$4.5 billion options bet on catastrophe

[blazespinnaker]

Re: $4.5 billion options bet on catastrophe

Folks,

Occam's razor wins again: the 'Bin Laden' trade was just some fund/institution taking out a 5%/month quick loan.

No planes, no bombs.

I discredited the notion from the start - first of all I don't see any counterparty taking on the flip side to this bet without REALLY knowing who the original agent was and why this agent was doing it.

From the Option Investor newsletter:

Not sure that really discredits anything. If you're going to make a bet like that you're going to come up with some sane sounding reason as well .. Doomsday predictions will just make you look like a 4.6B loony.

And the only thing worse than being wrong about that bet will be being right.

[c1ue]

Re: $4.5 billion options bet on catastrophe

Blaze,

The point is that it is not a bet - it is a loan albeit with both up- and down- side risks.

Somebody needed that amount of cash quick and was willing to take on risk plus 5% fees to get it.

The institution is not named, nor is the reason, but the presumption is that this is a short term issue and not a liquidity event :rolleyes:

[Mega]

Re: $4.5 billion options bet on catastrophe

http://www.youtube.com/watch?v=Nx9kb12gdRo
Mike

[Rajiv]

Re: $4.5 billion options bet on catastrophe

I am embedding it for you Mike!

[Mega]

Re: $4.5 billion options bet on catastrophe

Honest guy, just like to talk markets and that. Can see what WE see THE CRASH!
Mike

[Rajiv]

Re: $4.5 billion options bet on catastrophe

See also this thread Rating Agencies : The Monopoly Of The "three Usa Sisters"

[Guest]

Re: $4.5 billion options bet on catastrophe

Clue wrote:

<< Somebody needed that amount of cash quick and was willing to take on risk plus 5% fees to get it. >>

This is the only rational explanation.

I'd have arrived at it from a far less sophisticated method, but with a bit of luck getting to the same conclusion. When something appears to defy rational explanation, displays enormous financial risk almost beyond market participant's comprehension of rational moves - then one should reserve the conspiracy theory to be the very last hypothesis as the likely answer. Preferably the conspiracy theory should never be accepted even as a last resort.

Call it just a bias, but I believe 99% of conspiracy theories and / or collusion theories are either imperfect pictures of the facts, or outright false.

The first thing that comes rationally to mind for such a massively large bet at absurd odds is that it is either a hedge, or a component of another position with much improved odds, and which nets out the first position. Stands to reason.

[Mega]

Re: $4.5 billion options bet on catastrophe

China?
Mike

[Rajiv]

Re: $4.5 billion options bet on catastrophe

See "Pentagon ‘three-day blitz’ plan for Iran"

THE Pentagon has drawn up plans for massive airstrikes against 1,200 targets in Iran, designed to annihilate the Iranians’ military capability in three days, according to a national security expert.

Alexis Debat, director of terrorism and national security at the Nixon Center, said last week that US military planners were not preparing for “pinprick strikes” against Iran’s nuclear facilities. “They’re about taking out the entire Iranian military,” he said.

Debat was speaking at a meeting organised by The National Interest, a conservative foreign policy journal. He told The Sunday Times that the US military had concluded: “Whether you go for pinprick strikes or all-out military action, the reaction from the Iranians will be the same.” It was, he added, a “very legitimate strategic calculus”.

[c1ue]

Re: $4.5 billion options bet on catastrophe

Anything can happen, but a US military attack upon Iraq would be a mistake of truly jaw dropping proportions.

If you think it is bad in Iraq now...

Here's what I would see just off the cuff for such an action by the US on Iran:

1) Iran allies itself with Russia; Russia protests the US imperialist actions and pulls hard on the EU energy strings.

2) Iraq gets 10 times worse; instead of fairly circumspect pawn manipulation, Iranian military starts showing up

3) Saudi Arabian oil chokepoints get hit with 500-1500 missiles

4) All Persian Gulf traffic ceases. The whole gulf is only 615 miles long and from 215 to 35 miles wide (Strait of Hormuz); all of it range-able by the full Iranian missile arsenal including those nifty new Chinese anti-ship missiles. I would be astonished if the major ports were not already zero'd in.

5) Israel gets smacked. After all, if the US military is already busy...

