndicated blog, Wall Street Greek, and has composed a series of articles for the publication on the topic of Iran.

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Bavar-2: Iran's Flying Boat

At the close of Iran's "Week of Sacred Defense" on September 28, 2010, commemorating the 1980-1988 Iran-Iraq war, Iran showcased its newest weapon, the Bavar-2. The Bavar-2 is a domestically produced fixed wing flying boat.

Iran's Defense Minister, Brig. Gen. Ahmad Vahidi said that:

"The Islamic Republic of Iran is one of the few countries which managed to design, build and use flying boats in a short time".



The concept of flying boats is not new; the Soviet Union embarked on such an undertaking back in the 1980's. The image above illustrates advanced Russian efforts on WIG Boats (Wing-in-Ground effect - also know as WISE or Wing in Surface Effect Ship).

Iran's flying boat, the Bavar-2 (Bavar is translated as Defiance), is a small two-man reconnaissance boat designed to fly at low altitudes. The Bavar-2 has an estimated top speed of 100 knots. The Bavar-2 is equipped with cameras and at least one machine gun. Future plans call for the addition of a second machine gun and possibly small missiles.

Iran claims that the Bavar-2 has stealth capability; however this has not been independently confirmed. If true, this new weapon system could greatly enhance Iran's military capability in the Persian Gulf. Stealth capability is questionable because of the loud sound of the overhead propeller. This protrusion also adds squares and angles to an otherwise sleek and curved profile which enhances stealth capabilities.

As a strategic weapon, the Bavar-2's value is an unproven quantity; however it is an example of asymmetric warfare (where one side uses low technology to offset an adversary's superior technical advantages).

On its own, the Bavar-2 will allow Iran to more closely and rapidly assess and know ship position and movements throughout the Gulf, and its own coastal areas. The Bavar-2 has the capability to harass vessels, but would stand little chance against a military or armed civilian ship if engaged in combat under its present configuration.

The true value of the Bavar-2 is that of a decoy vessel. Reconnoitering or "buzzing" civilian or military vessels would distract coalition or U.S. naval patrols. Buzzing ships can confuse and potentially overwhelm the target's observational and defensive capabilities, thereby allowing other elements of Iran's military to engage in more strategic operations. These other strategic operations could include mining and closing the Straits of Hormuz, or attacking targets of greater value and worth. The potential use of these flying boats as a kamikaze-type weapon cannot be underestimated, especially in a narrow waterway as the Straits of Hormuz.

According to press releases, three squadrons of these flying boats have been fielded and are under the command of the Islamic Republican Guard Corps (IRGC). They are currently based in Bandar Abbas, conveniently near the Straits of Hormuz.



Article Interests WisdomTree Middle East Dividend Fund (Nasdaq: GULF), T. Rowe Price Africa & Middle East Fund (Nasdaq: TRAMX), T. Rowe Price Institutional Africa & Middle East Fund (Nasdaq: TRIAX), Aberdeen Israel Fund (NYSE: ISL), Aberdeen Israel Fund (Nasdaq: XISLX), Northrop Grumman (NYSE: NOC), Raytheon (NYSE: RTN), Alliant Techsystems (NYSE: ATK), Lockheed Martin (NYSE: LMT), Boeing (NYSE: BA), NYSE: IWM, NYSE: TWM, NYSE: IWD, Honeywell (NYSE: HON), General Dynamics (NYSE: GD), Rockwell Collins (NYSE: COL), Goodrich (NYSE: GR), L-3 Communications (NYSE: LLL), SAIC (NYSE: SAI), FLIR Systems (Nasdaq: FLIR), EMBRAER (NYSE: ERJ), Spirit Aerosystems (NYSE: SPR), BE Aerospace (Nasdaq: BEAV), TransDigm Group (NYSE: TDG), CAE (NYSE: CAE), Hexcel (NYSE: HXL), Esterline Technologies (NYSE: ESL), Teledyne Technologies (NYSE: TDY), Curtiss-Wright (NYSE: CW), HEICO (NYSE: HEI), Triumph Group (NYSE: TGI), Orbital Sciences (NYSE: ORB), AAR Corp. (NYSE: AIR), Kaman Corp. (Nasdaq: KAMN), AeroVironment (Nasdaq: AVAV), Smith & Wesson (Nasdaq: SWHC), DigitalGlobe (NYSE: DGI), GenCorp (NYSE: GY), Hawk (AMEX: HWK), LMI Aerospace (Nasdaq: LMIA), Exxon Mobil (NYSE: XOM), BP (NYSE: BP), Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP), Encana (NYSE: ECA), Eni SpA (NYSE: E), Enterprise GP Holding (NYSE: EPE), Petrobras (NYSE: PZE), PetroChina (NYSE: PTR), Repsol YPF SA (NYSE: REP), Total SA (NYSE: TOT), Halliburton (NYSE: HAL) and Schlumberger (NYSE: SLB).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

HMI Reaction Shows Stocks Priced in Bad but Not Worst Case Scenario (Iran)

