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Why the JCPOA Won’t Turn Iran Into the Next Saudi Arabia

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Of all the anxieties surrounding this summer’s groundbreaking accord between the United States and the Islamic Republic of Iran, concern over oil has been among the most prevalent. Once the terms of the Joint Comprehensive Plan of Action (JCPOA) are firmly in place, sanctions on Iran’s economy, including a set of rigorous restrictions on its oil industry, will begin to recede.

This could unleash a potentially-gargantuan supply of Iranian oil onto an already-saturated world oil market and augment the abilities of the Islamic Republic to influence regional politics. The Washington Institute has warned that a “post-sanctions windfall” will allow Iran to “rescue the Syrian regime, reshape Iraq’s political environment, expand its terrorist proxy activities in various theaters, and otherwise amplify the effects of its destabilizing regional posture.”

There is fuel for such speculation. Iran has the fourth-highest proven oil reserves in the world, and the second-largest gas reserves. If it gains the ability to tap these enormous resources, Iran could potentially become a major world oil and gas producer, rivaling Saudi Arabia, its major regional competitor.

Yet it is far from certain that the JCPOA will have anything like the cataclysmic effect some have predicted. Moreover, it is questionable how far Iran will push its newly-freed oil economy once sanctions are lifted, with a host of infrastructural challenges, as well as some compelling historical experience, potentially foiling the country’s rise into major petro-state status.

Before the U.S. began pressuring it to give up its nuclear ambitions, Iran was a major oil exporter, second only to Saudi Arabia among the OPEC member-states. Production reached 4 million barrels per-day (bpd) in 2007 before dropping to 3.6 million bpd in 2011; sanctions took that down to 2.85 million bpd by July of 2015, with exports dropping from 2.6 million bpd to 1.4 million bpd.

Expectations for Iran to immediately increase its production one sanctions begin to taper off are high. Iran’s oil minister Bijan Zhanganeh boasted in July that Iran would increase its national production by 1 million bpd within one month of sanctions being lifted. While more moderate analysts debate this figure, most agree that Iranian production will increase by the end of 2015, dropping the anticipated price of crude by $10-12 per barrel.

While the impact of greater Iranian production could further depress oil prices which have struggled for over a year, Iran will likely experience a sudden economic stimulus. The World Bank estimates that Iran’s economic growth forecast for 2016 could increase from 3% to a robust 5% if the JCPOA is approved, signaling a real end to the economic stagnation that set in with the sanctions regime.

Commentators and skeptics of the Iran deal have suggested that Iran’s aspirations to regional hegemony will finally become attainable once oil revenues are freed from sanctions limitations. There is the immediate impact of $150 billion in frozen assets to consider, money Iran will potentially be able to access once sanctions are lifted. This enormous windfall along with greater oil revenues will lead to a more strident Iranian policy, challenging Saudi and Gulf interests and ratcheting up support for Bashar al-Assad’s regime in Syria.

But considerable debate surrounds the precise amount of capital Iran has locked away in overseas accounts: $150 billion is the oft-quoted sum, but the Obama Administration has dropped its estimate from $100 billion to $50 billion, and one analysis in Fortune based on information from Iran’s Central Bank suggests that only $29 billion will be immediately available.

Depressed world oil prices will likely increase Iran’s oil revenues by a relatively small amount, from $50 billion to about $65 billion, roughly what it was earning in 2013 before prices fell. Rather than a sudden, tremendous surge in new assets, Iran will see a modest and gradual financial windfall over the course of 2016 and 2017.

How that new income will affect Iran’s foreign policy is difficult to say with any precision. The regime spends an estimated $10 billion per year on foreign “adventures” like the wars in Syria and Yemen, yet this amount dropped in 2014 in light of lower oil prices and seems trifling when compared to the amounts spent by Riyadh on similar endeavors. Saudi Arabia military spending surpasses that of Iran by five times and the UAE’s small force spends 50% more than Tehran on new weapon systems and arms. It is unlikely that any increase in oil revenues will upset this balance.

Support for Iran’s regional allies, proxies and clients will likely be overshadowed by investment that Iran will direct towards is domestic oil industry. Some of Iran’s most important oil fields are 70 years old and after a decade of sanctions the country’s infrastructure, from the wellhead to the refinery, has suffered considerable degradation for want of investment. Even the CIA, in a recent intelligence analysis, predicts that Iran’s economy will take precedence over support for regional allies.

