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U.S. Is Carrying Out Air Strikes on Iraq; Perfect Storm for the Markets?

Aired August 8, 2014 - 16:30:00   ET


NINA DOS SANTOS, HOST: Let's just break away from our coverage of a sister network CNN USA as we continue to monitor this situation in Iraq. "Quest

Means Business" is coming up right after this short break. We'll hear from a former U.S. military colonel and the global economist at Wells Fargo to

understand what the next phase of this international crisis will likely look like. Do stay with CNN as we continue after this.


DOS SANTOS: Hello, good evening. Welcome to "Quest Means Business," I'm Nina Dos Santos in London. Tonight the United States is carrying out a

second round of airstrikes in Iraq. The latest strikes took place near the Kurdish city of Irbil and targeted Sunni militants. The Pentagon says that

it used drones and F-18s to attack ISIS' positions. Well earlier on Friday, two F-18s targeted and destroyed a mobile artillery unit which is

under the control of ISIS. This is a group which now calls itself the Islamic State.

U.S. warplanes patrolling the skies have been given the green light to protect Iraqi minority groups in what the U.S. officials have been warning

could become a genocide. Late on Thursday the U.S. military began dropping food and water to thousands of Yazidis here trapped high up in the

mountains near Sinjar. Now the British government says that it too is planning humanitarian aid drops separately. Iraqi state media has been

reporting this hour that Iraqi airstrikes have killed 45 ISIS fighters and wounded 60 today. I'm joined now by the retired U.S. Army Colonel Derek

Harvey. He's also a former Iraq senior analytical specialist under the American general David Petraeus. Thank you so much for coming on the show,

Colonel. First of all, could I ask you - what do you think the United States government hopes to accomplish here with these airstrikes, so what

appetite do they have for further action from here? How committed are they?

COLONEL DEREK HARVEY, U.S. ARMY (RET.): Well I think first of all, the President stated very clearly last night that the issue is the humanitarian

mission first and the protection of Americans in Irbil and other locations in Iraq. And that's first and foremost his initial priority. I believe

that the United States military has the authority to go after deeper targets. I would hope that they're going to focus on disrupting the

mobility and freedom of maneuver that ISIS forces have across Northern Iraq and along the green line between Kurdistan - the Kurdish region and the

rest of Iraq. That's primarily the first focus.

DOS SANTOS: How much will these airstrikes help those who make those kind of disruptions? And the other thing I should ask you is, there'll be

people who'll be watching on the other side of the broader here from Syria saying tens, thousands, hundreds of thousands of people here have been

affected by what's going on -- civil war by many people's accounts and we're not getting the help. Why is Iraq?

HARVEY: Well I think we need to look at this situation as a regional problem with ISIS and I've recommended for some time that we need to take a

look at seriously striking ISIS targets in northeastern Syria as well as in northern Iraq. This campaign bridges several countries for ISIS and we

need to look at it the same way. This first of all takes regional coordination. Two, we need to arm and provide munitions to the Peshmerga

so they can engage in the operations. And we don't need to put troops on the ground - combat troops - but we do need to leverage our capabilities -

intelligence, the ability to coordinate broader capabilities in the region as well as our drone and airstrike capability which can effectively disrupt

key components and take the initiative away from the ISIS forces that they've had the benefit of over the last ten weeks.

DOS SANTOS: How does the Turkish government fit into all of this? Because obviously as he said there, one of the key things that would be logical

here would be to arm the Peshmergas. But then again, that would encourage the Kurds to ask for a separate state. That could create rifts with Turkey

for instance.

HARVEY: Well first and foremost, I don't think it's the Turkish issue that's been the major issue, it is the political dynamic in Baghdad of

trying to move Prime Minister Maliki out of this position of prime minister and change the leadership there so that we can do things like effective

Arab-Sunni outreach to develop a Arab-Sunni resistance, leveraging the tribe in a way to go after ISIS as well as holding hostage Kurdish

requirements for ammunition and supplies because we are focused first and foremost on trying to get a new government place so that we can do other

things going forward in Iraq.

DOS SANTOS: Colonel Derek Harvey, thank you so much for joining us, sir. That's the retired U.S. army colonel who had served under the American

General Petraeus. Thank you -

HARVEY: Thank you, Nina.

DOS SANTOS: -- very much for joining us there. Well these airstrikes in Iraq have sent oil prices, as you can see here, on something of a wild

ride. Prices had given up some of their gains over the course of the last year. (Inaudible) listing settled for the week, but remember that they

did spike after those reports of possibly U.S. action in Iraq first surfaced earlier today. Now the oil company Afren who suspended its

operations precisely in the part of Barda Rash oil field since 70 kilometers away from Irbil, which, as you heard, is the town that is going

to be the hardest hit. The firm says that it's withdrawing all non- essential personnel from the site precisely because of the kind of risk of what we're seeing over there.

