Hello, and welcome to the Dispatch for January 29 through February 5!

First, a quick administrative note: The Dispatch now has a mailing list - if you’d prefer to receive the week’s Dispatch by mail, sign up for email delivery here.

This was a big week, though by the end of it, not a lot seems to have changed. Actions are built on foundations, though, and much of this week’s news feels foundational: what seem like small changes here or there can affect the space in which decisions can be made, and spark larger changes in the future.

With that said, let’s get started!

Iran

UN Inspectors toured Iran’s nuclear sites over three days this week. Iran’s professed hospitality notwithstanding, the inspectors said many of their questions went unanswered, and they will return in February. Meanwhile, the rhetoric between Iran and the West continued to heat up: on Tuesday, James Clapper, the Director of US Intelligence, declared that the Iranians were increasingly targeting the US and its allies abroad, citing the alleged assassination plot against the Saudi ambassador as evidence. His assertions were given further weight by Ayatollah Ali Khamenei, who pledged continued Iranian support to militant groups targeting Israel and reaffirmed Iran’s commitment to its nuclear program. Israel, meanwhile, declared Iran was working on a missile with a range of over 6,000 miles - long enough to hit the US - though the US downplayed the Israeli statement as speculation.

Iran’s overtures to the inspectors are a maneuver to buy time. Barring an incredible Iranian screwup, the inspectors simply won’t find any incriminating evidence. Similarly, the statements by Khamenei shouldn’t be taken for much worth. Iran’s supported proxy groups in the region for decades and will continue to do so.

Clapper’s statements are more concerning: Iran targeting US assets and allies is a foundation for military action. The combination of Clapper’s statements and the Defense Department’s downplay of Israel’s statements suggest an internal conflict over the Iranian situation. The Israelis are extremely concerned: they consider a nuclear Iran an existential threat, and are seriously considering a military strike. The US, on the other hand, is weighing the cost of another war against whether or not they can live with Iran as a nuclear state. Clapper’s statements indicate a military strike is a very real, very serious possibility.

As a side note, the alleged plot against the Saudis that Clapper mentioned was both extremely sloppy and highly out of character for the Iranians - absent extremely compelling evidence yet to come, it’s as hard to take the accusation at face value now as it was when it was first made.

Syria

After a week’s worth of negotiations, Russia and China vetoed a Security Council resolution intended to pressure Assad into standing down. The Syrian army meanwhile launched a large counterattack against the rebels, ending with a bloody assault on Homs that took more than 200 lives.

Attacks on Iranian citizens accused of being military personnel increased, prompting Iran to warn against travel to the country. The announcement is a black eye for Iran and its aspirations of regional power: Assad has been one of Iran’s most steadfast allies.

Russia and China are still upset over the Libyan resolution: they feel duped (and perhaps not unfairly) after the resolution, which authorized a no-fly zone, was used as cover to intervene in Libya. Neither country feels it is part of “the West,” and both harbor concerns about such a resolution being targeted against themselves or their allies - it’s not that many years since the end of the Cold War. The US and its allies expended a lot of political capital in deposing Qaddafi, and as a consequence the negotiations over Syria are suffering.

Egypt

Protests continued against the Military ruling council this week. The Muslim Brotherhood briefly sided with the military, standing against the protestors, but that changed by mid-week: On Wednesday, a bloody soccer riot broke out, claiming more than 74 lives. The military and the police were accused of everything from incompetence to complicity, and reports from the incident about police inaction were damning. Riots broke out the next day outside the Interior Ministry in a conflict that left at least 12 protestors dead.

The riots have been led by soccer hooligans known as Ultras, militant groups somewhere on the spectrum between a social club and a gang. During the protests at Tahrir Square, it was the Ultras who fought off Mubarak supporters during the “Battle of the Camel,” and there are accusations that the riot on Wednesday was sparked as retaliation. The Ultras on the street will do nothing good for Egyptian stability.

Russia

Vladimir Putin found himself increasingly on the defensive, and allowed this week that he may not win a decisive first-round victory in the march elections. Despite sub-zero temperatures and reports of police pressure, tens of thousands of protestors marched against Putin in the center of Moscow. Putin’s spokesperson said the march was the work of “foreign powers.”

Once seen as the Dictator of Russia, Putin is increasingly under fire by a middle class that’s tiring of his strongman antics. It’s extremely unlikely he’ll lose the election, but he will return to office far weaker than in the past. The Russian people want Democracy, not a Dictatorship.

