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Hurt us and we’ll hurt your friends.
That’s been the apparent Iranian
strategy since the US launched into
maximum pressure mode, tearing
apart the 2015 Iran nuclear deal and
crippling the Iranian economy with
debilitating sanctions.
Incapable of retaliating against the
US — or, more likely, too scared of
the consequences — Iran has punished
American allies in the Gulf, with Saudi
Arabia its main target. The objective
has been to demonstrate that the pain
of US penalties will be spread around.
If Iran can’t sell oil, other producers,
and the market, will suffer too.
That strategy appeared to work for
a while: tankers in the Gulf were
attacked, Saudi oil pipelines
sabotaged and pumping stations
damaged, all through carefully
calibrated attacks by Iranian proxies
and at little cost to Tehran. In June, a
planned military strike by the US, in
response to the shooting down of an
American drone, was called off by
Donald Trump, a US president more
interested in ending wars than
starting new ones.
On Saturday, however, Iran’s
playbook was torn up. In a brazen
attack, an Iranian-backed group
struck at the jewel in the Saudi crown,
the Abqaiq processing centre that
handles half of Saudi production, as
well as an oilfield. The impact was
devastating, knocking off 5 per cent
of global oil supplies and driving oil
prices up 10 per cent. It was likened
by some to the shock of Saddam
Hussein’s 1990 invasion of Kuwait.Whether the apparent drone strikes
were launched from Yemen, as the
Iran-backed Houthi rebels have
claimed, or from Iraq by Iranian-allied
militias, as some in the US claim, or
even from Iranian territory is yet to be
determined. Whether the strike was
more devastating than intended or
deliberate and ordered for maximum
effect by Tehran might never be
known. But whatever the answers, the
responsibility will fall on Iran. This
provocation was a step too far.
Yet the crisis should have been
foreseeable, if only Mr Trump was not
learning about the Middle East on the
job. His withdrawal from the nuclear
deal, the region’s only diplomatic
achievement in decades, was
motivated by a mistaken conviction
that a deal struck by his predecessor,
Barack Obama, was deeply flawed and
that only he, the master dealmaker,
could produce a better outcome.
His move ignored the Iranian regime’s
ability to absorb pressure. It also
failed to grasp that Iran goes on the
offensive when it feels the need to
defend itself. Its appetite for risk is
greater than that of its neighbours.
And the proxies it can use — from
Yemen to Iraq, Syria and Lebanon —
provide leverage that cannot be
matched by Gulf states.
Indeed, the attack on Saudi oil
facilities has exposed not only the
vulnerability of Saudi oil
infrastructure. It has underlined the
disastrous failure of Riyadh’s four-
year military campaign in Yemen,
intended to crush the Houthi rebelswho may be behind the latest attack.
Some in the US administration,
including the recently sacked national
security adviser, John Bolton, might
have had an endgame in mind:
pressure would either collapse the
Iranian regime from within or lead to
a military campaign that
accomplishes the same. That was
never a realistic outcome. Mr Trump,
moreover, was not in agreement with
the plan, preferring to threaten war
but not to fight one. His assumption
has been that Iran will fold and agree
to negotiations on his own terms.
Iran’s reaction has been to gain as
much leverage as possible, prove that
it will not be cowed and ensure that if
it were to return to the negotiating
table it would not be on Mr Trump’s
terms. That prospect looked more
likely in recent weeks, with France
leading efforts to bring the parties
back to the table.
Whether by design or accident, Iran
has now over-reached. So grave has
the attack been that the US — and
Saudi Arabia — have not rushed into a
response. A military retaliation could
come at any time but it would also
expose Saudi Arabia to more attacks.
An uncontrollable Middle Eastern
conflict is not what Mr Trump wants
just as he heads into a re-election
campaign. Not a student of history or
a man of details, he is discovering the
hard way that it is easier to start a
crisis in the Middle East than to
control it, let alone end it.[email protected]When Trump
discovered the
real Middle East
Notebook
by Roula Khalaf
Mario Draghi’s penultimate meeting as
president of the European Central
Bank has opened a fitting final chapter
for his term. He looks set to complete
his period in office as he has often had
to govern: in the midst of a political
firestorm sparked by actions he
thought necessary to preserve the
health of the eurozone. As during much
of his tenure, his critics are wrong.