An estimate from Iran’s oil ministry puts the total cost of industry upgrades at $200 billion, roughly half of Iran’s gross domestic product. Iran will have to pump a considerable amount of its new revenues into re-building its industry, and while external agents (including the massive Western oil firms like Royal Dutch-Shell, ENI and Total) have shown considerable interest in investing, the Obama Administration continues to warn off American companies, arguing that Iran’s aging infrastructure makes it a poor candidate for increased investment.

Even if its production reaches former levels, Iran must fight to win back market share from Saudi Arabia, which has increased its own production to record levels in order to force out new producers and bring the price back up. Saudi Arabia dominates the oil market and will likely continue to do so, as its production level (nearly 10 mbd) dwarfs that of Iran. Iran must effectively triple its current production level in order to compete, a feat that could take decades to accomplish.

Finally, a strong historical argument exists that might very well deter Iran from aggressively embracing increased oil production. Oil revenues largely funded the 1960s and 1970s regime of Mohammed Reza Shah Pahlavi, who pumped most of the country’s earnings into its military and expansive modernization programs. The Shah’s policies made Iran a regional power but over-heated the economy, created powerful inflationary effects and so destabilized his regime that it collapsed in the 1978-79 Islamic Revolution.

Ayatalloh Ruhollah Khomeini, Iran’s Supreme Leader, cut Iran’s oil production in half after 1980, causing it to fall from 6.6 million bpd to 3 million bpd. He believed Iran needed a “revolutionary economy” separate from the wider capitalist world.

Khomeini may have been driven by ideological concerns more than hard economics, but his reasoning was largely validated by post-1970s scholarship. Influential texts by Terry Lynn Karl, Hossein Mahdavy and Richard Auty point to a “resource curse” that affects country’s overly dependent on export earnings and rents from oil production. Today, oil-rich economies like Venezuela and Russia are struggling with such dependence.

If history is any guide, Iran will likely steer clear of such a policy, using its new oil revenues to bolster domestic economic growth and infrastructural development, shoring up the political support for its hardline regime (which has staked a considerable amount on reducing sanctions) while continuing its support for regional proxies and allies. The effect of a sanctions-free Iranian oil industry may take some years to reveal itself, but it is unlikely to be as dramatic as some have speculated. After all, the world oil market remains glutted; the Middle East remains a region riven by conflict; and neither the U.S. nor Iran have indicated that they plan to alter the nature of their postures towards one another. Iran’s oil may alter this situation, but it probably won’t upend it completely.

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Suicide attack in Iran frames visit to Pakistan by Saudi crown prince

Dr. James M. Dorsey

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This week’s suicide attack on Revolutionary Guards in Iran’s south-eastern province of Sistan and Baluchistan, the second in two months, could not have come at a more awkward moment for Pakistani prime minister Imran Khan.

The assault on a bus carrying the guards back from patrols on the province’s border with the troubled Pakistani region of Balochistan killed 27 people and wounded 13 others. It occurred days before Saudi crown prince Mohammed bin Salman was scheduled to visit Pakistan as part of a tour of Asian countries.

While Baluchistan is set to figure prominently in Prince Mohammed’s talks with Mr. Khan, the attack also coincided with a US-sponsored conference in Warsaw, widely seen as an effort by the Trump administration to further isolate Iran economically and diplomatically.

Inside the conference, dubbed The Ministerial to Promote a Future of Peace and Security in the Middle East, Secretary of State Mike Pompeo insisted that US policy was designed to force Iran to alter its regional and defense policies and not geared towards regime change in Tehran.

Yet, US President Donald J. Trump appeared to be sending mixed messages to the Iranians as well as sceptical European governments with his personal lawyer, Rudolph Giuliani, addressing a rally outside the conference organized by the Mujahedeen-e-Khalq, a controversial Iranian exile group believed to enjoy Saudi backing.

Mr. Giuliani told the protesters who waved Iranian flags and giant yellow balloons emblazoned with the words, “Regime Change” that “we want to see a regime change in Iran.”