[Guest]

Re: $4.5 billion options bet on catastrophe

Rajiv -

Military routinely war-game multiple scenarios. The fact rumors buzz about a US mass bombing of Iran military infrastructure is in the same camp as the constant rumors of Israeli invasions across into Syria (which under their current premier has a quite low probability after Lebaonon in '06) - these are war game contingency plans which are mandatory contingency planning for any military.

We could alternatively look to STRATFOR for some tightly reasoned estimations of probable scenarios. They have a pretty good reputation for tightly reasoned international risk analysis. Here's what they consider may develop - unless of course Pentagon contingency planners are far more stupid than even we imagine and do try to employ an aerial campaign to "persuade" Iran, which is a possibility although a remote one.

The irony of the below described scenario is that it represents a stalemate containment situation very similar to that which America could have relied on quite reliably, prior to this entire bloody war, simply by having left Saddam in place with no-fly zones to the north and the south - indefinitely to act as a near zero cost, highly effective buffer to Iran's westward ambitions.

It appears that French geopolitical cynicism, dressed up (quite attractively) for world consumption as idealistic abhorrence for war, would have been the far wiser course for American to pursue geo-strategically. The French of course are a good deal more sophisticated in geopolitics than the Americans, after several hundred years at the task, as they thoroughly understood that Iraq precisely as it was quarantined, represented a low cost, and much more stable way to contain Iran than would have Bush's bumbling regime change plans. Here the colossal stupidity of the Bush administration's geoplitical assessment is sadly revealed.

One thought which the idealists here should ponder carefully is STRATFOR's description of what will inevitably occur were the US now to fully withdraw without maintaining a deterrent force in the area. Starry eyed idealism, which claims that we need only leave Iran some "breathing room" and it will cast no covetous eyes on the vast Shia oil reserves in the Shatt-Al-Arab within a broken neighbor country, is hopelessly naive as to what has occurred in regional power politics throughout history, particularly when a vigorously resurgent regional power such as Iran faces the vast resources of a fragmented neighbor. Throw in the fact that neighbor's southern regions are the largest group of Shia outside Iran, and the linkage of de-facto annexation or political Finlandization risk becomes overwhelming.

When very large critical resources are dangled in front of the nose of large, heavily armed middle power nations facing a resource rich neighbor who's government and capacity to defend have been completely fragmented, "peace, flowering naturally as a result of US withdrawal" is the remotest of the probabilities.

This is called a POWER VACUUM, and it is an straightforward concept demonstrated many times over historically, which populist proponents of "immediate and unconditional withdrawal" insist is the magic panacea for the cauldron of oil geopolitics in the Middle East. The basic idea being that if the US stops grasping for it, all regional countries will as well (Saddam invading Kuwait is just one of the examples to counter this fanciful notion). My answer to such thinking is that it is not only naive, but almost as dangerous now, as Bush's original misadventure was to begin with.

Please therefore also note that in STRATFOR's analysis, their conclusions about the start of the Iraq war are contrary to a by now very popular opinion. For the record, they are concluding that the US did not go into Iraq specifically "for the oil", but rather did so only peripherally to that consideration, as a considerably more pressing aim was to salvage or attempt to "reconfigure" (in hindsight this was the height of folly) into more stable arrangement, what appeared at that time to be highly unstable geopolitics surrounding a stalemated Iraq, post Kuwait invasion, which seemed at that time to be only precariously contained by perpetual no-fly zones.

The fact that practically the entirety of Saddam's Gulf War #1 signed armistice agreement had been torn up and spat on is a "detail" which the world promptly regarded thereafter as immaterial. Solemn armistice agreements turned into meaningless toilet paper only 3-4 years after their signing are apparently today a quite blase' feature of our postmodern world.

If remnants or aftershocks, or complications of this war to topple Hussein emerge in the next five years which extend fingers of Iran sponsored Shia subversion into the Arabian peninsula THEN the wars resulting can truly be said to become "all about the oil". One thing we can bank on, if the US withdrew entirely other than a token force in Kuwait, Saudi Arabia simply would not have the resources to resist iranian Finlandization of not only southern (or all of) Iraq, but within ten years would have reduced the entire Western Gulf, with it's global strategic oil reserves to beome vassal states of Iran.

This configuration would make Russia and it's vast energy reserves looming over Europe's autonomy pale into insignificance, and would put the world economy at the knee of a new and altogether different "oil cartel" - one entirely subservient to Iran's political views as the de-facto hegemon of the entire petroleum endowed gulf region.

