It's starting to look like all those crazy 2012 prophecies might not be so wide of the mark after all. Even as the world is transfixed by the slow-motion implosion of the eurozone, reports are emerging that Israel might strike Iran's nuclear facilities early in the New Year. The unpredictable interaction two such epochal events could cause a global catastrophe like something out of a bad science fiction novel.
Nowadays, it seems that almost every day the unthinkable not only becomes thinkable, but it actually happens. So it goes with the eurozone: The bloc seemed like a rock of stability until a couple of years ago, now it seems to have entered an irreversible tailspin. Economist Nouriel Roubini has recently joined many others in warning that "Italy may, like other periphery countries, need to exit the euro and go back to a national currency, thus triggering an effective break-up of the eurozone." Such an event could cause unprecedented economic devastation in Europe and around the world.
The only long-term solution to the euro crisis is total fiscal integration. Yet this is completely unacceptable to almost every eurozone polity. The necessary treaty changes would require referenda in at least four nations. These referendums would not pass. Nor would such measures be passed by many EU parliaments, especially as eurosceptic parties are rising rapidly across the continent. Solving the eurozone crisis by way of federalist integration is politically impossible. Therefore, eventual collapse or a worsening of the crisis is almost inevitable. The only real question is how bad it will get, and optimists are hard to find.
The most recent data shows that the eurozone, and much of the world, may be slipping rapidly into recession. Property and commodity bubbles are bursting even in China. Not only that, but there is no more fiscal stimulus to be had. The global economy's life raft is gone.
The combination of the onset of a second global Great Depression, a devastating banking crisis in Europe, fragmentation of the eurozone and rolling sovereign debt crises across the US and Europe is bad enough. This scenario is, in itself, a total catastrophe. Yet some serious economists say such outcomes are very possible within the next 12 months. However, few have thrown into the mix the ramifications of an Israeli attack on Iran's nuclear facilities -- also likely within the next 12 months.
The eurozone crisis and Iran's nuclear weapons program are widely seen as discrete and unrelated events. However, they could interact in potentially horrific ways. Jeffery Goldberg of The Atlantic magazine says there is a "better than 50 percent chance that Israel will launch a strike by next July." Israel simply cannot tolerate a nuclear armed Iran. Sanctions have failed miserably and the recent International Atomic Energy Agency (IAEA) report suggests that Iran could begin building a nuclear weapon within months.
The Daily Mail has recently cited UK Foreign Office sources as saying that the British government expects Israel to attack Iran "sooner rather than later ... We're expecting something as early as Christmas, or very early in the New Year." Israeli President Shimon Peres has said: "The possibility of a military attack against Iran is now closer to being applied than the application of a diplomatic option."
Tehran has threatened to respond with "an iron fist," and has warned about "aggressors and invaders being smashed from within." A massive onslaught on Israel could be expected via Syria and Hamas. Simultaneously, terrorist attacks could happen in cities across the Western world. The political consequences of an attack across the Muslim world are incalculable, but one immediate effect of an Israeli attack would be on oil supply.
The first thing Iran will do if attacked is blockade the critical oil-shipping lanes through the Strait of Hormuz. This would instantly send the price of oil skyrocketing to between $175 and $500 a barrel, depending on whose estimates you believe. America's National Defense magazine says that "Under a worst-case scenario 30 day closure of the Strait of Hormuz ... the U.S. would lose nearly $75 billion in GDP." The effects on Europe would be similarly disastrous. Iran's Navy is no match for the US Fifth fleet, but all Iran need do is slip a few mines into the water and the straits could be closed for months. Additionally, Iran might attack Saudi Arabia's oil facilities in Dhahran, and the price of oil would instantly reach the stratosphere. Even in a best-case scenario, more stringent sanctions against Iran are now almost inevitable and these will seriously exacerbate the turmoil in financial markets, already reeling from the euro crisis.
In our interconnected world, events in Brussels and Tehran can interact like never before. US Defense Secretary Panetta has warned of the "unintended consequences" of an attack on Iran. Yet, it is impossible to imagine Israel meekly allowing Iran develop the bomb. It is also impossible to imagine Iran voluntarily giving up its nuclear program. Like an eventual euro breakup, many believe that a strike on Iran is not a matter of if, but when. If these two events happened simultaneously, or nearly so, the consequences would be utterly incalculable.