The reaction of housing stocks to today's depressing Housing Market Index seems to say the bad news has been well understood and priced in. The solid earnings report of a housing stock, Lennar, also went far in keeping homebuilder shares in the green today. However, global events bring our attention to the worst case scenario, which is not only absent in the valuation of housing stocks, but ignored by the entire market. We suggest our President tread carefully with regard to Iran, given the current vulnerability of our economy. We further urge our government to focus the entirety of its attention to first curing the economic situation and labor problem, before placing a vulnerable economy in the line of fire.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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HMI Reaction Shows Stocks Priced in the Bad, but NOT the Worst Case Scenario: Iran

The Housing Market Index (HMI) for September stuck at a very low mark of 13, matching both August and the low point reached in March of 2009. Oh by the way, that was the low point for the stock market as well, when full panic had a grip of every American, especially those with 401K plans dwindling away. Thus, this latest check of builder confidence is worrisome, and it supports our case for a double dip in home prices and possibly the economy generally, should some new catalyst find this sensitive economic situation.

What sort of catalyst do I suggest? Well, there are more than enough possibilities, like for instance sovereign default within Europe; the disintegration of the European Union's troubled euro; an asset bubble burst in China, which would hurt the domestic demand that is supporting US manufacturing now; a significant terror attack (though we can’t live in fear of it); the loss of control of government debt and entitlement programs; war in any oil sensitive market, like Venezuela for instance.

And there is one major risk in focus this week, which threatens to send shipping costs skyrocketing and the economy deep into recession at a moment's notice. That moment would be the one in which Israel and/or the United States and Western nations engage Iran in conflict. Though this may be the necessary step, it would also mark the moment when Iran launches missiles, aircraft and maybe even troops, perhaps all over the Middle East, but most likely toward Israel and maybe into Kuwait, Iraq, Saudi Arabia, and Afghanistan. That's the day all hell breaks loose and oil prices top $150 on their way to plus $200 per barrel. Iran's real reaction may fall significantly shorter than where we have forecast, but we have not even spoken of China's reaction, given a major source of its oil supply could be shut to it.

So yes, things could get worse, and yes we do sit on the brink of economic depression; and yes, our government had better tread carefully while our economy is so vulnerable.

The Housing Market Index is sad enough, even without such a risk. Who needs a catalyst with homebuilder confidence already so low just on the lack of demand and the flood of distressed properties to meet that slim pool of home shoppers. Who needs such catalyst when banks will not give money away like they used to. Who needs such a catalyst when 10% of America is unemployed and another 7% not making enough money to pay for basic necessities, let alone a new home. They can't qualify for the loan anyway, not even applying old standards of lending (the legal ones anyway).

The National Association of Home Buiders' published its report today, and we quote: "In general, builders haven't seen any reason for improved optimism in market conditions over the past month," noted NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "If anything, consumer uncertainty has increased, and builders feel their hands are tied until potential home buyers feel more secure about the job market and economy."

"The stall in the nation's housing market continues," agreed NAHB Chief Economist David Crowe. "Builders report that the two leading obstacles to new-home sales right now are consumer reluctance in the face of the poor job market and the large number of foreclosed properties for sale. However, we do expect that moderate improvement in the job market will help boost consumer confidence and improve conditions for new-home sales in this year's final quarter." I'm not so sure about that last part!

The component indexes measuring current business (measured 13) and opportunities over the next six months (18) stuck at the same low marks seen in August. Perhaps these readings are so low now, that any further deterioration will be hard to find in the index. In other words, this may be about as bad as it gets for homebuilders.

The industry also reported that foot traffic dropped in September, as that index fell a point to a depressing mark of 9. I would have to say this is the most important component reported, as it measures real business opportunity.

By now, Greek readers are well aware of the impact the First-Time Homebuyers Tax Credit had on housing. At this point, you must understand that the synthetic demand it created was limited to the few folks in position to buy their first home, or who qualified for the tax incentives offered when the law was expanded. By now you understand that economic activity of the sort we are mired in, with unemployment laboring all things, cannot support gains in housing nor any consumption.

Regionally speaking, it looks as though the softening manufacturing space is having an impact on Midwestern activity, with the regional index dropping three points to a mark of 12. The honeymoon is indeed over in Detroit, and so those of you thinking about buying into GM's IPO, might think twice about the timing. It's certainly suspect that the offering is being sought this soon.

In the densely populated Northeast, the index also fell 3 points to a mark of 16. It seems it would be difficult for the West to get worse, as that index now sits at 8, unchanged from August. Only the South improved, with the regional measure gaining two points, to a mark of 14. Perhaps oil slick slowed Gulf activity is returning toward normal now, which would explain the different direction posted by the region's homebuilders.

Given the state of affairs was already understood to be harsh by the stock market, the report has had little impact on trading Monday. In fact, the Dow is up about 1% at this hour. Toll Brothers (NYSE: TOL), an important high-end homebuilder, saw share rise of 3% thus far today, as the entire housing sector benefited from a good report from Lennar (NYSE: LEN). LEN shares were up 9% at the hour of publishing, so a pretty bad scenario has already been priced in.

