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Forex Response to Partition of Iraq
With the fall of Iraq’s third largest city to militants we speculate on the Forex response to a partition of Iraq. Safe haven Forex trading may be the order of the day, week, month and year. Much of the ethnic unrest in the Middle East has been blamed on how the British and French partitioned the region. They either ignored ethnic lines or intentionally divided ethnic groups among various new nations in an attempt to weaken them. Iraq was brutally ruled under Saddam Hussein and his mafia-like Baath Party. But we did not see the spectacle of an armed group of militants routing the Iraqi army and taking over the third largest city in Iraq, Mosul. That is what we see today as Iraqi soldiers threw down their weapons and fled their posts leaving the city to the militia of the Islamic State in Iraq and the Levant (ISIS). At the start of the Arab Spring there was hope that dictatorial regimes would be swept aside and replaced by democratic governments. It worked in Tunisia and still might work in Libya. Egypt has opted for a military leader after a brief experience with an increasingly Islamic government that strayed from the wishes of those who overthrew the dictatorship of Mubarak. Now a meltdown at the heart of the Middle East is in the works as Sunnis and Shiites continue their millennial battle for the soul of Islam. Things do not look like they will get better. Iraq did not want United States troops any longer and the USA is tired of losing blood and treasure as a referee over Islamic religious and ethnic battles that have roots going back to the grandchildren of the religion’s founder. Egypt and its soldier/president are looking like an increasingly better deal. Iraq could end up with Kurdish, Sunni and Shiite regions with separate governments.
Oil, War, Transportation
The Middle East matters to the rest of the world because of three things. It is the repository of much of the petroleum reserves of the world. It holds a transportation choke point in the Suez Canal. And there is the constant threat of war between Israel and any of its Arab neighbors, nuclear arms in the hands of the religious rulers of Iran or a religious war between the nuclear armed Islamists of Pakistan and the nuclear armed Hindus of India. Disruption of oil supplies and trade routes or all-out war could wreak havoc on the rest of the world’s economy, currencies and political stability. In the short term Forex and the partition of Iraq are closely tied.