Week signals: Iran but you can’t hide
Plus: watch points for trade, Colombia, the US, energy, and China.
Hello,
In this edition of Week Signals:
IN REVIEW. Forever wars, infinite games, worst-case scenarios, and ground truths.
UP AHEAD. Trade policy, Colombian elections, MAGA schisms, oil prices, and rare earths.
And don’t forget to connect with me on LinkedIn.
The Week in Review: Won’t be home for Christmas
The week began with the assassination of Iran’s senior leadership and the beginnings of a third Gulf War. It ended with oil prices rising at their highest weekly rate in history.
We’ve covered the in-between at Geopolitical Dispatch but, needless to say, the focus has been on the Gulf. Seldom has so much risk been taken for so little likely gain. I don’t wish to diminish Israel’s national interests, or the horribleness of the Iranian regime, but for the US to expend so much treasure (thankfully, so far, there’s been relatively little blood) – from missile interceptors, to political capital, to diplomatic relationships – for such ill-defined and unrealistic aims is the greatest single act of strategic harakiri I’ve seen in my career.
The closest example is not so much the Second Gulf War – George W Bush’s disastrous decision to invade Iraq in 2003 and bequeath it to ISIS and Chinese oil contractors – but Vladimir Putin’s full invasion of Ukraine in 2022.
Irrespective of the fact that Russia remains the stronger force, and will likely achieve at least some of its aims (e.g., coal fields in the Donetsk; a land bridge to Crimea), Putin’s war has been wrong-headed in the extreme. Russian troops packed dress uniforms into their bags for Kyiv. Fighting was expected to last a few days, even in the West. They thought they’d be greeted with flowers, not bayonets. Instead, as their tank columns stretched for kilometres north of Ukraine’s capital, outraged civilians began to take potshots with their hunting rifles, and chaos ensued. Volodymyr Zelensky told us he wanted ammo, not a ride. And with some limited support from an otherwise feckless and naïve Western leadership, Ukraine held on. Entering the war’s fifth year, they’re still holding on.
Many believe Donald Trump has a man-crush on Putin. It is difficult to judge. But in respect to Iran, he seems to have imbibed much of his alleged idol’s hubris. Trump seems to have wagered that Iranians would run out to the streets and, like a Hollywood production, greet the raining Israeli bombs with garlands of roses. Ripping off the chadors and putting on the Shah-era fashions – bell-bottom jeans, jumpsuits, wide-collared shirts- the things Trump may have worn at Studio 54 – Iran would be made Great Again.
So far, this hasn’t happened. The attacks seem to have galvanised a regime on the ropes. The leadership has been lost, but the system endures. A clapped-out navy has been destroyed, but missiles and drones continue to harass Iran’s neighbours. The Strait of Hormuz will likely be out of action for weeks, if not months. The US’s solution – armed convoys and a $20 billion maritime reinsurance fund – seems more rushed thought-bubbles than serious ideas.
Iran doesn’t need to militarily win for the US to politically lose. Trump set a high bar yesterday, saying he wanted “UNCONDITIONAL SURRENDER!” (sic). This sent oil up like a rocket. Unconditional surrender may come, but only Iran can say when or how. And if Iran is truly as fanatical as its enemies believe, that surrender may only be once it’s dragged the rest of us into the depths of hell. Trump may still chicken out, and let’s hope he does (and soon), but Tehran always calculates.
Sticking to an art of the deal script, Trump has started at the top of the escalation ladder. Iran is unlikely to be on the middle rungs. They’ve hit some Dubai hotels, but not the desalination plants. They’ve attacked some US embassies, but not Israel’s nuclear facilities.
War is not a real estate negotiation, just as chess is not a game of poker (or Russian roulette). Israel may be content to treat Iran as a terrorist state and, as in all finite games, won’t care what happens to the other player. But when you’re a hegemon, rising or declining, you must live with the consequences. Geopolitics is an infinite game. Iran is not going away. You have to deal with it, and its neighbours. And even if you yourself are far away, your interests, by nature of your great power status, are everywhere.
Like Ukraine, Afghanistan, or Vietnam, Iran doesn’t need to defeat the enemy to win. It just needs to survive. In wars of this nature, the larger aggressor loses on day one. Territory may be conquered. Puppet leaders may be appointed. But for what? So you can say you did it? Get tariffs, the economy, and Epstein off the front page? Achieve another Maduro-style decapitation? We’ll never know. There was no allied consultation, no legislative debate, no agreed talking points. The head-spinning changes in justification throughout the week make Liberation Day look calm.
That’s the “what”. What about the “now what?” We’ve spoken to a range of clients this week and, as we said on our subscriber webinars on Monday/Tuesday, we’ve demurred from releasing any plausible scenarios just yet because there are simply too many unknown unknowns. The fog of war is starting to lift, however. An indication of the key variable – the number of missiles and air defences on both sides – will likely soon be known (hint: the removal of missile stocks from South Korea and the cancellation of army exercises are a tell). We can hopefully start putting out some realistic futures soon. Contact us if you’re interested.
But before we do that, I’d like you to indulge a potential future that may not be realistic, but should be considered as an accompaniment to last week’s more positive scenario of a pragmatic Iran emerging from this war, and truly embracing its enormous economic and strategic potential. That scenario may still happen. Trump may prove everyone wrong again. But before you start buying rials, you should consider the worst case as well.