However, we argue the worst case scenario is one nobody wants to think about, and would send these shares tumbling, along with the entire market. Tread carefully my dear President. The economy is of highest priority now, because nothing else can be addressed until it is off cliff's edge vulnerability.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX and Avatar Holdings (Nasdaq: AVTR), NYSE: HON, NYSE: GD, NYSE: COL, NYSE: GR, NYSE: LLL, NYSE: SAI, Nasdaq: FLIR, NYSE: ERJ, NYSE: SPR, Nasdaq: BEAV, NYSE: TDG, NYSE: CAE, NYSE: HXL, NYSE: ESL, NYSE: TDY, NYSE: CW, NYSE: HEI, NYSE: TGI, NYSE: ORB, NYSE: AIR, Nasdaq: KAMN, Nasdaq: AVAV, Nasdaq: SWHC, NYSE: HWK, Nasdaq: LMIA, NYSE: XOM, NYSE: BP, NYSE: CVX, NYSE: COP, NYSE: ECA, NYSE: E, NYSE: EPE, NYSE: PZE, NYSE: PTR, NYSE: REP, NYSE: TOT, NYSE: WMZ, Nasdaq: GULF, Nasdaq: TRAMX, Nasdaq: TRIAX, NYSE: ISL, Nasdaq: XISLX, NYSE: NOC, NYSE: RTN, NYSE: ATK, NYSE: LMT, NYSE: BA, NYSE: IWM, NYSE: TWM, NYSE: IWD.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Target Iran: Rumors or Disinformation?

Global Affairs

Wall Street Greek's Global Affairs & Geopolitics Columnist Daniel Padovano discusses a rumored military build up around Iranian territory. Mr. Padovano analyzes for us the possibility of the legitimacy of such information, and discusses potential strategy for a serious advance against Iranian nuclear facilities.

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Target Iran: Rumors or Disinformation?

The international news media has been largely silent on rumors of military movements that could quite possibly be the forerunner of an attack against Iran. Any attack against Iran in this context would be against Iran's emerging nuclear weapons capability.

News reports circulating over the last week claim that American ground forces are in place in Azerbaijan for possible deployment against Iran. Other news reports claim that Israeli troops are in Azerbaijan with the Americans. During the last week, a U.S. aircraft carrier battle group sailed through the Suez Canal south to the Arabian Sea. According to several news stories, one Israeli warship sailed with the American aircraft carrier battle group. Israel is also supposedly to have forward positioned aircraft in Tabuk, Saudi Arabia for a possible strike against Iran. The Times of London reported a week ago Sunday that Saudi Arabia would allow Israel to cross Saudi airspace in the event Israel opted to attack Iran's nuclear facilities.

The question that begs to be answered is this: Are these stories true, with an attack in the planning stages, or is this just disinformation meant to confuse the Iranians? Examining the claims in the news reports does open up some chilling possibilities.

One thing to keep in mind is that the dearth of these stories in the mainstream press may lead some to see these as rumors, wishful thinking and yellow journalism. Critics liken this to a news blackout. This closely resembles the prelude to the American invasion of Afghanistan.

What if these rumors turn out to be real? What are the pros and cons? What would be the strategy?

The planning and positioning of military assets would be daunting and not something done quickly. The reports claim that both American and Israeli forces are involved. Given the state of relations between the two countries, both governments must feel certain that the Iranian threat is much more dangerous than previously believed.

Coordination and agreements would need to be arranged between the U.S., Russia, Azerbaijan, Israel, Saudi Arabia and possibly both Iraq and Kuwait. Not an easy feat, even in the best of times.

The positioning of troops in Azerbaijan, deployment of additional ships in the Red and Arabian Seas and redeployed aircraft in Saudi Arabia indicate that any action against Iran would not be short term. Instead, this would be a prolonged military action involving joint operations between ground, air and maritime forces.

Airfields in Azerbaijan and Georgia could host American and Israeli aircraft, but most are near urban centers and share space with civilian air fields. The element of surprise would be lost. Although a public view of this buildup would send many messages to Iran. Using any airfield in Georgia and Azerbaijan would most certainly require Russian approval. Another concern for the U.S. is the ability of Azeri or Georgian airfields to accommodate American military aircraft.

Ground forces transported from Azerbaijan could be used to seize Iranian nuclear related facilities in Bonab, Tabriz, Mo-Allem Kalayeh, Kalaj and the weapons development center in Chalus on the Caspian shoreline.

Maritime forces in the region include two aircraft carrier battle groups and one amphibious battle group. These include the aircraft carriers Harry S. Truman (CVAN-75) and the Dwight D. Eisenhower (CVAN-69) and the helicopter carrier Nassau (LHA-4). The three battle groups are part of the 5th Fleet. Each aircraft carrier battle group includes the aircraft carrier supported and defended by twenty to thirty ships including guided missile cruisers, frigates, supply ships and attack submarines. These assets would be used to thwart Iranian moves to close the Strait of Hormuz as well as to tie down Iran's coastal defenses.

