Hello,
In this edition of Week Signals:
IN REVIEW. Shifting doctrine, changing calculus, paths to an exit, and extraordinary consequences.
UP AHEAD. Saxony-Anhalt, von der Leyen, Carney, Macron, and the BRICS.
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The Week in Review: Pickaxe to grind
The week began with strikes on Larak Island, followed by an escalation that would see missile attacks on a range of US bases. Toward the end of the week, JD Vance would deny there’s a war. Something about “no active shooting” (except for the wedding - “things happen”, the vice president said).
Yesterday, Donald Trump continued the nothing-to-see-here theme. The war was “small potatoes”. His treasury secretary opined that oil might go down to $40. Someone should tell the IRGC, which has begun to shift its military doctrine to allow for pre-emptive strikes.
This week, I’ve also been speaking with a number of businesses about where I see the war going. As things stand, my base case is that Iran retains what’s referred to as “escalation dominance” and, as such, the war will only conclude when Iran is good and ready. And per what Iran has said on the matter, that’s unlikely to be until after the 2026 midterms, if not the 2028 presidential election. This would allow Tehran to claim “regime change” in the US, insofar as a GOP wipeout this November, or in two years hence, leads to either Trump’s impeachment or to his retirement. It would also follow the playbook of the 1979 Iran hostage crisis, which only ended on the morning of Ronald Reagan’s inauguration on 20 January 1981.
Two months, let alone two years, is a long time for the global economy to continue to absorb high oil prices, irrespective of how much is actually getting out of Hormuz. But it’s a blink in the eye of Persian civilisation. More to the point, it’s a fraction of the time Iran spent fighting Iraq in the 1980s, or indeed has spent largely isolated from international markets. Things might be tough for Iran’s citizens, and the rial worthless in foreign currency terms, but the regime has survived worse than Operation Economic Outcast.
I’d give this base case a ~70% probability. But that leaves another ~30% for two other plausible scenarios.
The first of these is the theme markets have been trading on for the last six months: the TACO. And this is what essentially happened when, at the Palace of Versailles of all places, Trump signed the so-called Islamabad Memorandum on 17 June.
It would probably be great for markets if he did this again, but the longer things drag out, the less likely he’ll be prepared to politically re-take the loss, and the less likely Iran will be to let him.
From Trump’s perspective, there are the sunk costs, fallacious or not. And from Iran’s perspective, if their strategy has essentially been rope-a-dope since day 1 – using up your enemy’s missile interceptors, petroleum reserves and political capital – then why would they let him declare a draw just before he hits the mat?
After all, it’s not as if Iran will suffer greater punishment if it waits until after the midterms (or 2028). China may not be pleased, but they have reserves, and Russia. Hormuz may be a diminishing asset insofar as alternative energy channels, sources and products will come to compete with it, but that’s a beyond-2028 proposition anyway, and one well beyond the current political and economic cycle.
I give the TACO a rough probability of ~25%.
And then that leaves the final ~5% of plausible futures (note, I don’t include a US victory as plausible, no matter how many times the White House declares one, and similarly, I don’t think a ground invasion is plausible, considering the state of the US military). And that third option was the end point of what we wrote on 22 August: a final solution when all others are exhausted. The only way to win a war from the air without boots on the ground: a nuclear attack.
There may only be a small chance of a US or Israeli nuclear strike, tactical or otherwise, but it’s a real one and businesses and investors need to consider it in their wildcards.
And beyond the irony of bombing a country you’re trying to prevent from getting the bomb, it’s also something more frequently being discussed as a plausible, if not probable, future. We can see the self-aggrandisement when it’s raised as a possibility by disgruntled ex-allies like Tucker Carlson or Marjorie Taylor Greene. But when it’s also being discussed by the Bulletin of the Atomic Scientists, and allegedly General Dan Caine, then it’s worth consideration.
This week, Oscar Martin is back with a what-if scenario should this third option occur. And as Trump muses again on attacking Pickaxe Mountain, the alleged site of Iran’s remaining enriched uranium stockpile, it’s not just academic speculation. Bunker-buster munitions, as in June 2025, can only get you so far.
Oscar begins:
The last time a nuclear weapon was used in war was on 9 August 1945, when the US dropped ‘Fat Man’ over Nagasaki, with an immediate death toll of 40,000 people. It has been 81 years since humanity deployed its most destructive form of weaponry, despite proliferation and numerous close calls during the Cold War.
There are various arguments for why this was the last use of such a dangerous yet effective tool. A large part is deterrence, and the theory of mutually assured destruction if nuclear weapons were ever used against other nuclear powers or their allies. Additionally, it has become normatively accepted that nuclear weapons are distinct, morally and politically, from conventional weapons. However, as a world built on post-WW2 norms seems to be crumbling, the nuclear question has come back into view. Especially as the US seems to have reached an impasse in Iran.
The Iran conflict re-escalated this week. After a month without strong military action, the US and Iran resumed strikes, continuing a pattern of failed negotiations and increasing escalation. The Strait of Hormuz remains contested, placing further pressure on global energy markets, while 50,000 US personnel remain in the region. Although the Trump administration’s goals with the Iran war have never been consistent, what is clear is that they did not think they would be engaged in a politically and economically expensive conflict for over seven months. The war has already cost the taxpayer at least $37.5 billion.
As the impasse between the US and Iran hardens, and unexpected scenarios continue to emerge, the possibility of the deployment of nuclear weapons, tactical or strategic, seems increasingly possible, even if still unlikely.
Imagine Iran launches an effective strike against a major Israeli or US military or civilian asset. The US and Israel face increasing international and domestic pressure to end the war, as personnel and economic losses begin to pile up. It becomes clear that the US cannot end this war through conventional means, and certainly cannot end it through political will, as Iran has strengthened its hold on its people and forces. Trump authorises a tactical nuclear strike on Iranian critical infrastructure, a facility like Pickaxe, or an IRGC stronghold, to suddenly and brutally bring an end to the conflict.
So what then?