The ECB announced last week a fur-
ther cut in interest rates from minus
0.4 per cent to minus 0.5 per cent.
Additionally, the central bank decided
to restart buying €20bn of bonds a
month until inflation reaches the
bank’s target of 2 per cent and to intro-
duce a new “tiered” system of interest
rates to reduce the cost to banks from
negative rates.
The backlash was immediate and
intense. Germany’s Bild tabloid
depicted the ECB president as “Count
Draghila”, a vampire sucking dry the
accounts of savers. De Telegraaf of the
Netherlands questioned whether he
was an “authoritarian” who ignored
the anger in some euro area countries.
Such comments have become famil-
iar over Mr Draghi’s eight-year tenure.
Interest rates have been cut to record
lows, provoking the ire of savers used to
a decent return simply from leaving
their money in the bank. Others blame
the central bank for “distorting” asset
markets and keeping alive so-called
zombie companies.
This time, however, is notably differ-
ent. A number of Mr Draghi’s col-
leagues on the ECB governing council
have joined in with the media criticism.
Klaas Knot, president of the Dutch
national bank, published a statement
the day after the ECB’s meeting calling
the actions “excessive”. Jens Wei-
dmann, president of the Bundesbank,
told the Bild newspaper in an interview
that Mr Draghi was “overshooting the
mark”. The head of Austria’s central
bank, Robert Holzmann, called the
decision a “possible mistake”.
This public criticism from the Dutch,
German and Austrian central bank
heads stands in contrast to two French
members of the governing council,
Benoît Cœuré and François Villeroy de
Galhau, who questioned the need for
stimulus before the meeting but stood
behind the collective decision after-
wards. Debate over the right course of
action for the central bank is essential,
but for governing council members to
publish critical statements within 24
hours is unhelpful and unnecessary.
Whether their dissenting comments
were designed to appeal to domestic
audiences fed up with low interest rates
or to fire a warning shot ahead of Chris-
tine Lagarde taking over from Mr
Draghi, central bankers should not
play to the gallery. There is a legitimate
space for informed criticism of ECB
decisions, but governing council mem-
bers should not be seen to endorse sim-
plistic populist slogans.
Many of the critics suggested it was
too early for the ECB to embark on fur-
ther stimulus. Inflation remains stub-
bornly below the central bank’s target
but outside of Germany and Italy the
eurozone does not look to be on the
verge of recession. Mr Knot argued that
“the euro area economy is running at
full capacity and wages are increasing”,
while Mr Weidmann said the “eco-
nomic situation is not all that bad,
wages are growing strongly”.
This is complacent. The ECB’s fore-
casts for the year ahead have been suc-
cessively downgraded. Erring on the
side of caution makes sense, given
inflation in the eurozone is signifi-
cantly below the central bank’s 2 per
cent target and risks loom from the US-
China trade war and a potential no-
deal Brexit. Mr Draghi has proved his
critics wrong before. This time looks
set to be no different.Governing council members must not risk endorsing populist slogans
Backlash against ECB
stimulus is misplaced
Britain has long been a defender of
open markets with a takeover regime
that has put few, if any, hurdles in the
way of foreign bidders. The govern-
ment’s approach, too, has been one of
welcoming international investment
and the country has benefited from the
influx of capital. The result is that
much of the country’s energy and
transport infrastructure is owned by
overseas companies. The Ministry of
Defence’s focus on competition to
encourage value for money has left the
armed forces relying on equipment
supplied by a range of US and Euro-
pean companies as well as domestic
contractors.