The Iranians could easily clog the Strait of Hormuz with mines or sunk ships. This is no small matter as 40% of the world's oil transits the Strait of Hormuz daily.

The air power is the main element. The Tabuk airfield is home to King Abdul Aziz Military City and the King Faisal Royal Saudi Arabian Air Force base. The U.S. Military Training Mission is also based at this facility. Tabuk has a unique geographical feature: it lies in an almost straight line as Bandar Bushehr, the location of Iran's only working nuclear reactor. The distance is just about 1,000 kilometers. Attacking aircraft could fly low (below radar view) before launching missiles at the Bushehr facility. Planned properly, this would be an attack the Iranians would not detect until the plant was already under fire.

Similar flight paths would also make attacks against Arak (heavy water processing), Isfahan (gas exchange and storage) and Natanz (uranium enrichment) much easier to plan and execute.

Attacks could also target Iranian petroleum pipeline junctions near Tabriz, Ahvaz, Bandar-Abbas, Isfahan and Tehran. Disrupting Iranian oil and gas production and transport could be just as fatal to Iran as attacking its nuclear facilities.

Time will answer these questions, and that time may be much sooner than later.



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Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Iran's Nuclear Shell Game

A Brave New World in the Making?

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The recent G-20 Summit in Pittsburgh, Pennsylvania provided the setting for the P5+1 talks held in Geneva, Switzerland during the latter part of last week. On September 23, Iran notified the International Atomic Energy Commission that it was indeed constructing a second nuclear enrichment facility. The "new" facility is located some 30km north of Qom, in central eastern Iran. Qom, as many are aware is the center of Iran's clerical teaching and a holy city for the followers of Shi'ism. (Shi'ism is the state religion of the Islamic Republic of Iran).

Iran's Nuclear Shell Game

IAEA Director General Mohamed El-Baradei met with Iranian officials on October 3, 2009 to begin the verification and inspection process of the Qom facility.

The announcement by Iran, one day before President Barak Obama announced this news was seen by many as progress on the issue of Iran becoming more transparent about their nuclear program. For others, this was old news, as the existence of a second site was common knowledge among intelligence circles for several years.

The site of the facility is located on a military base under the command of the Islamic Revolutionary Guards Corps. As seen from satellite photographs, the facility, which is built on a mountain, has a large building with triple layered steel reinforced concrete. Nearby ventilation shafts indicate that a large portion of the facility may be built underground. Three anti aircraft batteries protect the facility as well.

According to Iran, the facility has 3,000 centrifuges for the refinement of nuclear fuel. According to military analysts, this is more than needed for a civilian facility, but enough for possible military needs such as nuclear weapons production.

Iran claims that their nuclear energy program is for peaceful purposes, ostensibly to enhance domestic energy supplies. The West, Israel and neighboring states dispute this, claiming Iran's large nuclear program and dispersion of nuclear facilities is geared towards the production of nuclear weapons. Looking at Iran's nuclear program and its facilities, and then looking at Iran's rapid development of ballistic missiles, and President Ahmadinejad's call for Israel's total destruction does little to dissuade these fears.

Iran has numerous nuclear facilities; in the south, along the Persian Gulf are the nuclear reactors at Bushehr. Bushehr has two water pressurized water reactors. To date, Russia has not yet completed delivery of enriched uranium needed to bring the facility fully on line. Other reactors are located in Arak and Isfahan. The Arak facility includes a heavy water reactor; however this has raised concerns. Heavy water is used to moderate the nuclear reaction (as far as is known). Heavy water is also used in the production process whereby uranium is converted into weapons grade plutonium.

Enrichment facilities include: Qom with an estimated 3,000 centrifuges; Natanz with 4,592 working centrifuges and another 3,716 installed but not yet operational; Ramandeh and Lashkar-Abad. Another enrichment site is suspected to exist at Darkhouin. Uranium ore purification and uranium conversion are performed at Ardakan and Fasa, respectively. A heavy water plant is situated in Khondab. The uranium conversion facility at Isfahan can convert uranium into three forms: hexafluoride gas, uranium oxide (a nuclear fuel, although not compatible with Iran's existing reactors) and metal. The metal form is used in nuclear weapons; according to sources, Iran's existing reactors do not need this form to operate.

Uranium ore is extracted in central Iran near the city of Yazd. Mining facilities are located in Saghand, Narigan, Zarigan and Yazd.

Most of the research facilities are located in northern Iran and include: Tehran where the headquarters of Iran's Atomic Energy Office is located, Sharif University and the Kalaye Electric company (which produces components for the centrifuges). Other research facilities are located in: Tabriz, Bonab, Chalus (which is also a weapons and research and development center), Karaj, Jabr Iban Hagan, Damarand and Gorgan.

Several of Iran's missile research, development and testing facilities are located in or neighbor the same sites as the nuclear research facilities. These include Isfahan, Arak, Qom, Karaj and Tehran. Things that make you think: "Mmmm…."