Any idealists here wishing to consign us to this alternative, in the belief that US and / or British machinations are the sole root of iniquity or greed for control of resources in the world will find many people like me singularly reluctant to walk down that road with you.

_________________


Endgame:" American Options in Iraq

The latest National Intelligence Estimate (NIE) summarizing the U.S. intelligence community's view of Iraq contains two critical findings: First, the Iraqi government is not jelling into an effective entity. Iraq's leaders, according to the NIE, neither can nor want to create an effective coalition government. Second, U.S. military operations under the surge have improved security in some areas, but on the whole have failed to change the underlying strategic situation. Both Sunni insurgents and Shiite militias remain armed, motivated and operational.

Since the Iraq insurgency began in 2003, the United States has had a clear strategic goal: to create a pro-American coalition government in Baghdad. The means for achieving this was the creation of a degree of security through the use of U.S. troops. In this more secure environment, then, a government would form, create its own security and military forces, with the aid of the United States, and prosecute the war with diminishing American support. This government would complete the defeat of the insurgents and would then govern Iraq democratically.

What the NIE is saying is that, more than four years after the war began, the strategic goal has not been achieved -- and there is little evidence that it will be achieved. Security has not increased significantly in Iraq, despite some localized improvement. In other words, the NIE is saying that the United States has failed and there is no strong evidence that it will succeed in the future.

We must be careful with pronouncements from the U.S. intelligence community, but in this case it appears to be stating the obvious. Moreover, given past accusations of skewed intelligence to suit the administration, it is hard to imagine many in the intelligence community risking their reputations and careers to distort findings in favor of an administration with 18 months to go. We think the NIE is reasonable. Therefore, the question is: What is to be done?

For a long time, we have seen U.S.-Iranian negotiations on Iraq as a viable and even likely endgame. We no longer believe that to be the case. For these negotiations to have been successful, each side needed to fear a certain outcome. The Americans had to fear that an ongoing war would drain U.S. resources indefinitely. The Iranians had to fear that the United States would be able to create a viable coalition government in Baghdad or impose a U.S.-backed regime dominated by their historical Sunni rivals.

Following the Republican defeat in Congress in November, U.S. President George W. Bush surprised Iran by increasing U.S. forces in Iraq rather than beginning withdrawals. This created a window of a few months during which Tehran, weighing the risks and rewards, was sufficiently uncertain that it might have opted for an agreement thrusting the Shiites behind a coalition government. That moment has passed. As the NIE points out, the probability of forming any viable government in Baghdad is extremely low. Iran no longer is facing its worst-case scenario. It has no motivation to bail the United States out.

What, then, is the United States to do? In general, three options are available. The first is to maintain the current strategy. This is the administration's point of view. The second is to start a phased withdrawal, beginning sometime in the next few months and concluding when circumstances allow. This is the consensus among most centrist Democrats and a growing number of Republicans. The third is a rapid withdrawal of forces, a position held by a fairly small group mostly but not exclusively on the left. All three conventional options, however, suffer from fatal defects.

Bush's plan to stay the course would appear to make relatively little sense. Having pursued a strategic goal with relatively fixed means for more than four years, it is unclear what would be achieved in years five or six. As the old saw goes, the definition of insanity is doing the same thing repeatedly, expecting a different outcome. Unless Bush seriously disagrees with the NIE, it is difficult to make a case for continuing the current course.

Looking at it differently, however, there are these arguments to be made for maintaining the current strategy: Whatever mistakes might have been made in the past, the current reality is that any withdrawal from Iraq would create a vacuum, which would rapidly be filled by Iran. Alternatively, Iraq could become a jihadist haven, focusing attention not only on Iraq but also on targets outside Iraq. After all, a jihadist safe-haven with abundant resources in the heart of the Arab world outweighs the strategic locale of Afghanistan. Therefore, continuing the U.S. presence in Iraq, at the cost of 1,000-2,000 American lives a year, prevents both outcomes, even if Washington no longer has any hope of achieving the original goal.

In other words, the argument is that the operation should continue indefinitely in order to prevent a more dangerous outcome. The problem with this reasoning, as we have said, is that it consumes available ground forces, leaving the United States at risk in other parts of the world. The cost of this decision would be a massive increase of the U.S. Army and Marines, by several divisions at least. This would take several years to achieve and might not be attainable without a draft. In addition, it assumes the insurgents and militias will not themselves grow in size and sophistication, imposing greater and greater casualties on the Americans. The weakness of this argument is that it assumes the United States already is facing the worst its enemies can dish out. The cost could rapidly grow to more than a couple of thousand dead a year.