And in the meantime, investors also heading for some of the safe havens. The ultimate one, of course, is gold. Gold prices passed $1,300 an ounce

in terms of the market we see so far this week as you can see heading even as far as $1,321. When it comes to European stock markets, they all ended

the day, and indeed the week I might point out, in the red. When it comes to the Frankfurt Xetra DAX, that's the one to consider here because it's

now into so-called `correction territory,' which means that it's off more than 10 percent from its record high, and that record high was struck not

all that long ago, just late in the month of June.

Now, a short time ago I spoke with Jay Bryson, a global economist at Wells Fargo. I asked him if conditions like these are creating a perfect storm

for the markets.


JAY BRYSON, GLOBAL ECONOMIST, WELLS FARGO: Well, yes certainly. Because, you know, you're talking about a major commodity here, oil. You know,

Russia has - pumps a lot of oil. They pump nine million barrels a day, they export five million. Iraq pumps eight - three million barrels - a

day, and so, when you're talking about a major commodity like that that the world's economy runs on and with this geopolitical risk, it certainly gives

investors lots of opportunities to sell.

DOS SANTOS: Where do you think these situations are go? So you've written a report, like a number of global economists say, well we should consider

the possibility that perhaps Russia may decide to use energy as a leverage tool on the West. If we were to see Russia refusing to export its gas and

oil towards the West, what would happen to the world economy, hypothetically speaking?

BRYSON: Well, the biggest impact would, you know, of a complete embargo of oil and gas would be on Western Europe. Western Europe is critically

dependent upon Russian oil supplies, and energy gas supplies as well. So they would see the biggest impact. You know, the United States imports

very little oil from Russia and zero natural gas, but oil is traded in a global sort of market, and so if you were to see a cut back, five million

barrels a day, that would force oil prices significantly higher, and, you know, if you're looking at - I don't know - $5/$6 gallon gasoline in this

county, that potentially could be something that's big enough that it could push you back into recession. So, we're not saying that Russia's going to

necessarily do this, we're just saying that this is a risk that people need to be cognizant of.

DOS SANTOS: As a global economist, if you're reassessing these kind of risks into the second half of the year here, how are you managing to model

for them? What are you expecting? You expecting Russia to head into recession like the World Bank? You expecting perhaps even some of the

central banks in the world to have to revisit some of their planning in terms of raising interest rates because the world economy is just too weak

to cope with these twin events?

BRYSON: Well, in terms of trying to forecast these sorts of events, I mean, that is very difficult if not impossible. I mean you know, we're

talking about political - geopolitical - considerations and what different actors will and will not do are very, very difficult to, you know, to

really try to get your hands around. But you know, our hope is that this won't come to pass - Russia won't do this because it would be very costly

to their economy to do so. We certainly hope that all this, you know, goes away and we go on peacefully here. But, again, I think it's something that

we need to be cognizant of, aware of, as we look forward. And in terms of central banks, I mean, I'm sure it's in their planning right now. If

something bad geopolitically were to happen, what sort of steps would they take to try to offset a shock of that magnitude.

DOS SANTOS: And what would you expect them to do here? Because on the one hand -- you look at the Bank of England, you look at the Fed - they're

poised to start raising interest rates at the start of next year. If all continues to plan. And of course it may incur a significant shock to the

global economy in the second half of the year.

BRYSON: Yes, so, I mean you know, I think that they are going through with their plans right now, assuming that nothing will happen. And, again, it

probably won't. These are relatively small sort of risk. But, you know, if the worst-case scenario were to happen, and you were to start seeing

some sort of energy supply shock - I mean you know Russia embargoing its energy sort of exports, I mean you can forget about monetary tightening by

the Bank of England or the Federal Reserve. Because, you know, both of our economies are going to weaken significantly if not go back into recession,

and on top of that, you don't - you know - you don't want to be throwing interest rates as well. So, if we were to see the downside develop here,

you know, the Fed is going to be on hold for a lot longer and they may even start to revisit increased bond purchases to offset the shock of, you know,

a Russia energy embargo.


DOS SANTOS: So, Russia also very much in the forefront of investors' minds as they head into the weekend. But despite the turmoil, the U.S. markets,

as you can see, ended the day ultimately (ph) with a high note. The Dow Jones Industrial average closing up about 185 points and totally erasing

Thursday's losses. Traders remaining cautious though as CNN's Fear & Greed Index of investor sentiment, pointing towards extreme fear.

