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“Hopeless, but not serious,” was the cafe quip about the Austro-Hungarian monarchy before World War I. Now that a consensus has emerged that Iraq’s position is hopeless, the next question is: Is it serious? Judging from financial markets, the answer is, “Not in the least.” The same is true for the Israel-Palestine problem.
Some years ago I suggested that option theory offered insights into geopolitics. During the Cold War, the Soviet Union was the spoiler, seeking advantage from instability, while the United States sought to maintain stability. In financial parlance, the Russians were long volatility; they stood to exercise their political options opportunistically, and the more chaotic and uncertain the state of the world, the better for Moscow. For the past 20 years, though, it is Washington that is long volatility; in the absence of a contending superpower, instability frightens all contending parties into seeking help from Washington. The more unstable and uncertain the world, the stronger the position of the United States. Whether or not the US recognizes this is beside the point; the fact that President George W. Bush has made a dog’s breakfast of Iraq makes America’s world position stronger.
A friend in financial markets observes that the world appears to be safer than at any time on record, judging by the cost of insurance against economic disaster. That is, the cost of buying options on the Standard and Poor’s 500 stock index stands at the lowest level since 1986, when options on the index first were traded. Investors who fear catastrophe pay for the option to sell the S&P 500 Index at a fixed price. If it falls far below that level, they earn a windfall. The price of options is measured in terms of “implied volatility,” a concept that interested readers may investigate for themselves. 
Now, the fact that the financial market believes the world to be safe does not prove that it is safe. Professor Niall Ferguson of Harvard observes that world markets anticipated the outbreak of neither World War I nor II. As he observed in the January edition of The Atlantic Monthly, the predicament of Sunni, Shi’ite and Kurd resembles that of the European powers just before the outbreak of the World War I in 1914.  I made a similar argument last year.  The difference is that everyone cared if Germany, France, Russia and Britain went to war. No one today cares if Sunnis kill Shi’ites in Iraq or Lebanon, or Hamas and Fatah fight to the bitter end in Gaza – provided, of course, that US aircraft carriers keep the oil flowing through the Persian Gulf.
For the first time in recorded history, none of the major powers has any reason to fight any of the others. All of the major powers enjoy levels of economic growth that range from respectable to ebullient, and none of them shows any vulnerability to financial crisis. A great deal of violence flashes across the news screens, to be sure, but the perpetrators of the violence are not the decisive players in the modern world, but rather those who reject the modern world because they cannot adapt to it. By definition, the rejectionists have small impact on the major currents of the idea, precisely because they have isolated themselves from these currents.
Bernard Lewis observed that the entire Arab world, except for oil, exports less than the 5.2 million people of Finland. The economic significance of the Shi’ites of Iraq and Lebanon is negligible; the Palestinians represent a net drain on the world economy, as consumers of subsidies. If space aliens were to transport all of them to another planet Tuesday next, world markets would not notice. By the same token, if the Sunnis and Shi’ites of Iraq and Lebanon were to eat each other up like the Gingham Dog and the Calico Cat, and the Palestinians of Gaza were to annihilate one another, the impact on the world would fall below the threshold of observation. I do not mean to suggest that this would be a good thing, for human tragedy never is a good thing; I mean only to state the obvious, that it would not be a matter of material importance for anyone else.
For the past 40 years, the foreign-policy establishment on both sides of the Atlantic took as an article of faith the premise that a solution to the Arab-Israeli conflict was the key to stability in the Middle East. Frustration at the inability of the Israelis and Palestinians to come to terms has led the US Baker-Hamilton Commission and other incarnations of conventional wisdom to demand forceful intervention to impose a settlement.
The voice of conventional wisdom has fallen curiously silent in recent weeks, as Saudi Arabia and Egypt align themselves with the United States and Israel to isolate Iran and its proxies, Hezbollah and Hamas. I wrote on December 4, 2006, “The emergence of an Iranian threat to Saudi Arabia makes Palestine the odd man out. The Palestine problem has dropped to the bottom of the Arab priority list, and the fate of the Palestinians is to become cannon fodder for proxy wars.” 
I do not think any responsible analyst now believes that a solution to the Israeli-Palestinian issue has much bearing on stability in the Middle East. Which Israeli was it who began the Sunni-Shi’ite conflict? Iran’s delusions of grandeur and messianic expectations stem, I have long argued, from the simple fact that the country is entering a combined economic and demographic crisis from which it has poor hopes of recovering. 
The present conflict in the Middle East is not between Arab and Jew, but between Arabs and Jews who seek their way in the modern world on the one hand, and Arabs and Persians who reject the modern world on the other. The latter have nothing to lose and are prepared to fight to the death; how else do we explain the unlimited supply of Muslims who are prepared to die to murder Muslim civilians?
If individuals or indeed entire peoples are determined to destroy themselves, it is extremely difficult to prevent them from doing so at length. The tragedy, I expect, will continue in Iraq, as it did in Spain 1936-39, or the United States 1861-65, until there no longer are sufficient young men to put into the line. The world will little notice or care.
2. A war to start all wars, The Atlantic Online.
3. Why war comes when no one wants it, May 2, 2006.
4. Civil wars or proxy wars?
5. Demographics and Iran’s imperial design, September 13, 2005.