The P5+1-Iran talks gets its moniker from the nations meeting to discuss Iran's ongoing nuclear program: The United States, United Kingdom, France, Russia, China, Germany and Iran. The goal of the meetings is to get Iran to open fully its nuclear program, including IAEA inspection of the "new" Qom facility. It is also hoped that Iran can be persuaded from further developing its (potential) capability to develop nuclear weapons. If not, the United States will aim for "crippling sanctions" against Iran's telecommunications, business and energy sectors.

In aiming for sanctions in the event of Iranian non-compliance, President Obama is attempting to secure, as well as portray, a "world" front against Iran. The P5 nations are also the permanent members of the U.N. Security Council. German inclusion seems more as a nod to the European Union (EU).

The idea of crippling sanctions is feasible, but only if Russia and China agree to do so. In the planned sanctions regime, President Obama seeks to cut Iran's energy supplies from the outside, including supplies from Russia. Although Iran pumps a lot of oil, it refines very little. Iran exports its own oil overseas for refinement and retransport back to Iran.

Iran's lack of refineries is due to lack of investment and construction due to current US law, although sanctions against Libya have expired. The Iran-Libya Sanctions Act of 1996 blocks US companies and their subsidiaries from working in, or dealing directly with, Iran; and blocks Iranian companies from dealing with, and working in, the United States. Foreign companies dealing with American finance and energy firms are also subject to numerous provisions of this Act. Iran has also chosen to spend its own monies on other projects including subsidizing domestic oil prices. Foreign firms have also held back due to the uncertainties and hostility of the Iranian regime.

Russia has grudges against the United States, centering on acknowledging Russian dominance in Eastern Europe including Poland, and the Baltic nations, all four of which are NATO members (also the Ukraine and the Trans-Caucasia). This issue remains unresolved in Russia's eyes, and Russia could very well use Iran as leverage against the U.S. It is also uncertain whether or not China would follow a sanctions regime.

Sanctions against Iran's telecommunications sector might also be difficult as French and German firms have interests in Iran.

President Obama's plan for "crippling sanctions" is also geared to temper Israel's response to Iran's nuclear program. Obama's hope is that Iran can be nudged into opening up its program and not producing nuclear weapons. Israel, taking to heart President Ahmadinejad's threats to "wipe Israel off the map," has warned that if its national interest and existence is threatened, it will attack Iran... and if need be, unilaterally.

How things proceed from here may very well define Obama's presidency. Foreign states and their leaders perceive the American president as new, but weak and easily distracted. American protection is also doubted by Russia and several NATO allies (Poland and the Czech Republic) due to America's reversal of basing missile defenses in both countries. Israel is beginning to think that American protection, if not outright alliance, could be sacrificed in order to mollify Iran or other Middle Eastern states.

How these perceptions and how the reality of any sanctions play out is yet to be seen. Future actions will decide on how both sides reach each other, and how and what type of intelligence is available and believed. The following could apply and occur:

1. Iran's acceptance of inspections progresses as hoped for: Most likely, Iran only shows what it wants to be shown. The inspectors don't get to see everything. Their reports will only be partially accurate. This could split the P5+1. The U.S. and U.K. favoring tough sanctions and more transparency would be set against France, Germany, Russia and China, who favor a more "pragmatic and gentle approach."
   
   This scenario does nothing to strengthen America's point of view or goals. It will also weaken President Obama's credibility and standing. It will also set the stage for Israel to more strongly feel it stands alone, and that it will need to exercise its right to self protection for national self preservation.


2. Sanctions occur and begin to work: Under the best of circumstances, this assumes both Russian and Chinese cooperation. Iran could very well insulate itself. Raising oil prices would limit domestic consumption. Even though economically strapped, Iran could pay for "black market" refined oil. Played the wrong way, this could also help the Ahmadinejad regime by fostering a sense of the outside world against Iran. Iranian citizens may back their government more, including even the regime's adversaries.
   
   How long Iran and the rest of the world would be willing to play this game is anyone's guess. Keep in mind that any feasibly effective sanctions regime could remove 8% of the world's oil from the global market. Is it really reasonable to expect Iran, with 70 million people and a nation the size of two-thirds of the continental United States to buckle first?
   
   Assuming that the sanctions regime proved effective, but did not end quickly, what would the perception be in the remainder of the Islamic and oil producing states?


3. Iran could also retaliate, and quite hard: One of the most feared options would be Iranian ships mining the Straits of Hormuz, literally closing down the Persian Gulf. This would remove 40% of the world's oil supply from the market. Immediate havoc on the economic recovery would trash that recovery very quickly.
   
   Iran's cragged coastline offers numerous launching points for mine laying craft. Most would be small boats, many privately owned and not regular navy ships. In the initial stage, it would be almost impossible identifying civilian craft from naval or IRGC owned craft.
   
   Iran could also consider attacking some of the Persian Gulf's existing oil and gas facilities in Saudi Arabia, Kuwait, Qatar, Bahrain and the United Arab Emirates and Oman. This would bring others into play, and none alone are suitably able to defend against or attack Iran. Iran could easily let its submarine fleet out to the Persian Gulf and if need be, into the Arabian Sea to lay mines, interdict commercial ships or challenge American warships.
   
