Last Tuesday, while United States President George W. Bush was setting out from Washington on a five-day tour of the Middle East, Iran’s semi-official Fars news agency quoted Iranian President Mahmud Ahmadinejad as hinting that Tehran might consider a cut in oil exports. Of course, Iranian Oil Minister Gholamhossein Nozari quickly clarified that Tehran was only reviewing its exports and here, too, a decision was to be taken on a possible increase or decrease.

Neither Ahmadinejad nor Nozari said anything like Iran was reviewing oil output as such (which exceeds 4.2 million barrels per day, the highest level since the 1979 Islamic revolution). But U.S. oil prices went into a tizzy nonetheless and hit a record high of US$126 per barrel by the time Bush landed in the Persian Gulf region.

Bush was expected to press the Organization of Petroleum Exporting Countries (OPEC) for an early meet to raise oil production. (OPEC is scheduled to next meet in September to decide on its oil output policy.) Stephen Hadley, the U.S. national security advisor, was on record that Bush would tell Saudi King Abdullah that the oil-exporting countries should regard it to be in their self-interest to “take into account the economic health of their customers who pay these prices.”  In the event, when they met on Friday, Bush found that the Saudi king was not to be persuaded.

Meanwhile, Nozari was back on stage. He told Fars news agency, “I believe there is no need for an [emergency] OPEC meeting. Why should there be this meeting when oil prices go up? The OPEC members are currently utilizing their full capacity and are supplying the market … With oil at US$126, it is not wise for those with oil not to supply it.” Nozari then added, “I believe it is not that oil is becoming more expensive, but the dollar is becoming cheaper.”

It would have been unthinkable five or six years ago that a visiting U.S. president would receive such an open rebuff in the Middle East. Last weekend’s exchanges revealed the extent of decline in the U.S.’s dominance of the Middle East through the present Bush administration. No doubt, oil lies at the very center of the decline of the American dominion. The cascading rise in oil prices has led to a massive transfer of resources to the energy exporting countries. Iran is one principal beneficiary.

The huge accumulation of wealth enables Iran to exert influence regionally and ensure there is practically nothing the U.S. can do to stop its rise as a regional power. Goldman Sachs in a report on Friday predicted oil would further jump to a level of $140 by July. “The near-term outlook for oil prices continues to be bullish,” Goldman said. Investors are flocking to the oil market as a hedge against the fall in the value of the dollar. The Wall Street Journal has reported that at the moment the Iranians hold about 25 million barrels � about twice the quantum of the U.S.’s daily imports � of heavy crude in offshore tankers in the Persian Gulf.

Russian Foreign Minister Sergei Lavrov underscored these realities of the new regional order when he called on the big powers recently to “put concrete proposals on the table guaranteeing the security of Iran and ensuring Iran a worthy, equal place in talks on resolving all problems in the Near and Middle East.”

Lavrov is not alone in doing some fast-forward thinking. U.S. specialists also realize the need for new thinking regarding the shaping of a nuclear Iran. Essentially, it boils down to reflecting the limits of American power. A leading U.S. expert on Iran, Ray Takeyh, a senior fellow at the influential Council on Foreign Relations, took the bull by the horns when he suggested recently that the time had come for the U.S. to “‘concede to Iranian indigenous enrichment capability of considerable size” and to concentrate instead on ways and means to make certain that “untoward activities” do not take place within the perimeters of its nuclear infrastructure.

Takeyh wrote last week while Bush was in Iran’s neighborhood, “Iran has an elaborate nuclear apparatus and is enriching uranium. It is impossible to turn the clock back. Instead of reviving an incentive package rejected long ago by Iran or issuing calls for military retribution that worry no one in the country’s hierarchy, the United States and its European allies would be wise to negotiate an arrangement that would meet at least some of their demands.”

True, oil and nuclear proliferation make a serious mix. But they form only one facet of the breakdown of the Bush administration’s Iran strategy. The breakdown is comprehensive. During his tour, Bush kept trying to secure support for his containment policy toward Iran. However, the regional countries remain circumspect. Iraq’s Arab neighbors refuse to get involved in the quagmire in that country despite their constant wailing that Iranian influence in Iraq has reached an intolerable level. They won’t allow themselves being lined up with any further efforts by the Bush administration to confront Iran. While criticizing Iran in private to their American interlocutors and urging U.S. counter-measures, they hedge their bets, factoring that the next U.S. president might well engage Iran in unconditional talks.

The developments in Lebanon have further exposed that the Bush administration has no effective plan for coping. If the Washington-based website counterpunch.org is to be believed, a pre-planned Israeli intervention (with U.S. acquiescence) in Lebanon during the recent fighting had to be called off at the last minute on the basis of intelligence that Hizbullah would massively retaliate. In the view of the U.S. intelligence community, Tel Aviv would have been subject to “approximately 600 Hizbullah rockets in the first 24 hours in retaliation.”

Counterpunch says the Bush administration developed cold feet after it “initially green-lighted” plans regarding Israeli military intervention on the side of the U.S.-backed militias. “The Hizbullah rout of the militias in West Beirut plus the fear of retaliation on Tel Aviv, forced cancelation of the supportive [Israeli] attack.”

Unsurprisingly, there is much anger and bitterness among Lebanese warlords that they were let down by the Bush administration. Prime Minister Fouad al-Siniora wanted to resign and the Saudis had to dissuade him from doing so. The result is plain to see. The political balance has shifted in favor of the Hizbullah and the pro-West militias have been humiliated. Most important, an improbable alliance formed between the Hizbullah and the Lebanese army (which the Bush administration assisted to the tune of $400 million in the past two-year period).

