Dealing With the Day of Reckoning

On the heels of Joe Biden's prediction that Barack Obama would be tested early in his presidency, The New York Times offers a list of three potential challengers. Venezuela, Russia and Iran, awash in petrodollars just a few months ago, are now facing a severe budget squeeze, thanks to the recent, dramatic drop in oil prices.

Of course, the Times doesn't actually predict a confrontation with these countries. Taking a more diplomatic approach, reporters Simon Romero, Michael Slackman and Clifford Levy wonder if "the countries can sustain their spending--and their bids to challenge U.S. hegemony.

But it doesn't take a foreign policy expert to understand the flip side of that argument. Facing an American president with little experience in international affairs, one (or more) of the rogue states might provoke a regional crisis, believing that an Obama Administration would respond less forcefully.

Not only would the crisis trigger another run-up in oil prices, it would also position Moscow, Tehran and Caracas for further adventurism--with less to fear from the new president. That, in turn, would lead to crude trading at sustained, high levels, providing more for their domestic and foreign policy agendas.

A number of observers (including Ralph Peters and this blog) have suggested a possible Iranian scenario in the early days of an Obama presidency. Tehran's economic motives are clear enough; as the Times reports, Iran was already facing an economic crisis before the plunge in oil prices. Inflation is running at 30%; unemployment is high, and the country will face unsustainable deficits, experts say, with a barrel of crude in the $75 range (it closed today at $72).

Against that backdrop, it's quite possible that Iran would ratchet up tensions in the Persian Gulf, producing a corresponding hike in oil prices. Earlier this year, a single missile test by Tehran caused a $5 spike in crude oil--at a time when it was already trading at record levels. Experts predicted that a military strike against Iranian nuclear facilities could send prices above $200 a barrel. Expected counter-strikes by Iran on export facilities in Saudi Arabia would result in further price hikes, resulting in oil at $250 a barrel--or higher.

Obviously, a lot has happened since crude peaked in July. In response to the global economic crisis, the oil market has cratered over the last two months, with barrel price dropping by more than 50%. But there is little doubt that a crisis in the Gulf would send them spiraling again, despite the economic downturn. With its ability to threaten the Strait of Hormuz, Tehran could send another panic through the oil market, generating higher prices and more money for its coffers.

Executing that strategy requires Iran to walk a geopolitical tightrope--something President Mahmoud Ahmadinejad isn't particularly good at. Theoretically, he doesn't want a U.S. or Israli military strike that would destroy Iranian oil facilities and (quite possibly) his regime. But there's also a danger in assigning rationality to a leader who expresses a desire to "wipe Israel off the map," and is building roadways for the arrival of the 12th Imam. Combine those factors with Iran's own, looming economic meltdown, and you've got the most likely candidate for a confrontation with the United States.

Ahmadeinjad's good friend in Russia, Prime Minister Vladimir Putin, has his own reasons for testing a President Obama. Manufacturing another energy show-down with Ukraine and the nations of Western Europe would serve to further divide NATO, lessen U.S. influence, and increase Moscow's regional clout. True, Mr. Putin isn't a nut, but he is a clever, calculating actor. If he senses an opening from an Obama administration, he will certainly make the most of it.

In terms of geography, Venezuela's Hugo Chavez seems least likely to pick a fight with the United States. Even with his new Russian-made military hardware, Chavez's military is no match for American forces and if he expects Putin's navy or air force to ride to the rescue, well, he's sadly mistaken.

Still, a potential crisis with Venezuela can't be totally dismissed. Chavez has his own domestic economic problems that demand a boost in oil prices, and (like Ahmadeinjad), the Venezuelan leader has a bizarre, unshakable faith in his own invulnerable. If the U.S. is preoccupied in the Gulf (or elsewhere), Chavez might take his own poke at the Yanquis, believing that an Obama White House would rather talk than fight.

In his Seattle speech, Biden tried to assure Democrats that Barack Obama has a "spine of steel." Unfortunately, the rest of the world remains unconvinced, and that's why the day of reckoning for Iran, Russia and Venezuela will have serious implications for the United States--and the next occupant of the White House.

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ADDENDUM: Similar thoughts from Justice Little of CommodityOnline. He identifies Vladimir Putin and Hugo Chavez as the dictators most likely to stir up trouble, but we still put Ahmadeinjad at the top of that list.