Bearish on Bush Foreign Policy and the Global Economy

The Bush's administration's "incoherent" foreign policy in the Middle East has weakened American national security interests and increased the risks facing global economic growth, says the president of one the leading geopolitical forecasting firms.

In an interview with Portfolio.com, Ian Bremmer, the president of the Eurasia Group, said that last week's release of the National Intelligence Estimate concluding that Iran had halted work on nuclear weapons production in 2003, constitutes a "massive debacle" for U.S. foreign policy.

"If you had asked me two weeks ago to come up with a worse development for U.S. foreign policy in the Middle East, I would have had a hard time coming up with one," Bremmer said.

He suggested that the U.S. intelligence community felt so burned by the Bush administration's attempt to blame it for the Iraq intelligence failure, that it struck back.

The release of the Iran report has four consequences for U.S. foreign policy, Bremmer said, all of them negative. It has "entrenched" Iranian President Mahmoud Ahmedinejad's position and increased his power. The report's findings have "almost certainly ensured" that there will not be a new United Nations Security Council resolution sanctioning Iran, at least in the short term. And it has increased the possibility of an Israeli attack on Iranian nuclear facilities. Finally, it has made a U.S. military option less credible.

"This has seriously upset the apple cart on U.S. foreign policy in the Middle East," Bremmer said, adding that "the situation is almost certainly going to get worse." The crisis has direct consequences for the global economy, Bremmer said, pointing to the fact that Iran is one of the world's largest producers of oil.

Bremmer said his firm's hedge fund and institutional clients are calling daily to discuss their "structural concerns" about the Middle East.

Bremmer, it should be noted, is not a Bush basher. He cited several areas where U.S. foreign policy has been successful, including improved relations with Japan and a closer strategic dialogue with China.

With China, Bremmer said "there clearly has been a decoupling" between its economy, which is growing at 10 percent a year, and the U.S. economy, which used to anchor the global economy, but now appears on the brink of a recession because of the subprime mortgage crisis.

But, he said, the perception of a "decoupling" is actually more pronounced than the actual "decoupling," and in fact, the perception is actually fueling the phenomenon, almost like a self-fulfilling prophecy.

"Perceptions move actions," Bremmer said, adding that "the Chinese are overconfident." In other words, the U.S. economy is still the calling the shots.

Referring to the possibility of a U.S. recession in the next 12 months, Bremmer said that domestic consumption of oil could soften. But, he said, China's rapacious appetite for oil will most likely offset that. As a result, Bremmer said that his firm is "market-neutral to bearish" on oil prices in the short term. But over the long term, Bremmer expects oil prices to rise.

With respect to Venezuela, another large oil producer, Bremmer said its president, Hugo Chavez, has actually helped U.S. foreign policy by alienating its traditional allies and isolating itself from the world economy.

"The Russians won't talk to the them, the Chinese won't talk to them. Their only allies are Belarus and Bolivia," Bremmer said. "They can't even get past the 'B's."

Sam Gustin