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The U.S. Can’t Lead From Behind in Iraq

Iran’s active role in the fight against Islamic State is worrisome

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The U.S. has also been reluctant to deploy its 3,000 military advisers to work with Iraqi fighters. Iran is thought to have fewer personnel in Iraq, and yet those present are highly visible at the front and have been instrumental in organizing the assault on Tikrit. Dempsey says he’s unimpressed by the chaotic result, but Iraq’s Shiites are impressed by Iran’s commitment.

At the moment, both the U.S. and Iran are focused on their common enemy, Islamic State. But as soon as that threat recedes, their contest for control of Iraq will flare again. In this competition, the U.S. has significant military and economic advantages, as well as one that’s geographic: Iraq’s Arab Shiites are as wary of their Persian neighbors as they are reliant on them. But the U.S. will have to push harder to exploit its advantages.

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As the U.S. stands aside while Iran-backed militiamen lead the fight to recapture the Iraqi town of Tikrit, it’s hard to know if it would be worse for them to win this battle against Islamic State or to lose. If the militias do retake Tikrit and then victimize Sunnis as they have done in other areas, it will become even harder to persuade Sunni Arabs to rise up against Islamic State or to hold Iraq’s fragments together. Even if the militias behave, their victory may lead to the “Hezbollah-ization” of Iraq, in which Iran’s militia allies take over the nation’s security services and central government, much as Hezbollah did in Lebanon.

No wonder U.S. General Martin Dempsey, chairman of the Joint Chiefs of Staff, flew to Baghdad to find out what Iraqi Prime Minister Haider al-Abadi is thinking. Dempsey said: “The important thing about this operation in Tikrit in my view is less about how the military aspect of it goes and more about what follows.”

There’s no neat solution here or perfect outcome for Iraq. The U.S. strategy of rebuilding an integrated Iraqi army of Shiites, Sunnis, and Kurds—and bringing sectarian militias under a joint command—is the best available. Unfortunately, the opposite is happening: Shiite militias, under the guidance of the Iranian Revolutionary Guard Corps, control the Iraqi army.

To realize its vision of a diverse Iraqi military, the U.S. will have to demonstrate that it is Iraq’s more effective security partner. That can’t mean pouring troops back in, which the White House ruled out in the draft Authorization for Use of Military Force it submitted to Congress in February.

The U.S. doesn’t need to send a lot of troops because Iran, too, has been reluctant to deploy large numbers to Iraq. Iran is already bleeding cash and manpower fighting Syrian President Bashar al-Assad’s war for him. Iran might prefer to see a Shiitedominated Iraq, but it also wants to keep the country whole.

So, the U.S. just needs to carry out its strategy more decisively. For example, it’s armed the Kurds but not with the heavy weapons they need to take on Islamic State. The Kurds, who have taken on more casualties, may then hesitate to cooperate when asked to drive Islamic State out of Mosul, a non-Kurdish town. China’s second interest-rate cut in three months has raised fears that the government is trying to devalue the yuan to give its exports an unfair boost—an understandable suspicion, given the country’s history of manipulating currency. This time, though, lower rates and a moderately weaker yuan make sense not just for China but for the rest of the world.

Deflationary pressures are rising, which argues for cautious monetary easing. Chinese leaders, to their credit, are struggling to rein in the vast shadow-banking sector and murky local-government financing vehicles: Cutting interest rates is a better way to do it.

Traditional exchange-rate manipulation involves resisting upward pressure on the currency to maximize exports—precisely what China did for many years as its economy grew into a manufacturing juggernaut. In this case, Chinese leaders are merely accepting downward pressure on the currency resulting from a monetary easing that’s justified on its own terms.

China is well aware of the risks. An abrupt devaluation would inflame critics in the U.S. who are already pushing to include provisions against currency manipulation in the Trans-Pacific Partnership and other trade deals. Chinese companies, too, owe more dollar-denominated debt than is commonly realized—about $1.1 trillion, according to the Bank for International Settlements. China remains a net lender but no one knows how many of its companies could default if the yuan plummets.

The threat of an uncontrolled currency depreciation could also spur capital flight. China registered a $91 billion capital-account deficit in the fourth quarter of 2014, the third in a row and the largest ever. The prospect of a big devaluation would accelerate the outflow, undermining China’s banks and adding to the risk of defaults.

Chinese leaders, again to their credit, seem resigned to slower growth. The rest of the world no less than China needs this soft landing to be smooth. For now, that means cautious monetary easing and tolerance of the exchange-rate consequences.