   Iran could also launch terror attacks on its own, have Hezbollah and Hamas attack Israel, or attempt to destabilize Iraq. Any of these options would distract Europe, Israel and the U.S.
   
   Scenario 3 opens the possibility of direct American military action. One reason would be to reopen the Persian Gulf. Disruption of the world's oil supply and the ensuing economic mess would be directly blamed on the United States. Failure in this would not be an option as America's political influence in the Middle East would be made or broken depending on how this scenario ended. The credibility and strength of America's military and military strategy would also be under extreme scrutiny.


4. The second worst case: Either Israel or the U.S. attacks Iran. Israel could decide, after a time (or if conditions indicate Iran has developed a functional nuclear weapon) to attack Iran on its own.
   
   Iran's known nuclear facilities are numerous (about twenty). Several facilities are spread out, thus constituting multiple targets. A few are located directly in urban centers. Israel's air force is a capable force, but not numerous enough to attack all facilities, and not all at one time. Even if such an attack were launched, America would be implicated regardless of our involvement or not. Any successful air strike by Israel would mean flying across Iraqi air space, which is controlled by the U.S.
   
   A joint attack might be a more realistic outcome. The U.S. does have the ability to take out many of Iran's facilities, including those built into mountainsides. It also has the capability to shut down most anti aircraft opposition.
   
   The outcome of such actions have yet to be written, but there is a chance that some of Iran's nuclear and missile capabilities could survive.


5. Worst case scenario: Iran achieves the ultimate goal by creating functioning nuclear weapon. Question for future generations to analyze would include: Did this occur due to a U.S. / Western acquiescence on the issue? How was Iran able to successfully hide the full extent of its nuclear program?
   
   Iran's successful ability to build and produce a functioning nuclear weapon would very well change power politics in the Middle East. Would American or European credibility have any value? Would President Obama be able to defend this turn of events? What effect would this have on the neighboring countries, including Russia?
   
   Such a scenario would leave a trail of nuclear armed states stretching from the Mediterranean straight across Asia to the Pacific Ocean.

A "Brave New World" indeed.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Iran's Presidential Election Crisis

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Iran's Presidential Election Crisis

A Return to the Past?

Accusations and rumors of election irregularities and fraud have led to a review of the presidential election results in Iran. Late Sunday (June 14th), Ayatollah Ali Khamenei, the Supreme Leader of Iran, ordered the Council of Guardians to investigate Friday's elections.

Accusations include: missing election ballots; outright intimidation by Basij and military units; "overwhelming" Ahmadinejad victories in the hometowns of his three competitors, and a refusal of the Interior Ministry to detail the breakdown of voting by province (something that has been done in previous elections).

Khamenei's order is a major turn of events, as this reverses his pronouncement from Saturday blessing Ahmadinejad's victory (with 65% of the vote) as "a divine judgment." This election was crucial in the fact that the main challenger Mir-Hossein Mousavi stood a very good chance of succeeding Mahmoud Ahmadinejad. If that had been the case, it would have been the first time that an incumbent would have lost a presidential election. Mousavi's election (had it been successful) would have also returned a more moderate faction to power.

Herein lies the dilemma facing Iran and Iran's leadership: Has the time truly come to allow a newer, more pragmatic faction to power? Has the time come to allow the younger generations to begin acceding to positions of responsibility?

Mousavi favors some type of undefined engagement with the west as opposed to full confrontation (as favored by Ahmadinejad and other hard-line conservatives). This is no mere point; Mousavi like Khamenei was an active participant in Iran's 1979 Islamic Revolution. He (Mousavi) is one of the founding fathers of the Islamic Republic, and also a twice former Prime Minister.

His participation in the election was not trivial; if anything, this was a serious challenge to existing status quo and a challenge to what many Iranians perceive as an outdated, aging and dysfunctional political establishment.

The secondary question (to who rightfully won the election) is who is Iran? Ahmadinejad's victory, as it stands today, is based on an electorate that comprises the urban poor and the conservative rural districts. If Ahmadinejad truly won the majority of votes, then these populations indeed turned out in larger numbers than expected. This would also indicate that a majority of the people not only favor Ahmadinejad himself and his policies, but also a reluctance to change the nature and course of the Islamic Revolution. This is the "first" Iran, the population who supported, lived through and largely took part in the Islamic Revolution.

The ruling elite of the "first" Iran have gripes against the outside world (many, but not all legitimate). They also have a vision for Iran and the Iranian nation. This includes not only Ahmadinejad and Khamenei, but the Council of Guardians, arch-conservative clerics, the Islamic Revolutionary Guards Corps and nationalists.

The "second" Iran can be seen as the opposition. These are seen as the younger people, the urban rich and middle class and less religious (maybe even secularized) citizens. Demographics estimate that some 50 to 70% of Iranians are under age 30. Included in this grouping are (those over 50) many who took part in the 1979 Islamic Revolution, as they were just as opposed to the Shah's rule as their more conservative colleagues.