The proposed takeover of Cobham, a
British aerial refuelling pioneer whose
technology was vital in the Falklands
War, by a US private equity group has
prompted some sound and fury over
issues of national interest. But the gov-
ernment has, so far, shown scant inter-
est in entering the fray. Shareholders
backed the deal overwhelmingly this
week. Cobham and now Hong Kong
Exchanges and Clearing’s unsolicited
bid for the London Stock Exchange
have highlighted the need for a debate
about where the UK’s national interest
truly lies — and in what circumstances
the government should intervene to
ensure British ownership or control of
an asset or company.
There are good reasons to re-evalu-
ate the existing policy. In the US, Presi-
dent Donald Trump has made clear he
sees America’s national interest as
lying in a mercantilist approach to
business — to “Make America Great
Again” through policies to bring jobs,
ownership and investment back home.
The growing geopolitical influence of
China, and its hunger for foreign tech-
nology, raises new questions about
which industries should be made com-
pletely open to foreign bidders.
In a post-Brexit world, the UK needs
to ensure it continues to attract foreign
investment while balancing the
demands of safeguarding strategic
interests. Leaving the EU also creates a
need, and an opportunity, for the UK to
develop its own competition policy.
Existing grounds for intervention
cover national security, media plural-
ity or financial stability. Rules to
strengthen the government’s powers to
scrutinise takeovers of businesses
developing military and dual-use
technology were introduced last year.
More sweeping proposals in a national
security and investment white paper
have been widely criticised for being
too broad and unpredictable.
Ministers have adopted a case-by-
case approach to takeovers, getting
involved on a range of issues from tax
to plant closures. That approach has
not always been consistent. The gov-
ernment stepped in to secure binding
commitments when Melrose Indus-
tries wanted to buy engineer GKN even
though the buyer was not from over-
seas; Japan’s SoftBank gave similar
undertakings when it bought chip-
maker Arm Holdings in 2016; Google’s
purchase of artificial intelligence
start-up DeepMind raised few, if any,
issues at the time. In cases where
undertakings were made, these have
not always been followed through.
There is an opportunity now for the
UK to refine its approach. A lengthy
French list of the sort that included
yoghurt-maker Danone in 2005 is not
the answer. But a more formal
approach from government defining
the areas it deems necessary of scru-
tiny is needed, rather than ad hoc inter-
ventions. The policy requires a combi-
nation of the old certainties — protec-
tion of key defence assets and media
plurality — with fostering new indus-
tries and evolving technologies to
ensure Britain’s economy can prosper
in the post-Brexit era.A post-Brexit Britain should review how it defines strategic assets
UK needs clearer rules
on its national interests
HKEX monopoly has
fuelled disaffection
There is a direct link between Hong
Kong Exchanges and Clearing, now
bidding for the London Stock
Exchange, and civil disturbances in
Hong Kong (“The obstacles to a
London deal”, The Big Read,
September 14). HKEX is not only Hong
Kong government-controlled via the
appointment of directors and a
preselection system for board posts. It
has a monopoly on all stock, bond,
commodity, futures and derivatives
trading and clearing. Enjoying no
competition, its margins are
outrageously high. Thanks to the
financial sector insiders dominating its
board, it has successfully fought
against allowing the regulator to
control listing rules. This has been to
their profit at the expense of the
investing public.
HKEX is, in short, one of the many
monopolies and oligopolies that rule
the economy here and are a major
ingredient in the current disaffection.
This has been growing for years but has
gone unnoticed by those, mostly rich or
foreign, who have been happy to
benefit from low taxes and opaque
disclosure while Hong Kong’s majority
pay in the price of goods, services and
feeble investor protection. HKEX and
its ilk have no place in a world of open
competition.
Philip Bowring
Hong Kong
Cliff-edge Brexit holds
attractions for some
Hedge funds and others trading
volatility may be among the few
beneficiaries of a cliff-edge Brexit
(September 17).
But the real prize for investors is
surely for the UK to cut loose from EU
regulation and compete as a low-tax
haven on its doorstep. This has
manifold attractions to international
investment firms, like my own, and
could turbo-charge inward investment
in the UK. Further, without EU controls
on bonuses, London will surely retain
many more banking stars.