And the rush of safe - to safe havens - continue to pace. As I was saying before, gold prices inched yet again higher but also we saw yields when

U.S. treasury bonds hit their lowest level in about a year, showing that people are plowing into those because they're perceived safe as well.

No, Malaysia Airlines has become one of the most recognizable airlines in the world for all the wrong reasons. After two disasters and over 500

lives lost, we'll examine whether the carrier can ever put the past behind it. That's next.


DOS SANTOS: The prime minister of Malaysia says that his country's national carrier must now undergo what he calls a `holistic restructuring'

to survive. Malaysia Airlines is being taken over by the government here so that that turnaround can actually begin. Prime Minister Najib Razak

said that the process of renewal will involve what he called `painful steps' and also sacrifices. For more on what this means for travelers,

business people as well as the company itself, let's bring in the travel correspondent for the "The Independent," Simon Calder. He joins us now

live in our London studio. Simon, for the consumers, what does this mean for a start. I mean, presumably their tickets are still valid until this

company rebrands.

SIMON CALDER, TRAVEL CORRESPONDENT, "THE INDEPENDENT": Absolutely. The airline was very quick on Friday to say everything remains exactly the

same, we are operating normally. Now, normal for Malaysia Airlines is unfortunately something which is a long way from most other airlines. Not

since 9/11 has any airline lost two aircraft in a quick succession, and of course MH370 in March, last month MH17. The loss of many hundreds of lives

has caused an awful lot of people to desert Malaysia Airlines at a time when it's facing ferocious competition anyway, both on its own doorstep

from the budget carriers in Southeast Asia and from top class long-haul carriers such as Singapore Airlines and Cathay Pacific.

DOS SANTOS: Well this brings me to the business problem here because Malaysia Airlines has invested quite heavily in its fleet and its long-haul

fleet over the last few years or so with a number of A380s, etc. What are they going to have to do here now? Could they become a domestic or

regional player with some shorter-haul flights?

CALDER: Well, they remain a good quality airline with a pretty global reach. They have retrenched over the past couple of years. They used to,

for instance, fly from South Africa to Argentina. They've retrenched from there to concentrate on their core routes into Europe, particularly and

around the Asian region. What I think we will see though is with the Malaysian government is taking over the whole airline. They're spending

around about $400 million taking the private shares into government control. They will then have a very close look. They will most certainly

slim down the airline, we will see a number of routes disappear. Don't worry, if you have got a ticket, it won't be happening immediately. We may

even see a change of names. Some of your viewers may remember that there was an airline called ValuJet in Florida in the 1990s. They had a very

serious accident and turned it to AirTran, later bought by Southwest. So there is plenty of previous experience of this, and, you know, the airline

- the name being touted by more than one person in the aviation business is Air Malaysia, so people won't necessarily associate the airline, which will

keep the same aircraft, same crew, same slots at the most demanded constrained airports, but to be calling itself a different name.

DOS SANTOS: Simon Calder, thank you so much for coming on the show there to discuss what's next for Malaysia Airlines in light of that news. Now,

tropical weather is wreaking havoc right across the globe, even in the U.K. apparently. Jenny Harrison is standing by at the CNN International Weather

Center with more. It's pouring outside, Jenny. What have you got for us?

JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Yes, well it's raining in a lot of places, Nina, and I have to tell you what you're

referring to though of course is what was the Tropical Storm Bertha. I'll come onto that if I have time. Could impact northwestern Europe latter

part of the weekend. This is the last few hours, and this of course is the Doppler radar showing you what's going on across the Big Island in Hawaii,

and that's because in the early hours of the morning, it was Iselle that actually made landfall as a hurricane. We've got Julio as well which is

still of course a couple of days behind, but falling in generally the same direction. The warnings are still in place. Now they are tropical storm

warnings across all of the islands, and of course it will very soon dissipate to an area of low pressure. But meanwhile, we're following

what's going on with Julio because this storm as you can see still a hurricane. Again, by about Monday - so still a few days away - it's

expected to come down to a tropical storm. But this is taking a much more northerly route. So it really should, certainly not directly, impact the


This is the wind forecast over the next 48 hours. So, winds are still pretty brisk right now. They'll continue to be across all of the island

chain, and then the other storm hopefully - this hurricane - should really stay well to the north. So, it really shouldn't have any impact when it

comes to winds. Rain? Well, the rain again still continue to clear away. There are widespread flash flood warnings across much of the big islands.

But this system that comes by too on Sunday, it really could of course certainly bring up some pretty high waves and some high surf. And also it

could produce quite a bit of rain across the area.