Mr. Trump appeared to fuel suspicion that Mr. Giuliani represented his true sentiment by tweeting on the eve of the Warsaw conference in a reference to the 40th anniversary of the Islamic revolution: “40 years of corruption. 40 years of repression. 40 years of terror. The regime in Iran has produced only #40YearsofFailure. The long-suffering Iranian people deserve a much brighter future.”

In a statement, the Revolutionary Guards blamed the attack on “mercenaries of intelligence agencies of world arrogance and domination,” a reference to Saudi Arabia, the United States and Israel.

Jaish-al-Adl (the Army of Justice), a Pakistan-based splinter group that traces its roots to Saudi-backed anti-Shiite groups with a history of attacks on Iranian and Shiite targets, has claimed responsibility for the attack.

The group says it is not seeking Baloch secession from Iran. Instead, it wants to “force the regime of the guardianship of jurisconsult (Iran) to respect the demands of the Muslim Baloch and Sunni society alongside the other compatriots of our country.”

Militants targeted a Revolutionary Guards headquarters in December in a rare suicide bombing in Chabahar, home to Iran’s Indian-backed port on the Arabian Sea, a mere 70 kilometres from the Chinese supported port of Gwadar, a crown jewel in the Pakistani leg of the People’s Republic’s Belt and Road initiative.

The attacks coupled with indications that Saudi Arabia and the United States may be contemplating covert action against Iran using Pakistani Balochistan as a launching pad, and heightened Saudi economic and commercial interest in the province, frame Prince Mohammed’s upcoming talks in Islamabad.

During his visit, Prince Mohammed is expected to sign a memorandum of understanding on a framework for US$10 billion in Saudi investments.

The memorandum includes a plan by Saudi national oil company Aramco to build a refinery in Gwadar as well as Saudi investment in Baluchistan’s Reko Diq copper and gold mine.

The investments would further enhance Saudi influence in Pakistan as well as the kingdom’s foothold in Balochistan.

They would come on the back of significant Saudi aid to help Pakistan evade a financial crisis that included a US$3 billion deposit in Pakistan’s central bank to support the country’s balance of payments and another US$3 billion in deferred payments for oil imports.

Taken together, the refinery, a strategic oil reserve in Gwadar and the mine would also help Saudi Arabia in potential efforts to prevent Chabahar from emerging as a powerful Arabian Sea hub.

Saudi funds have been flowing for some time into the coffers of ultra-conservative anti-Shiite, anti-Iranian Sunni Muslim madrassahs or religious seminars in Balochistan. It remains unclear whether they originate with the Saudi government or Saudi nationals of Baloch descent and members of the two million-strong Pakistani Diaspora in the kingdom.

The funds help put in place potential building blocks for possible covert action should the kingdom and/or the United States decide to act on proposals to support irredentist activity.

The flow started at about the time that the Riyadh-based  International Institute for Iranian Studies, formerly known as the Arabian Gulf Centre for Iranian Studies, an allegedly Saudi government-backed think tank, published  a study that argued that Chabahar posed “a direct threat to the Arab Gulf states” that called for “immediate counter measures.”

If executed, covert action could jeopardize Indian hopes to use Chabahar to bypass Pakistan, significantly enhance its trade with Afghanistan and Central Asian nations and create an anti-dote to Gwadar.

Pakistani analysts expect an estimated US$ 5 billion in Afghan trade to flow through Chabahar after India in December started handling the port’s operations.

Iranian concerns that the attacks represent a US and/or Saudi covert effort are grounded not only in more recent US and Saudi policies, including Mr. Trump’s withdrawal last year from the 2015 international agreement to curb Iran’s nuclear program despite confirmation of its adherence to the accord and re-imposition of harsh economic sanctions against the Islamic republic.

They are also rooted in US and Saudi backing of Iraq in the 1980s Gulf war, US overtures in the last year to Iranian Kurdish insurgents, the long-standing broad spectrum of support of former and serving US officials for the Mujahedeen-e-Khalq and in recent years of Prince Turki al-Faisal, a former head of Saudi intelligence and ex-ambassador to the United States and Britain.

Said Ali Vaez, the International Crisis Group’s Iran analyst: “The concern was never that the Trump admin would avert its eyes from Iran, but rather that is in inflicted by an unhealthy obsession with it. In hyping the threat emanating from Iran, Trump is more likely than not to mishandle it and thus further destabilize the Middle East.”