The second strategy is a phased withdrawal. That appears to be one of the most reasonable, moderate proposals. But consider this: If the mission remains the same -- fight the jihadists and militias in order to increase security -- then a phased withdrawal puts U.S. forces in the position of carrying out the same mission with fewer troops. If the withdrawal is phased over a year or more, as most proposals suggest, it creates a situation in which U.S. forces are fighting an undiminished enemy with a diminished force, without any hope of achieving the strategic goal.

The staged withdrawal would appear to be the worst of all worlds. It continues the war while reducing the already slim chance of success and subjects U.S. forces to increasingly unfavorable correlations of forces. Phased withdrawal would make sense in the context of increasingly effective Iraqi forces under a functional Iraqi government, but that assumes either of these things exists. It assumes the NIE is wrong.

The only context in which phased withdrawal makes sense is with a redefined strategic goal. If the United States begins withdrawing forces, it must accept that the goal of a pro-American government is not going to be reached. Therefore, the troops must have a mission. And the weakness of the phased withdrawal proposals is that they each extend the period of time of the withdrawal without clearly defining the mission of the remaining forces. Without a redefinition, troop levels are reduced over time, but the fighters who remain still are targets -- and still take casualties. The moderate case, then, is the least defensible.

The third option is an immediate withdrawal. Immediate withdrawal is a relative concept, of course, since it is impossible to withdraw 150,000 troops at once. Still, what this would consist of is an immediate cessation of offensive operations and the rapid withdrawal of personnel and equipment. Theoretically, it would be possible to pull out the troops but leave the equipment behind. In practical terms, the process would take about three to six months from the date the order was given.

If withdrawal is the plan, this scenario is more attractive than the phased process. It might increase the level of chaos in Iraq, but that is not certain, nor is it clear whether that is any longer an issue involving the U.S. national interest. Its virtue is that it leads to the same end as phased withdrawal without the continued loss of American lives.

The weakness of this strategy is that it opens the door for Iran to dominate Iraq. Unless the Turks wanted to fight the Iranians, there is no regional force that could stop Iran from moving in, whether covertly, through the infiltration of forces, or overtly. Remember that Iran and Iraq fought a long, vicious war -- in which Iran suffered about a million casualties. This, then, simply would be the culmination of that war in some ways. Certainly the Iranians would face bitter resistance from the Sunnis and Kurds, and even from some Shia. But the Iranians have much higher stakes in this game than the Americans, and they are far less casualty-averse, as the Iran-Iraq war demonstrated. Their pain threshold is set much higher than the Americans' and their willingness to brutally suppress their enemies also is greater.

The fate of Iraq would not be the most important issue. Rather, it would be the future of the Arabian Peninsula. If Iran were to dominate Iraq, its forces could deploy along the Saudi border. With the United States withdrawn from the region -- and only a residual U.S. force remaining in Kuwait -- the United States would have few ways to protect the Saudis, and a limited appetite for more war. Also, the Saudis themselves would not want to come under U.S. protection. Most important, all of the forces in the Arabian Peninsula could not match the Iranian force.

The Iranians would be facing an extraordinary opportunity. At the very least, they could dominate their historical enemy, Iraq. At the next level, they could force the Saudis into a political relationship in which the Saudis had to follow the Iranian lead -- in a way, become a junior partner to Iran. At the next level, the Iranians could seize the Saudi oil fields. And at the most extreme level, the Iranians could conquer Mecca and Medina for the Shia. If the United States has simply withdrawn from the region, these are not farfetched ideas. Who is to stop the Iranians if not the United States? Certainly no native power could do so. And if the United States were to intervene in Saudi Arabia, then what was the point of withdrawal in the first place?

All three conventional options, therefore, contain serious flaws. Continuing the current strategy pursues an unattainable goal. Staged withdrawal exposes fewer U.S. troops to more aggressive enemy action. Rapid withdrawal quickly opens the door for possible Iranian hegemony -- and lays a large part of the world's oil reserves at Iran's feet.

