Ali Allawi, the Chalabi nephew in charge of the Ministry of Trade, and now also the minister of defense, calls trade with Israel "a non-starter. We aren't plugged into that network, and as far as I'm concerned they sell things we don't need. As for the boycott. I don't care. What's the matter with it? The U.S. boycotts Cuba, and nobody says anything about it.

"Our future is more to the east, with Iran, and to the south, with the Gulf states. Iran has natural geographic ties to Iraq. I'm not interested in what those neoconservatives at the (Coalition Provisional Authority) have to say about Iran. We don't have sufficient port capacity, for example. We should use the Iranian ports and roads. Iraq should have fundamental economic and trade relations with Iran, and Turkey, as long as they reciprocate, and I think they will." He dismissed the Mosul-Haifa pipeline with a wave of his hand.

Nabil Al Moussa, the deputy minister of planning for the Oil Ministry, confirmed Allawi's position. Asked whether the ministry had any plans for rebuilding the pipeline to Israel, his previous professional courtesy went out the window. "Absolutely not, and never! Don't ever ask us if we will sell oil to Israel, because we never will!"

Told of Allawi's and Al Moussa's reaction, Joseph Paritzky was philosophical, and a little contemptuous of his would-be neocon benefactors. "How naive can these Americans be? What, they thought they had a deal? Didn't they notice they were in the Middle East?" A neocon's reaction to Paritzky was characteristic: "He's a populist asshole who should have kept his mouth shut." But Paritzky obviously understood Middle Eastern politics far better than the neocons.

While the neocons felt they could ignore negative reports on Chalabi from the CIA, the State Department and other bureaucratic enemies, they have a harder time dismissing what comrades like Marc Zell have to say. Nevertheless, for the time being, many are sticking to the Bush strategy of staying on message and never admitting to mistakes. For example, last week, Michael Ledeen, a leading neocon at the American Enterprise Institute, complained in the National Review Online about "the cascade of anti-Chalabi leaks from his many mortal enemies at the Department of State and the Central Intelligence Agency." Changing the message is painful. As one neocon says: "The worst part of all this [Chalabi's betrayal] is that it will be embarrassing to my friends in the Pentagon."

Defense minister Allawi doubts that the neocons will be able to prevail in their plan to replace Shia dominance in the new Iraq with the Sunni-Kurdish coalition. "This is the last stand of the neocons, I think. The U.S. does have a new policy, which is to find a way to leave. That plan isn't the way to do it. I hear Condi Rice's office opposes the idea, and so does Ambassador Negroponte."

"We really don't have any choice," says a former intelligence officer and West Pointer in Iraq. "We have to make a deal, though we probably don't have to deal with Iran directly. We can make it through the Shia clergy in Iraq."

Allawi dismisses Feith and the neocons and what he calls "their grandiose schemes," but adds, "The neocons still have some influence, partly because they have good ties with the Kurds. And Sharon is still the 840-pound gorilla for U.S. policy."

Clearly the neocons are now in the process of retreating and regrouping. The consensus they'd forged among themselves on Iraq policy has dissolved. The massive plans for the democratization of the Middle East are heading for the recycling bin. Meanwhile, Chalabi's hopes for playing a leadership role in Iraq appear to be gone, although the crafty businessman's ability to resurrect himself from the dead should not be underestimated. It should also be noted that Chalabi family members continue to wield power in Iraq, and will likely continue to. For example, defense minister Allawi insists that he is not "in my uncle's entourage. Instead I travel alongside him." The remark can be interpreted to mean that he doesn't take orders from his uncle, and yet they are still close. Allawi has had a rather more conventional business career than that of his uncle, which has helped his political position in Iraq. While an early investor in Petra Bank, he soon parted company with his uncle and the other partners. He went on to become a successful and respectable portfolio manager in London before returning to Iraq last year.

In the end, despite the neocons' best hopes, Iran has emerged as crucial to the administration's desire for a political settlement in Iraq. Governments in the neighboring countries have taken notice of the neocons' big blunder. "The Iranians have proven to be absolutely brilliant in all of this," says a well-connected Jordanian. "They're showing that they're going to be the ones to win this one, and they'll do it with American money and lives."

For his part, Allawi praises what he sees as the U.S. military's new realism about the need for what he calls "a cold peace" with Iran. "There is no way to have stability in Iraq without Iran," he insists. "The U.S. military has been very correct in its contact with Iran at the border, and has never violated the unwritten agreement."

The neocons' Iraq triumph of last year has turned to ashes. Their Likud allies in Israel are bitterly split over Prime Minister Ariel Sharon's plans for the settlements in the territories. They have a coldly hostile Iraqi government coming in the near future. The clerical regime they loathe in Iran has dramatically improved its strategic position. Some of them must be rueing the day they met Ahmed Chalabi, who told them the fairy tales they wanted to hear.

Recent Stories