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Turkey-Israel: Caught between friendship and enmity

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In 1949, Turkey became the first Muslim country to recognize the State of Israel. Territorial disputes with Iraq (Ankara claims the Mosul region as Turkish territory) and with neighboring Syria (which has never recognized Alexandretta Sanjak, Hatayt vilayet’s joining Turkey after WWI) necessitated a search for a regional ally. Moreover, the long-simmering conflict with Greece and accusations of the Armenian genocide had threatened to cut off the supply of high technologies and weapons from Western countries. Therefore, Israel has from the very outset been a major supplier of such advanced technologies and weapons to Turkey.

As for Israel, ties with Turkey meant a breach in the Middle Eastern countries’ political and economic blockade of the Jewish state, and an example to follow by neighboring countries. The rapprochement between Ankara and Tel Aviv was good news also for the United States, as it set the stage for the emergence of a pro-American alliance in the Middle East.

The agreement that Israel and the Palestine Liberation Organization (PLO) signed in 1993 served as a “moral” basis for forging even closer ties between Ankara and Tel Aviv. After the Israeli intelligence services helped their Turkish colleagues to locate the whereabouts of the Kurdistan Workers’ Party leader Abdullah Ocalan, Turkey and Israel signed a raft of cooperation agreements on security, on combating terrorism and on the implementation of joint agricultural projects in Central Asia.

Exchanges of visits by the two countries’ senior military officials that followed resulted in the conclusion of contracts for the supply and joint development of certain types of weapons, with Turkey making its airspace available for training flights of Israeli military aircraft as the territory of the Jewish state is too small for this.

The Free Trade Agreement that Ankara and Tel Aviv inked in 1996, effectively opened the Israeli market, and also those of the United States, Canada and Mexico for Turkish goods. However, in that very same year, relations between the two countries suffered a setback when Turkish Prime Minister Nejmettin Erbakan, the founder of “Turkish political Islam,” openly branded Israel as the “archenemy” of the Arab and Muslim world, intimidating voters with a Zionist plot against Turkey and ultimately calling for an end to all ties with the Jewish state. Before long, however, Erbakan was forced out by the then-powerful Turkish generals.

However, after the Justice and Development Party came to power in Turkey in 2002, relations between Turkey and Israel cooled again. The anti-Israeli rhetoric in Turkey has been heating up since 2004 with Turkish filmmakers contributing to this process by presenting Israel in a bad light – to a point where Israel’s Mossad agents were shown in a TV series as taking the Turkish ambassador hostage, along with his entire family. Israeli Deputy Foreign Minister Danny Ayalon was forced to go on record saying that “scenes similar to those shown in the series make the life of Jews in Turkey unsafe.”

This did not prevent the two countries from raising the volume of their bilateral trade and continuing military-technical cooperation though. Even faced with a situation like that, Turkey still proved itself a cool-headed realist.

Tensions between Turkey and Israel came to a head in 2009 when Ahmet Davutoglu, the author of the “neo-Ottomanism with Muslim overtones” doctrine, which became the unofficial paradigm of Ankara’s foreign policy, was appointed foreign minister. Besides, a new Israeli invasion of the Gaza Strip prompted Ankara to postpone and ultimately cancel a planned drill by Turkish, US, Italian and Israeli military. And, to top it all off, incensed by Israeli Prime Minister Benjamin Netanyahu’s speech at the World Economic Forum in Davos, Turkish President Recep Tayyip Erdogan vowed never to return to the annual gathering again.

In May 2010, Israeli forces intercepted the so-called “Freedom Flotilla” with humanitarian aid for Gaza residents. Simultaneously, passengers of the Turkish ship Mavi Marmara actively attempted to thwart a landing on the ship by Israeli commandos. In the violent clash that followed nine activists were killed and 30 were injured. The Turkish Foreign Ministry condemned the incident, Ankara recalled its ambassador from Israel and an angry crowd hurled stones at the Israeli consulate in Istanbul. Many experts believe that the conflict was deliberately provoked. In any case, the “resistance” by the passengers of the Turkish ship and Ankara’s angry response earned it the laurels of a fighter for Muslim interests both inside the country and elsewhere in the Muslim world. Even though the UN commission investigating the incident concluded that the Israeli commandos had used force to defend themselves against “organized and armed resistance from a group of passengers.”