In a weakened post-Brexit economy,
the UK may only be able to deliver
higher public spending via more
privatisation. With such rich pickings,
it’s hard to see too many banks and
investment houses being so keen to
relocate. This is an investment agenda,
sadly not yet debated in public. But if
this is indeed the Holy Grail of the new
government and its City backers, no
deal with the EU may really ever do.
Rami Cassis
Chief Executive, Parabellum Investments,
London EC2, UKBuilding bridges in
Northern IrelandBefore commissioning an expensive
feasibility study of whether a Scotland-
Ireland bridge is technically or
economically feasible (it isn’t on both
counts), how about righting the
historical wrong that is the current M
motorway in Northern Ireland?
It runs from Belfast to the town of
Dungannon. Drivers from Belfast to
Dublin must leave the motorway at
Sprucefield, negotiate a detour through
a retail park and then join a dual
carriageway for about 35 miles to the
border, where they rejoin a motorway
on the southern side.
The reason the motorway was not
built between the two biggest cities on
the island in the 1950s and 1960s is
commonly thought to be because
Stormont didn’t want to encourage
links between Belfast and Dublin.
Plus ça change.
Patrick Hughes
Belfast, UKWest is partly to blame
for Russia’s aggression
You head your leader, “The west
cannot simply set aside Vladimir
Putin’s aggression” (September 16).
Yes. But.
Do you not think we have to take
some of the blame for how Mr Putin
has turned out? If we were Russians
who had lost an empire, and the west
started to sign up our buffer states by
delicious dishes of the EU and Nato,
might not we have been tempted to lift
a paw, with nails sharp, and swipe at a
few of these outsiders who know
nothing of how the Russian bear
behaves when it feels threatened?
Frank Field MP
House of Commons, London SW1, UKThere is more to do on
transport electrification
We are entering a new phase for
electric vehicle adoption. Your report
(“Carmakers race to hit EU targets on
CO 2 ”, September 13) brought home the
fact, as it will have for others, that this
year’s Frankfurt Motor Show felt like
something of a turning point for the
prominence of battery-electric vehicles
in our industry.
But what it elides is everything
beyond the privately owned vehicle.
While 55 per cent of UK transport
emissions are from cars, 35 per cent
originate from trucks, vans, and buses,
according to the Office for National
Statistics. While persuading a car
owner to go electric moves one vehicle
into the zero-emissions category,
building out infrastructure for
commercial electric fleets, designing
policy to encourage their adoption and
indeed purchasing electric at the
publicly-owned level holds the
potential to electrify large swaths of
our traffic at a time.
The EU already has manufacturer
CO 2 targets for vans and trucks; in the
US, we need to do more to open up the
transport electrification conversation
in the same way.
Julie Furber
Vice-president, Electrified Power,
Cummins, Columbus, IN, USRegulate the risks of
police forces using AI
It is good to see government-
commissioned research echoing our
warning about the dangers of police
forces innovating in silos to manage the
vast quantities of data they hold
(“Police fear use of AI may lead to bias
against disadvantaged”, September 16).
Our research shows a worrying lack
of oversight or legal framework to
mitigate some hefty risks — of unlawful
deployment, or of discrimination or
bias that may be unwittingly built in.
These dangers are exacerbated by a
lack of transparency, central co-
ordination or systematic knowledge-
sharing between public bodies.
Within the right framework
algorithmic systems — whether
predictive policing, facial recognition
technology or individual risk-
assessment tools — can deliver benefits
in the justice system such as efficacy,
efficiency, accountability and
consistency. We need to build a
consensus rooted in the rule of law,
which preserves rights and equality, to
deliver a trusted and reliable justice
system now and for the future.
Simon Davis
President, Law Society of England and
Wales, London WC2, UKUS redistribution requires
belief in limited resources
Wealth distribution in America will
never be inevitable until a plurality of
Americans believe that the pie has
stopped growing (“The age of wealth
distribution”, Opinion, August 5). The
belief that growth is a rising tide that
will lift everyone’s boat is embedded in
our culture, and shared strongly by the
immigrants that move here.