The solution is to be found in redefining the mission, the strategic goal. If the goal of creating a stable, pro-American Iraq no longer is possible, then what is the U.S. national interest? That national interest is to limit the expansion of Iranian power, particularly the Iranian threat to the Arabian Peninsula. This war was not about oil, as some have claimed, although a war in Saudi Arabia certainly would be about oil. At the extreme, the conquest of the Arabian Peninsula by Iran would give Iran control of a huge portion of global energy reserves. That would be a much more potent threat than Iranian nuclear weapons ever could be.

The new U.S. mission, therefore, must be to block Iran in the aftermath of the Iraq war. The United States cannot impose a government on Iraq; the fate of Iraq's heavily populated regions cannot be controlled by the United States. But the United States remains an outstanding military force, particularly against conventional forces. It is not very good at counterinsurgency and never has been. The threat to the Arabian Peninsula from Iran would be primarily a conventional threat -- supplemented possibly by instability among Shia on the peninsula.

The mission would be to position forces in such a way that Iran could not think of moving south into Saudi Arabia. There are a number of ways to achieve this. The United States could base a major force in Kuwait, threatening the flanks of any Iranian force moving south. Alternatively, it could create a series of bases in Iraq, in the largely uninhabited regions south and west of the Euphrates. With air power and cruise missiles, coupled with a force about the size of the U.S. force in South Korea, the United States could pose a devastating threat to any Iranian adventure to the south. Iran would be the dominant power in Baghdad, but the Arabian Peninsula would be protected.

This goal could be achieved through a phased withdrawal from Iraq, along with a rapid withdrawal from the populated areas and an immediate cessation of aggressive operations against jihadists and militia. It would concede what the NIE says is unattainable without conceding to Iran the role of regional hegemon. It would reduce forces in Iraq rapidly, while giving the remaining forces a mission they were designed to fight -- conventional war. And it would rapidly reduce the number of casualties. Most important, it would allow the United States to rebuild its reserves of strategic forces in the event of threats elsewhere in the world.

This is not meant as a policy prescription. Rather, we see it as the likely evolution of U.S. strategic thinking on Iraq. Since negotiation is unlikely, and the three conventional options are each defective in their own way, we see this redeployment as a reasonable alternative that meets the basic requirements. It ends the war in Iraq in terms of casualties, it reduces the force, it contains Iran and it frees most of the force for other missions. Whether Bush or his successor is the decision-maker, we think this is where it must wind up.


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[Rajiv]

Re: $4.5 billion options bet on catastrophe

Lukester,

I don't really disagree with you here. I think The answer still is for the US to get out! However, it has to be replaced by a force that the Iraqis trust. That is likely to involve some European forces, some Russian forces, -- some Indian and Pakistani forces -- but NO US or British forces -- and NO US or British command. That will probably be agreeable to all parties in Iraq and the surrounding countries. Stability will in all likelihood be established much sooner than with British and US troop presence. This force should have a mandate to bring stability to Iraq. Also, a massive infrastructure building project needs to be started -- but no cost plus contracts to US corporations - or otherwise. True market bids -- You will find that the cost to the US taxpayer will come down by an order or two of magnitude!

However, this implies a true hands off policy from the US -- and that I see as being close to impossible with the current crew that is in charge here in the USA.

[Guest]

Re: $4.5 billion options bet on catastrophe

Rajiv -

You are probably still dreaming if you envision a UN force stepping in either willingly, cohesively, or effectively into Iraq as the Americans and British disappear entirely from any UN direct support.

Look at Lebanon for a broad hint. The UN force "stabilizing" Southern Lebanon which had a mandate to allow not only no further amrs smuggling but also the DISARMAMENT of Hezbollah - has presided over a total re-armament of Hezbollah which in recent months became so blatant that Hezbollah was actually openly reported in the news as threatening the UN forces and telling them which areas were "go" or "no go" zones in Southern Lebanon? Who is now policing whom there? Which ones have the stomach for a fight - Hezbollah, or those nice EU MP's in mixed nation regiments with the nicely polished brass?

After many months of the world silently turning a blind eye as trucks full of rockets and arms streamed into South Lebanon from the Damascus road in broad daylight - the Hezbollah were once again re-armed to the teeth.

In frustration the Israelis finally went to Ban Ki Moon with satellite photos showing this wholesale stream of arms from Syria. Ban Ki Moon, not being yet "domesticated" to the UN's EU ruffle-no-feathers-of-anyone style, actually had the innocence to publicly acknowledge Israeli satellite photography constituted hard evidence that the Hezbollah were rearming! The poor man was far too new to the job to understand the flak this would bring him politically from the Arab bloc!

