Markets after Paris

Australia’s former prime minister, Tony Abbott, relaunched himself yesterday and is colouring much of the press coverage of the Paris attacks today:

“We are helping to train the Iraqi army, we advising and assisting the Iraqi Special Forces,” he said. “I certainly think that this latest atrocity, on top of other recent atrocities, does indicate that we do need to do more to tackle this toxin at its source.”

When asked whether that meant sending troops in, Mr Abbott replied that he didn’t want to give public advice.

“The point I make is that this ISIL caliphate, it can’t be contained. It has to be defeated and it’s not going to go away just by wishing it to go away. It’s only going to be defeated if people take very strong steps against it.”

Boots on the ground is one approach, yes. But this is not a conventional war. It is not even a war that Australia is presently engaged it, though we know that Mr Abbott would like it to be so.

Let’s turn to another political leader that has been here before, Tony Blair, for guidance:

Blair indicated that he saw merit in the argument that the Iraq war was to blame for the rise of Islamic State (Isis). “I think there are elements of truth in that,” he said when asked whether the Iraq invasion had been the “principal cause” of the rise of Isis.

He added: “Of course you can’t say those of us who removed Saddam in 2003 bear no responsibility for the situation in 2015.”

Righto, then, so boots on the ground a’la Iraq will work for a while but only so long as the commitment to keep hundreds of thousands of troops in the sand lasts. Once removed, the nutters return twofold.

This is classic guerrilla warfare. Lightening strikes that provoke the occupying power into overreach that in the end converts more of the indigenous population to the cause of resistance. What is different about this insurgency is it is a borderless guerrilla war that is fought as much by destabilising ‘secure’ Western societies as it is by resisting an occupier at home.

Typically, to win a guerrilla war, an occupying power must do three things. He must stabilise the security of the wider population, he must negotiate with the grievances of any swing elements in the society and he must hunt down and destroy the hard core of the offending militia.

But when this war is being fought across a landscape of ideas rather than topography, that task becomes a lot more difficult and subtle. Even so, I’d expect that, Mr Abbott notwithstanding, this understanding of the conflict will dictate the course of action among allies ahead. We can expect therefore:

  • no more large scale boots on ground;
  • an intensification of bombing, especially aimed at terrorist training operations;
  • a significant escalation of espionage and counter-insurgent activities;
  • an intensified hunt for a political solution in Syria that accelerates all of the above, and
  • if we are sensible, a very concerted effort to engage indigenous Muslim populations at home.

All of these necessitate calm, rational and moderate leadership. I do not see any big implications for global markets, except a little slowing in Europe and little higher for oil in the short term, as well as a blow to shares today.

David Llewellyn-Smith
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