Those in this grouping over age 30 are seeking an Iran that is not feared, yet respected. Those in this group are more pragmatic, but no less nationalist guardians of their nation than their conservative colleagues. The difference is that these individuals are open to discussion and willing to change policy if it aids the nation and the state. As an example, Mir Hossein Mousavi is 68 years old, yet his political acumen seemed more reserved than Mahmoud Ahmadinejad (who is 53).

The younger people are portrayed as either seeking a more open political or socially "softer" Iran. They are seeking true economic and professional opportunities. This generation needs to grow and contribute to their nation; however, Iran's continuing economic morass prevents this. Through Ahmadinejad's mishandling of the economy, Iran is not losing time, but losing a generation of educated and talented people.

The middle class have their own concerns, largely that the stagnating economy is hurting them both materially and financially. The middle class would prefer more political openness, and the opportunity to conduct business with less control and oversight.

What cannot and must not be overlooked, ignored or forgotten is the theology which is the base of the Iranian Revolution, the Shi'a branch of Islam. The rulers of Iran are the clerics, full believers and leaders of the community (Ummah). Their role as leaders, is more than just political and religious; in many ways, their role is as fathers; true guardians. It is their duty (both collective and individual) to make sure the nation and state remains true to Allah and unblemished by the outside.

In this rubric, change, if it must happen must be done at the right time and entrusted to those who will truly guard the nation and state. Iran's leadership is aging and knows that sometime soon it must pass on what was achieved to the new generation. What will be passed is not just policy, but a legacy - and that legacy is from Allah.

It is worthy to note that the protests and slogans being shouted are very, very reminiscent of the years 1977 - 1979. One of the most frightening things that must be crossing Khamenei's mind is that there be no repetition of 1979. That type of change would be not only catastrophic, but seen as apostasy. That type of apostasy would not just be seen as a sin by the conservatives, but also as a failing on their part and to Allah to protect and properly guard the Revolution and the nation.

This sadly, is something that the non-Islamic and secularized world does not understand.

Change will not come easily. The review of the election results will probably not change the outcome, however, this signals that the leadership is willing to work to prevent social and political upheaval.

Iran has lived through one revolution in the last 30 years. It is a revolution that is still ongoing, only this time it is being fed by those who grew up and came of age during the revolution. The younger generation has no memory of the Shah's regime, and the nearly overnight transition of Iran into its modern era. They could, very well soon be the catalyst for yet another revolution in Iran. What direction that takes is yet to be seen, but should it happen, the world would have to deal with a "younger" led nation that holds one of the keys to the world.

That new leadership will not only have the responsibility to the Islamic Revolution which gave birth to the nation they will inherit, but also to prove themselves to their own people. They will have to ensure that the economic, political and geopolitical concerns of Iran are met and protected.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Iran's Presidential Election

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As Iranians go to vote for their President, the world will be watching along with the Iranian nation to see who the winner will be.

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Iran's Presidential Election

A Revolution's Maturity or Precipice

Four men are running for President:

1. Mahmoud Ahmadinejad - The incumbent and current president
2. Mir Hossein Mousavi - A member of Iran's Expediency Council and former Prime Minister
   
3. Mohsen Rezaei - A former Chief Commander in Iran's Revolutionary Guard Corps and a founder of Imam Hossein University. The University has been linked to the rocket test center at Parchin. Rezaei has also been accused of masterminding the July 18th, 1994 Buenos Aires Jewish Cultural Center bombing.
4. Mahdi Karroubi - Former Parliament Speaker

The most familiar candidate is President Ahmadinejad, an arch conservative who is also favored by the Supreme Leader, Ayatollah Ali Kahmeni. President Ahmadinejad has placed Iran at the forefront of international news by proceeding with nuclear energy development, rocket development, and calling for the destruction of Israel.

During the last days of the campaign, Ahmadinejad has accused his opponents (chiefly Mir Hossein Mousavi) of being agents of Israel, and of possibly countering the election results in the event of an Ahmadinejad victory. These accusations have drawn rebukes from Expediency Council Chairman (and former President) Ayatollah Ali Akbar Hashemi Rasfanjani. Rasfanjani has publicly called upon Ayatollah Ali Kahmeni to rebuke Ahmadinejad. A "scolding" of sorts was issued by the Council of Guardians late Thursday afternoon.

Also on Thursday, the Islamic Republican Guard Corps (IRGC) Commander, Mohammad Ali Jafari threatened to "put down" any protests in the event mass demonstrations take place. Mass demonstrations are expected by the opposition (most notably Mousavi) in the event that Ahmadinejad wins the election. Jafari's assertion, if not accusation, is that the losing side will claim voting fraud.

Needless to say, the opposition has claimed that using the IRGC to put down demonstrations is a sign and threat that the arch conservatives will retain power at any means.

The election is commencing in an atmosphere of distrust, uncertainty and high tension. This isn't saying that all hell won't break loose after the election results are finalized, but whoever the winner is will face a nation with a number of issues. Among them are: a severely strained economy coupled with a high unemployment rate; an economy largely reliant on oil and gas; a contentious relationship with the outside world due to its ongoing nuclear programmes; and a population eager for change (nearly one half of Iran's population is under age 30).

