The Cable

Maliki Used to Have the Support of Both Iran and the U.S. Now He's Lost Them Both.

Washington and Tehran don't see eye to eye on many things, but they paved the way for Nouri al-Maliki to become Iraq's prime minister eight years ago and have helped him keep the job ever since. With Iran now joining the United States in calling for Maliki's departure, the embattled Iraqi leader faces a historic choice: peacefully hand the reins to a successor or buck his closest allies and use force to stay in power.

Maliki was an accidental prime minister from the start, with both Washington and Tehran seeing him, in essence, as the best out of an uninspiring field of Shiite candidates for Iraq's top job. Once in office, Maliki skillfully satisfied both of his patrons, impressing many in the United States by using his military to crush one of Iraq's most powerful anti-government militias while simultaneously building goodwill in Iran by consolidating power in Shiite hands at the expense of the country's Sunni and Kurdish minorities.

Maliki's support from his patrons has been weakening for months, and on Tuesday, Aug. 12, Ali Shamkhani, the secretary of Iran's powerful Supreme National Security Council, formally endorsed Iraq's new prime minister-designate, Haider al-Abadi, while making clear that Tehran believes Maliki's time in office is over.

"We congratulate Haider al-Abadi on his nomination as prime minister, for him personally and for religious dignitaries, the Iraqi population, and its political groups," Shamkhani said, according to the official IRNA news agency. Iran, Shamkhani said, supports "the legal process for choosing the new Iraqi prime minister."

The comments were striking for both their unambiguous message and their source. Shamkhani has close personal ties to Iran's supreme leader, Ayatollah Ali Khamenei, and spent much of his career in the Islamic Revolutionary Guard Corps, the hard-line paramilitary force tasked with ensuring the continued rule of Iran's clerical leadership. That means that Shamkhani was likely speaking for all components of Iran's power structure, from the supreme leader on down.

Tehran dropped Maliki just one day after U.S. President Barack Obama called Abadi to congratulate him on his appointment and to urge him to quickly form a new unity government. In brief public remarks, the president pointedly did not mention Maliki even once -- a snub clearly signaling the White House's strong desire for the hard-line leader to exit the stage.

"Ultimately, Maliki certainly cannot survive as ruler of Iraq without Iranian and U.S. support," said Faysal Itani, a resident fellow at the Atlantic Council. "The question of his premiership is not very relevant now; he's no longer prime minister of Iraq, whatever he says."

Michael Eisenstadt, of the Washington Institute for Near East Policy, said Maliki had lost support inside and outside Iraq, with 38 of the 96 lawmakers in his State of Law bloc backing Abadi just as Washington and Tehran effectively told him to throw in the towel.

"In practical terms, Maliki's fate as a legitimate politician is sealed," Eisenstadt said.

It's far from clear that Maliki will exit gracefully. On Sunday night, he accused Iraq's new president of violating the Iraqi Constitution by giving Abadi first dibs on cobbling together a ruling coalition; a short time later, Maliki followed up those tough words by deploying tanks and soldiers under his direct command to positions around Baghdad's Green Zone. On Tuesday, however, Maliki seemed conciliatory, instructing the military to "stay away from the political crisis."

Even if he steps down, Itani cautioned that Maliki could make life difficult for Iraq's next rulers. Maliki, Itani said, has spent years appointing loyalists to key positions throughout Iraq's government and security organizations. He could emerge as a "pretty powerful de facto militia leader, capable of causing all sorts of headaches for the U.S., Iran, and his Shiite rivals," Itani said.

Eisenstadt, meanwhile, said Maliki could decide that violence is the answer.

"He might try his luck relying on extraconstitutional means -- that is, relying on Army units loyal to him to stay in office," Eisenstadt said. "From his point of view, being a dictator may be better than being a has-been democrat."

Photo by Mark Wilson/Getty Images

The Cable

The End of Teflon Markets?

Markets shrugged off increasing geopolitical tensions for months, but lately investors seem more sensitive to flare-ups in Ukraine and the Middle East.

U.S. stock markets sailed through Russia's March annexation of Ukraine's Crimean peninsula and months of tit-for-tat sanctions between Moscow and the West. The Dow Jones industrial average gained more than 300 points that month. When Islamist militants started capturing key Iraqi cities in June, threatening the integrity of Iraq, markets continued to climb steadily. By the end of June, the Dow had gained 500 points since the beginning of the year.

Now, over the past few weeks, markets suddenly seem to be jumpy. Since the middle of July, when Israel invaded Gaza, adding another hot spot to potential investor concerns, the Dow has dropped about 500 points, trimming most of its gains from this year. After an uptick on Monday, Aug. 11, U.S. stock markets wavered Tuesday morning on news that dashed hopes of greater political stability in Ukraine and Iraq. Are the markets newly sensitive to a whole host of international crises?

The standoff between Russia and the West over Ukraine has perhaps the biggest potential to damage the global economy, and a new potential flash point took shape this week. Although Moscow, Kiev, and the Red Cross agreed on Monday to coordinate aid for eastern Ukraine, by Tuesday the arrangement seemed to further rattle, rather than calm, nervous investors. Trucks supposedly carrying Russian humanitarian aid rumbled toward the border with Ukraine Tuesday morning, even though Kiev said it will only accept supplies crossing the border in Red Cross trucks.

Developments in Iraq also gave investors reason for pause. Prime Minister Nouri al-Maliki refuses to cede his position to a newly appointed successor. His obstinacy threatens a government transition that Barack Obama's administration hails as a step forward for the country that is trying to fight a powerful militant insurgency.

Douglas Rediker, a visiting fellow at the Peterson Institute for International Economics and a former IMF executive board member, said markets have been "remarkably sanguine over broad geopolitical risk" until recently. Oil markets are being remarkably impervious to bad news out of the Middle East. The International Energy Agency said Tuesday in its monthly report that increases in production from North America mean there is plenty of oil to go around, despite conflicts in oil-producing countries such as Iraq and Libya.

But it's too early to say whether U.S. stock markets have developed a new sensitivity to bad international news or will continue their ho-hum progress after this latest dip.

Powerful counterforces are pushing markets up, most importantly the easy-money policies of the U.S. Federal Reserve. After holding U.S. interest rates low for so long, driving down returns on safe investments such as Treasury bonds, investors are looking far and wide for assets that will deliver returns, no matter how risky.

"People have become probably a little bit complacent about the risks that are out there, but they don't have many other options for their portfolio," said Robert Johnson, director of economic analysis at investment research firm Morningstar.

Without a lot of safe options, investors become less sensitive to risks of all sorts, whether financial or political.

Johnson said the market is much more sensitive to announcements from the Fed about when it will start raising interest rates than the various crises around the globe. He said the markets similarly were unfazed by the Arab Spring and the upheaval in Libya.

"What's happening is we've had so many of these events happen over the past three of four years that traders are getting a little numb to them," Johnson said.

If the Fed were to change policy, geopolitical risks could become more of a concern for investors, but until then, it's unclear whether bad headlines are enough to dampen investors' enthusiasm over the long term.

"On one side you've got central bankers' expansionary monetary policy creating exceptionally low volatility, and on the other hand you've got a series of geopolitical hot spots that are escalating as a trend, and the question is, which one is going to win out?" Rediker said.

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