This is the rain to come down still in the next 48 hours. The areas in blue of course much higher elevations. That really isn't where the

population is. But there we could easily pick up about 80 millimeters of rain. This just shows you the surf or the wave heights in the last few

hours. So, again, they weren't too bad, but again, this is Julio, and remember it should stay to the north of the islands.

Now, as well as these two, we've been watching what is now Super Typhoon Genevieve. This should just head up towards the north and won't impact any

areas of land. And of course, we've got Typhoon Halong. This continuing to push very, very slowly into western areas of Japan. It's been barely

moving really for the last couple of days, giving people plenty of time to prepare, but even so, winds right now 130 kilometers an hour. Expect it to

make landfall during Saturday. The winds are strong and they certainly could do some damage. And then when it comes to the rain, this is the big

concern, because this rain is coming through very, very heavy in the next 48 hours and falling on some very, very saturated ground. So, we could

really see the danger, not only from flooding here, but also landslides and mud slides.

And as I say, ex storm Bertha, that's the one that's on the northwest Europe, the latter part of the weekend. Nina.

DOS SANTOS: Jenny Harrison, thanks so much for that and have a great weekend. Nigeria has declared a national emergency over the outbreak of

Ebola. President Goodluck Jonathan is providing $11.6 million dollars in funding to - into - an intervention plan to try and contain this virus.

Now, according to the World Health Organization, at least 961 people have now been known to have been killed by Ebola in West Africa and nearly 1,800

others infected at the moment. Doctors Without Borders is calling for action to be taken immediately here to reverse the course of the epidemic.

The medical group applauded the World Health Organization's appeal today for coordinated international response. However, it said that more action

is needed to reduce fatalities.

In a media statement, Medecins Sans Frontieres' director of operations had this to say, quote, "Statements won't save lives. Now we need this

statement itself to translate into immediate action on the ground. Lives are being lost because the response is just too slow."

CNN's David McKenzie was one of the first journalists to visit Medecins Sans Frontieres' facilities in Kailahun in Sierra Leone. He joins us now

live from Freetown, Sierra Leone. David, tell us more about the efforts on the grounds to try and contain this virus, and also how it's effecting

medical staff who've gone there to try and help.


accelerating here in Sierra Leone at least. As you said, Nigeria declaring a state of emergency - that's already been in place in several other

countries in the region, including in the eastern part of Sierra Leone. They're blocking off the eastern part of the country and not letting anyone

in or out unless they have really urgent business. Of course that's hammering trade in this region, and I've seen numerous people leaving the

country. Our hotel, in fact is practically empty. So there is a sense that this is - all effort are being put to try and solve this epidemic.

But I spoke to the World Health Organization's head here in Sierra Leone today. He admitted that they were unprepared for the complexity of this

crisis, and many have said that the signs were there earlier on this year and those signs were either missed or ignored, and that's why we're in this

state that we're in now.

One very sad bit of news - we've learned from doctors at the main referral hospital here in Sierra Leone's capital of Freetown that one of the main

specialists there has got positive from - he has been positive from Ebola and that he had treated one of the patients there. And so that's certainly

another sad note. There've been scores of health workers have died already here in the region.

DOS SANTOS: David McKenzie, thanks so much for that there, joining us live from the Sierra Leon capital of Freetown this evening. Well the U.S.

Federal Drug Administration today gave permission for an Ebola drug to be used in limited experiments. The FDA moved the K - the TKM Ebola drug from

full hold to partial hold. This means that it's loosening restrictions on its use in general. Shares of the drug maker, Tekmira Pharmaceuticals,

soared on the back of that news as you'd expect. It's the company that makes this particular serum. The stock closed on Friday's trading session

up around 45 percent at a price tag of $20.70. And we'll return with more "Quest Means Business" after this short break.


DOS SANTOS: Hello, welcome back. You've been watching "Quest Means Business." Don't forget that you can catch up on the week's best

interviews from the "Best of Quest" this weekend. And in "Reading for Leading," a president turns to a prime minister with some inspiration.


UHURU KENYATTA, PRESIDENT OF KENYA: That's Lee Kuan Yew "From Third World to First," and it's just because we just focus. Not necessarily looking at

resources -- if you look at Singapore and the way it was - but just being able to be focused, being able just to tap people talent and to focus that

energy. He managed to transform a tiny, back water island into one of the greatest economic success stories.


DOS SANTOS: That's the "Best of Quest," only here on CNN at 7:30 p.m. time, London if you're watching from here. Well, that's been it for this

edition of "Quest Means Business." I'm Nina Dos Santos in London. "The Situation Room" with Wolf Blitzer is coming up right after this.