The regional implications are equally significant. Saudi Arabia and Egypt are backing Arab League mediation efforts, distancing themselves from the U.S. denunciations of Iran and Syria. The two Arab heavyweights would be uneasy about the lengthening shadows of Iranian influence on Lebanon, but they realize at the same time that Iran is a regional power with which they need to come to terms.

To quote well-known British author and Middle East scholar Patrick Seale, “The Arab Gulf States in particular trade briskly with Iran and are home to a large Iranian population. They do not want to isolate Iran or undermine its economy, as the United States and Israel would like them to do. It seems clear that greater understanding and confidence between Saudi Arabia and Egypt on the one hand and Iran and Syria on the other � free from U.S. and Israeli interference � would do much to ease Lebanon’s path to peace and security.”

In sum, the Bush administration has no Plan B on Lebanon, either. The Arab League mediation coolly ignored Washington’s keenness to open a Lebanon file in the United Nations Security Council and to pillory Syria and Iran. All that the U.S. officials could do was to keep mumbling skepticism concerning the prospects of the intra-Lebanese talks in Doha under the Arab League.

However, the U.S.’s failure in rolling back Syrian and Iranian influence in Lebanon pales in comparison with the withering away of the U.S.-sponsored Arab-Israeli “peace process.”  The latter hung like an albatross’s cross on Bush’s Middle East tour. Palestinian President Mahmoud Abbas’ credibility has greatly suffered; Fatah has been eliminated from Gaza; Hamas is significantly gaining ground in the West Bank after its consolidation in Gaza. Thus, there were no takers when Bush told the Arab audience in Sharm el-Sheikh, Egypt, on Friday, “All nations in the region must stand together in confronting Hamas, which is attempting to undermine efforts at peace with continued acts of terror and violence.”

The Arabs knew that at any rate, there is an air of unreality in Bush’s anti-Hamas rhetoric. Hamas had announced only a couple of days ago that it would send a delegation to Egypt on Monday for a new round of talks with mediators. The Israeli newspaper Ha’aretz reported on Sunday that several former Israeli military and security officials � including ex-Mossad head Ephraim Halevi, former army chief Amnon Lipkin-Shahak and the former commander of Israeli troops in Gaza, Shmuel Zakai � wrote to the government a month ago supporting indirect talks with Hamas and expressing opposition to any large-scale military assault on Gaza.

They wrote, “Recognizing that ending the Hamas regime in Gaza is not a realistic goal and reinstating Fatah in the Gaza Strip by means of Israeli bayonets is not desirable … non-public negotiations should take place with Hamas through Egypt or anyone else acceptable to both sides.”

Time and again during Bush’s Middle East tour, what emerges is this palpable sense that the U.S. has been all but marginalized from a new Middle East that is taking shape. All of Bush’s rhetoric couldn’t hide the fact that even by adding 300 million Americans to 7 million Israelis, he failed to disprove the erosion in Israel’s regional supremacy.

In a brilliant article recently, former German foreign minister Joschka Fischer underlined that the center of gravity of the regional power and politics in the wake of the Iraq war has shifted to the Persian Gulf. To quote Fischer, “Indeed, it is now virtually impossible to implement any solution to the Israeli-Palestinian conflict without Iran and its local allies � Hizbullah in Lebanon and Hamas in Palestine.”

The point is, the historic failure of the Iraq war is yet to be fully grasped. On a regional plane, as the Iraq war interminably rolls on, the situation is fraught with the immense consequence of the unraveling of the entire system of states that was created in the Anglo-French settlement after the fall of Ottoman Empire in 1918. The Iraq war has triggered Shi’a empowerment and unleashed historical forces that lay chained for centuries. Its geopolitical significance is yet to sink in as winds of change sweep across the entire region.

Fischer underscored that the Iraq war has conclusively finished off secular Arab nationalism, which was, historically speaking, European-inspired. In its wake has appeared political Islam, which cultivates “anti-Western” nationalism and taps into social, economic and cultural grievances and combines them with a revolutionary fervor to confront the authoritarian, corrupt, unjust regimes lacking popular legitimacy. Islamists pilot this trend of “modernization,” while the future of political Islam itself remains far from clear.

Equally, China has appeared on the Middle Eastern chessboard, which would make the decline in the U.S. dominance of the region increasingly difficult to be arrested. Curiously, on the eve of Bush’s arrival in the Middle East, a prominent Chinese scholar, Weiming Zhao, professor at the Middle East Studies Institute of the Shanghai International Studies University, assertively wrote: “China has a significant interest in the Middle East, and any changes in the situation there will affect China’s energy security … Therefore, it will remain a basic posture of China’s diplomacy for a long time to come to pay more attention to the development of the situation in the Middle East, to be more concerned with Middle East affairs and to establish closer relations with Middle East countries.”

Bush’s tour exposed that, alas, the U.S. doesn’t have a Middle East strategy to address these manifold trends. It seems all the while, the Bush administration was only pretending it had one. A formidable challenge awaits the next U.S. president. 

M. K. Bhadrakumar served as a career diplomat in the Indian Foreign Service for over 29 years, with postings including India’s ambassador to Uzbekistan (1995-1998) and to Turkey (1998-2001). Reprinted from Asia Times Online, May 21, 2008.