Alarmed by the events of the “Arab Spring” that fueled the rise of political Islam in the region amid the growing confrontation with Turkey, the Israeli leaders started building up ties with Greece and Cyprus. In 2013, Israel launched commercial development of an offshore natural gas field near  Haifa with an eye to exporting its gas to Europe via these two countries. Turkish companies, for their part, proposed building an underwater pipeline to a Turkish terminal, from where the gas could be delivered to European consumers through the Turkish pipeline system.

Wary of Moscow’s reaction to the November 2015 downing of a Russian Su-24 bomber over Syria, and fearing Russian sanctions, Ankara started looking for alternative trade partners. In a bid to ensure its energy security, Turkey now staked on Israeli natural gas. In a surprise move, President Recep Tayyip Erdogan said that peace in the Middle East was impossible without Turkey and Israel working together. Israel, meanwhile, while praising Ankara’s desire to mend fences, was still mindful of Russia’s possible backlash with then-Foreign Minister Avigdor Lieberman warning that “normalization of relations with Ankara will cause serious damage to our relations with Cyprus, Greece and, of course, with Russia.”

Israel still paid compensation to the families of the victims of the Mavi Marmara incident, and agreed to allow Turkish humanitarian supplies into the Gaza Strip.

Last year’s transfer of the US embassy from Tel Aviv to Jerusalem in defiance of a resolution by the UN General Assembly, which condemned the move, sparked a new standoff between Turkey and Israel.  After Palestinian protests were harshly suppressed by Israel, Turkey expelled the Israeli ambassador, recalled its own envoy from Ankara and convened an extraordinary summit of the Organization of Islamic Cooperation in Istanbul. Speaking at the forum, President Erdogan said that he expected the OIC countries to “put the decision of the embargo [on trade with Israel] into practice.”

Erdogan’s hope never came true as Ankara did not actually want to cut ties with the Jewish state. Indeed, harsh as Ankara’s rhetoric was, it did not slow the pace of the trade and other economic ties between the two countries.  According to the Turkish Ministry of Commerce, in 2000, bilateral trade amounted to $1.13 billion, in 2005 – $2.27 billion, in 2010 – $3.44 billion, in 2017 – $4.91 billion and in the first 10 months of 2018 – $4.54 billion. This is what postmodern reality is all about.

Politics-wise, the future of relations between Turkey and Israel generally looks pretty bleak as Ankara is now relying on the Astana format in implementing its foreign policy goals, while Israel is gravitating towards a Saudi-led anti-Iranian bloc, which is now being established in the Middle East. Turkey refuses to recognize Bashar Assad as Syria’s legitimate president, but Israel would rather have Assad as a neighbor than religious radicals or a pro-Iranian government in Damascus.

Israel is much less concerned about the situation in northern Syria though. Turkey, whose freedom of geopolitical maneuver is much greater than what Israel can boast of, plays and will continue to play a leading role in bilateral relations. However, these relations will only be able to improve sustainably if the Turkish leaders give up on the ideology of neo-Ottomanism, where Israel is assigned a very unenviable rile. With the Turkish leaders’ ambitions extending far beyond the country’s boundaries, chances of Ankara revising its foreign policy any time soon look pretty slim. That being said, the history of the past few decades shows that rapprochement is still possible, but this will most likely have a tactical nature depending on the changing political situation. For example, if the United States abandons its doctrine of creating “controlled chaos” in the Middle East.

Russia, which is now returning to the Middle East, will avoid confrontation with any of the regional players (save for terrorists, of course) as the “above-the-fray” position allows it to act as a mediator in resolving major regional conflicts.

First published in our partner International Affairs

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Warsaw meeting: Roots of the crises in the Middle East

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The U.S. is co-hosting a conference on the Middle East with Poland in Warsaw. It has claimed the aim of the conference is to address crises in the region.

It is not difficult to really understand the chief causes of conflicts and instability in this volatile part of the world.

First and foremost, Israel and Washington’s blind support for Tel Aviv have been and will remain to be the main culprits behind the conflicts in the Middle East.

The continuous stealing of the Palestinian lands is not only a violation of international law and the basic rights of an entire nation, it has also radicalized the youth in the regional countries, especially those in the Arab world.