The UN forces in South Lebanon are now under firm, if unofficial guidelines to incur no shooting engagements with Hezbollah, for any reason. Politics trumps their original purpose for having been introduced there to act as an overseer of empty UN security council and general session rtesolutions. The vaporousness of the UN deterrent is painfully on display for the world to gaze upon.

Iraq subsequent to a wholesale US pullout is a cauldron far worse than Southern Lebanon could ever be. Your faith in a "UN force sternly imposing law" in Iraq has little precedent in recent history Rajiv. As for introducing Russian forces and expecting them to resist the impulse to introduce Kremlin preferences into how they would seek to steer events, this is about as large a question mark as I can imagine. A highly reassuring arbiter of this keg of dynamite for the departing US and UK indeed.

It appears your estimation of the US / UK as the root source of so much of the troubles remains unmodified by Stratfor's observations of the rampant and utterly cynical local interests involved. You indicate your'e in agreement with STRATFOR's thesis above - but it does not seem to follow through on their "real-politik" assessment of the truths on the ground, as you prescribe a UN force to stabilise it. Has it occurred to you the nations comprising the UN forces will absolutely not wish to have any part of that gory quagmire? Look at the foot dragging goin on in UN and Nato countries willingness to commit even 3000 tropps to Afganistan. How then do you think the political will can be summoned for the UN to deploy 100,000 troops into Iraq, let alone have them return a single shot from any factions there firing at them or blowing them up?

The UN "operation" in Southern Lebanon after the '06 war with Israel was never more than the most pathetic, defanged of fig leaves, whose primary characteristic has been utter paralysis in the face of Hezbollah rearmament. The UN's operation there, officially described as a "vigorous exercise" of their specific mandate to keep Hezbollah disarmed, which you'll recall was one of the important reasons for their being there to begin with - has been so thoroughly voided by their real actions as to be a farce.

Please give me another scenario for stabilising Iraq after the US / UK withdrawal, which excludes the Russians going in there alone, or the UN forces (currently also bogged down in Afghanistasn and South Lebanon).

Pakistan's army maybe? They at least could be quite tough. I think Al-Quaeda might find Pakistan's army an unpleasant experience. The question there is whether the chain of command to Islamabad remains un-altered of political orientation in the next two or three years, and that's today a very good question. This alternative does not even examine why Pakistan would be foolish enough to want the thankless task of posting 80K - 100K troops into Iraq.

Don't count on the EU, or the UN force to do other than sit on it's hands, until ten years down the road, when things may become a good deal stickier after the US withdrawal and resulting prolonged power vacuum. Then the EU may act - but by then, given the extraordinary promise for mayhem in the Gulf today, all parties may be "acting" quite vigorously against each other in unison.

[Mega]

Re: $4.5 billion options bet on catastrophe

We invaded Iraq because the TWO biggest oil fields, one in Iran and one in Mexico are almost tapped out. The last MAJOR KNOWN semi untapped feilds are in ......Yep you guessed it IRAQ.

Anyway, the Brits have do a runner, US will have to soon.

I don't know if there are any "Winners".
Mike

[c1ue]

Re: $4.5 billion options bet on catastrophe

I can't remember where I saw it, but it was likely George Friedman.

The most likely scenario in the present Iraq situation will be a baked good for which no one is happy:

1) Iran won't get free play in Iraq.

Well documented in above threads why allowing Iran to sit on Iraq is de-stabilizing; furthermore Iran is much larger than Iraq population wise (Tehran itself is nearly half the entire population of Iraq).

This is one of the reasons Saddam was able to get in power: only by coordinating disparate Iraqi regions and buying lots of foreign technology was Iraq able to hold its own in the last few Iran/Iraq wars.

What the US is not willing or able to do, Iran could.

2) The US will not be able to fully withdraw from Iraq.

Also talked about above; no one else is willing or able to take on the military overwatch of the area to prevent a new oil based superpower.

The talks going on now are to see what can actually happen.

From history the most likely outcome will be a partitioning of Iraq into several smaller states - the question is what these will be.

Turkey doesn't want a Kurdish state, this will raise havoc with the Turkish Kurds.

Saudi Arabia won't want an Iranian/Shiite substate with oil. One without, would be ok.

Iran doesn't want a Shia substate with monopoly on oil. It would effectively Saddam/Baath again.

Should be interesting to see what the actual result will be.