China

The African Union inaugurated its new headquarters this week, a $200M structure built and paid for by China as a sign of the country’s increased trade and involvement in the region. That involvement carries risk, though, as the Chinese learned this week when 29 Chinese workers were abducted by Sudanese rebels over an oil dispute. Also in China this week, the Wukan village held free elections as part of an agreement that ended the village’s protests in December.

It’s too early to call a democratic movement in China, but some of the rising leaders in China are notably more open to democratic practices than their predecessors. The experiment in Wukan will be closely watched, but the trend towards democracy has long been predicted as China grows wealthier and more connected to the rest of the world. A more democratic China will be less able to endanger its citizens, which may force China to re-evaluate some of its partnerships in Africa.

Mali

The Toureg rebels, former supporters of Qaddafi, have brought the arms supplied by the Libyan dictator back to Mali and are using them to wage an increasingly violent campaign in the north of the country.

Qaddafi’s money and weapons cast a long shadow over Africa, and they’re likely to continue doing so. Mali is the first place these weapons are showing up; it’s not likely to be the last. In Qaddafi’s last days, Libyan transports were seen heading to Algeria, Niger, and Zimbabwe.

Afghanistan

A leaked NATO report painted a bleak picture of the organization’s progress in the country. The report is largely drawn from interrogations of Taliban and al Qaeda detainees, and describes Pakistani backing as the lifeblood of a spiritually reinvigorated Taliban. Most damningly, the report asserts that corruption in the Afghani government has gotten bad enough that many Afghani citizens prefer life under the Taliban.

It’s worth noting that similar circumstances allowed the Taliban to take over the country in the mid-1990s.

Eurozone

Despite rumors to the contrary early in the week, the 27 EU leaders confirmed their commitment to Austerity in Brussels on Monday. By Tuesday, however, a set of horrible unemployment numbers - including a rate of 22.9% in Spain and 19.2% in Greece - led at least one IMF official to press for plans beyond just austerity.

The numbers coming back from Greece, Spain, Ireland, Portugal, Italy, and others are clear: Austerity isn’t leading to Prosperity. More concerning, though, is that the unemployment rate among 16-24 year olds is nearing 50% in Spain and Greece - a sure recipe for social unrest.

US Politics

GOP Primaries

Mitt Romney appeared back in control in Nevada, garnering 47% of the vote, more than double Newt Gingrich’s 22.7%. The win puts Romney in a strong position for the next major contest on March 6th, Super Tuesday.

Congress

The Senate voted this week to take up a resolution prohibiting members of Congress from trading on non-public information. Previously the practice had occupied a legal gray area; the bill would ban it outright.

An optimist’s viewpoint here is that Congress, responding to poor polling numbers and increasing mistrust by the public, is taking steps to both quash corruption and to improve the institution’s badly damaged image. A cynic would gauge the likelihood of Congress actually cutting off a significant stream of income to be very low, and might be tempted to conclude Congress is getting most of its money through other, less public means. A realist might decide that power and money are always linked one way or another, and that, for better or for worse, persons in positions of power will wind up wealthier than before - the best one can hope for is they’ll make good policy in the meantime.

US Economy

Banks

The New York Times analyzed five major US banks, and found that, while they have $80Bn in exposure to the Eurozone, they’ve insured against all but $50Bn of it using Credit Default Swaps.

That phrase ought sound familiar: CDSs were the theoretical hedges most banks had against the mortgage markets, and are a big reason why AIG is all but state-owned right now. It’s extremely doubtful that any insurance policy will be effective in the face of a full collapse of the Eurozone, and to assume otherwise would be unwise.

Jobs

The unemployment rate dropped to 8.3%, as low as it was when President Obama took office, according to the Labor Department on Friday.

Unemployment numbers are always fraught. They’re subject to revision, they don’t capture discouraged workers, and there are various other tricks involved that make it difficult to take the number as canon. That said, the report is extremely positive, and should give Obama a good boost in the polls. It’s still too slow, there’s still too many discouraged people, it still doesn’t cover people with jobs that are worse than what they had before, but it’s an awful lot better than before.

Final Thoughts

The most interesting news to me this week was from China. China has long been held up as the alternative to the western way - the country that disproves the link between democracy and success. My position on that for some time has been that it’s simply too early to tell: China’s economy has been growing rapidly, and it is already massive, but it’s still in a reasonably early stage of development. I harbor strong doubts about China’s ability to have both a comfortable middle class and a strong authoritarian state, and I suspect hand- wringing or self-doubt on behalf of liberal democracy is premature at best.

My best for the week ahead, and thanks again for reading!

Eric