If Ahmadinejad wins, not much will change vis-a-vis the international scene. Tests will continue on Iran's rockets and the nuclear programs. Domestically, Iran could be in for a rough ride, if his victory is by a close margin. Supporters of Mousavi will challenge the outcome, and that undoubtedly will be followed by demonstrations and clashes with the security forces. The legitimacy of the election and of the government will be in question. This could very well raise the possibility of dissension and infighting within the leadership of Iran, leading to a period of paralysis.

A sizable margin of victory for Ahmadinejad will leave doubters, but probably less social upheaval and political paralysis. Either way, a second Ahmadinejad term will leave Iran under the control of a very conservative, anti-western and strongly nationalist government. The world, and in particular, the U.S. and Russia will have to deal with an aspiring Persian Gulf power.

One item that must be kept in mind and remembered is that both Ahmadinejad and Mousavi have pledged to continue Iran's nuclear and rocket programmes. This is a reality that the world will have to deal with on June 13th, just as it did on June 11th.

A Mousavi victory might bring an opening with the west; that will depend on what support Mousavi receives from Ayatollah Khameni and the IRGC. It will also depend on how the world receives Mousavi. Mousavi will have multiple challenges, and will need to walk the proverbial fence between conservatives and pragmatists.

Regardless, Iran's next president will need to address domestic issues. The Iranian people are young, vibrant and ready to take their place in society. The President of the Islamic Republic of Iran will be the person and face of their future.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Iranian Elections

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Pre-Market Report

The day's news wire is keyed by the high profile Iranian elections. Iranians are choosing their next president, so clearly this Iranian election is of great significance to the entirety of the world. Meanwhile, the World Health Organization yesterday declared H1N1 (Swine Flu) the first pandemic our world has seen in 41 years. In the wake of all this sour news, the stock market receives the latest consumer sentiment reading and May's take on import and export prices.

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Iranian Elections

Mir Hossein Mousavi, President Ahmadinejad's closest rival, is complaining that his people are not gaining access to polling numbers. Mr. Mousavi may do something today that has never been accomplished in Iran, the unseating of a sitting president. Mousavi has incorporated women more than any Iranian candidate of the past, employing his wife actively in his campaign. He has also promised more freedoms and seems to be the guy we might want to win... "We" being the rest of the world...

Import & Export Prices

Import prices rose 1.3% in May, meeting consensus expectations. Imports increased 0.2% when excluding petroleum, which marked a significant change. Inflation fear mongers have fuel to burn today, but prices had to eventually recover. Just as petroleum has recovered, so have commodities generally. This pushes all pricing higher as manufacturers must incorporate the change in costs into finished goods. We've noted here often how much more quickly that seems to occur on the way up than on the way down. Thus, there's an intrinsic anchor for inflation present in the pricing scheme. That said, prices were still 17.6% short of last year's levels (including petrol). Export prices rose 0.6%, versus the prior month 0.5% rise. Export prices were still 6.5% short of last year's level.

Reuters/University of Michigan Sentiment

At 9:55 AM, look for the latest reading on the Michigan Sentiment metric. The consumer sentiment take has improved from panic-level lows, but rising beyond much further will likely require labor market improvement. Employed folks can only get so happy! Sentiment is not going to improve for the unemployed and partially employed until that situation changes. Bloomberg's consensus of economists forecasts the June sentiment reading will mark 70.0, versus 68.7 at last take. Sentiment was lowest in the panicky days of last fall.

Corporate News Drivers

Blackrock (NYSE: BLK) agreed to buy Barclays' (NYSE: BCS) investment unit, Barclays Global Investors, for $13.5 billion. The cash ($6.6 billion) and stock (37.8 million shares) deal makes Blackrock the world's largest money manager. Afterward, Barclays will own 19.9% of its former unit. Blackrock will take on new debt and raise capital via equity offering. Barclays' shares were down 3% in the pre-market, while we did not get a quote for Blackrock. Corporate EPS news offers Mesabi Trust (NYSE: MSB) and a handful of non-US names.

Markets Overseas

Markets overseas look shaky after the murder of the top representative of the Iraqi Parliament's largest Sunni Muslim bloc today. The streets of Baghdad threaten to catch fire with religious vengeance as sectarian separation renews. Suddenly, a US withdrawal may not be so soon in coming.

Asia:

1. MSCI Asia APEX 50: -0.48%


2. Japan NIKKEI 225: +1.55%


3. Hong Kong Hang Seng: +0.52%


4. China CSI 300: -1.87%


5. India BSE SENSEX 30: -1.13%

Europe:

1. DJ Euro STOXX 50: -0.53%
   


2. UK FTSE 100: -0.39%


3. France CAC 40: -0.33%


4. Germany DAX: -0.68%

(Prices as of hour of publishing, which may not be the close)


Please see our disclosures at the Wall Street Greek website and author bio pages found there.