[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:] 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 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.