Add to this the transfer of the U.S. embassy from Tel Aviv to Jerusalem al-Quds in violation of international law. This has just added salt to the wound.

Now Israel may boast that it is gradually normalizing ties with certain Arab countries but its continued policy will not help change the minds of the Arabs and other Muslims about the Tel Aviv regime.

The other main reasons behind the problems in the region is Washington’s support for dictators in the Arab world. Donald Trump’s sword dance with Saudi officials who ordered the brutal chopping of Jamal Khashoggi is a concrete example.

While the U.S. claims support for human rights, it is shamefully arming and supporting Saudi Arabia and its coalition partners in their relentless war on fellow Arab nation of Yemen.

Washington is also oblivious to the Shias’ struggle for equal rights in Bahrain and has closed its eyes to the Medieval Age verdicts against political opponents in the country.

There are many other examples to cite.

The other reason for the headaches in the region dates back to the United States’ support for Muslim youth fighting the Soviet Union in Afghanistan in the 1980s. In those days U.S. politicians viewed religious fanaticism as the main bulwark against the Soviets who were viewed as pagans. In fact, officials in Washington fueled religious fanaticism to prevent the influence of the Soviets in the Cold War era.

Later these Muslim youth, chief among them al-Qaeda members who were mostly from Arab countries, turned against their masters and started terrorist activities in the Middle East and other parts of the world.

Add to this the U.S.-British invasion of Iraq in 2003 in violation of international law and repeated warnings by international figures of the time such as Kofi Annan, Jacques Chirac, Gerhard Schröder, Atal Bihari Vajpayee, Nelson Mandela and many other dignitaries.

It is clear to the entire world that the U.S. invasion of Iraq, under the false claim that Saddam Hussein was hiding weapons of mass destruction, not only led to unspeakable suffering for the Iraqi people it also led to spread of terrorism and violence in the region.

Some of those notorious terrorists in Iraq had become battle-hardened in Afghanistan and through their bigoted ideology triggered civil war in Iraq.

When the Arab spring started people who were angry of the rulers and their corrupt systems rose up for a change but, without the exception of Tunisia, the uprisings in the Arab world were misled and struggle for democracy and justice changed their place with terrorism and violence.

Rich Arab nations in the Persian Gulf region were instrumental in misleading pro-democracy movements in order to prevent the spread of uprisings to their countries. Analysts say they transferred money and arms to terrorists in order to convey this message to the people that if they rise against their ruling system they will become another Syria.

Some of those youth who had been trained and fought in Afghanistan and years later committed many terror acts inside Iraq poured into Syria.

Certain Arab countries’ support for radicals to topple the Syrian government, which does not see eye to eye with Washington and its regional allies, was so great that it led to the birth of more terrorist groups such as ISIS who were crueler than al-Qaeda.

If the U.S. did not fan the flames of religious bigotry in Afghanistan in the 1980s and did not invade Iraq, and also if certain Arab countries such as Saudi Arabia did not support radicals in Iraq and Syria today there were not such names as al-Qaeda, ISIS, al-Nusra and some other terrorist groups.

So it is clear that Washington, especially its current administration, does not really seek a peaceful and stable Middle East. If it is really seeking ways to stabilize the region it must rectify its mistakes; stop support for countries such as Saudi Arabia which is the birthplace of the ideology of religious terrorism; pressure Saudi Arabia and the UAE to end their war on Yemen; and more importantly stop supporting Israel which has been acting for decades against all internationally accepted norms and international law.

Though Washington, under European pressure, has been forced to retitle the agenda of the Warsaw conference from demonizing Iran to a focus on peace and security in the Middle East, there is no doubt that Secretary of State Mike Pompeo, National Security Advisor John Bolton, Vice President Mike Pence, and Israeli Prime Minister Benjamin Netanyahu will use the opportunity to vent their personal anger at Iran and say that Iran is the root of the problem.

However, demonization of Iran will not solve any problem so long as this policy continues. The Warsaw conference is in fact a disinformation campaign against Iran. To the surprise of Pompeo and his friends in Israel, Saudi Arabia and the UAE, the disinformation campaign in Warsaw faced a dead end before it started on Wednesday.

First published in our partner Tehran Times

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