Until Americans truly shift to a belief
in limited resources, to a belief that the
economy is a zero-sum game — you
win, I lose — it is hard to imagine a US
government enacting a large wealth
distribution platform. The paradigm
shift might be seen in the FT, academic
papers and in the platforms of Bernie
Sanders and Elizabeth Warren, but it’s
hard to discern among US voters.
The simple question I ask everyone:
do you believe that the economic pie is
growing, or do you believe that it isn’t,
that there are limited resources?
Despite the obvious nod my question
gives towards environmentalism, I am
constantly amazed how few responses I
get in support of limited resources.
Jackson Dunckel
Devon, PA, USUK university pension
system ignored warnings
As a — thankfully retired — member of
the Universities Superannuation
Scheme, I was first intrigued then
horrified when reading FTfm’s
interview with Roger Gray, the
scheme’s outgoing chief investment
officer (September 16). It showed
exactly why the USS has managed to
run up such a huge self-inflicted deficit.
Mr Gray’s claim that to have moved
the USS away from equities to bonds in
order to match pension liabilities
would have required an act of
“clairvoyance” was remarkable. It
merely required an appropriate
attitude to risk management. De-
risking the pension promise requires
holding bonds not equities to match
liabilities. This was well established in
academic work many years ago, which
USS did not seem to have noticed.
The USS repeatedly ignored
warnings and continued to bet on
equities. The result was that, from
being in surplus in 2007, the USS now
has an enormous deficit — £11.8bn
according to FRS 102 standards. The
only way this can be plugged is by large
cash contributions from the member
universities. This will squeeze teaching
and research for many years and make
it difficult for UK higher education to
compete for international students.
Bernard Casey
Frankfurt, Germany‘The judge found me guilty
whether I accepted it or not’In “European Central Bank in turmoil
over Draghi stimulus” (September 14),
Martin Arnold reports that several
members of the ECB’s governing
council found it necessary to criticise
publicly the decision taken by a strong
majority of the council to lower
interest rates further and to restart the
bond-buying programme. Jens
Weidmann, head of the Bundesbank
and member of the governing council,
is, however, mistaken when he states
that “the economic situation is not
really bad... and the danger of
deflation is unrecognisable”.Unemployment in several eurozone
countries continues to be unacceptably
high, especially among young people.
Given the ECB’s mandate of aiming at
annual price increases of below but
close to 2 per cent, and also because the
impact of monetary policies on
economic growth and employment
occurs with significant time lags, Mr
Draghi and his colleagues have acted
appropriately.
The ECB would not be acting
responsibly if it had waited until prices
and wages were indeed falling over a
longer period. Undoubtedly, the ECB’sexpansionary policy comes with
undesirable side-effects, such as
companies delaying measures to
become more efficient, governments
postponing structural reforms or
excessive real estate price increases.
Mr Weidmann’s public criticism is
particularly unwarranted as Germany
has so far been unwilling to employ
fiscal policy or reduce its large foreign
trade surpluses to stimulate growth in
Europe and beyond. Such stimuli
would relieve some of the pressures on
the ECB which, being the “only game in
town”, felt compelled to lower interestrates into negative territory, thereby
rendering them less effective.
It is odd that Mr Weidmann not only
is not ready to accept the judgment of
his colleagues; by voicing his criticism
in Bild Zeitung, a paper not known for
its expertise in economic or monetary
matters, he seems to want to suggest
that German savers have a right to
interest income on their bank
accounts. Which is, of course, not
the case.
Ulrich Hewer
Adjunct Professor, School of Business,
University of Maryland, USWeidmann is mistaken — the ECB is right to cut interest rates
SEPTEMBER 18 2019 Section:Features Time: 17/9/2019 - 18:52 User: alistair.hayes Page Name: LEADER, Part,Page,Edition: LON, 12, 1