In the end Donald Trump’s prime time speech last night did not, contrary to my base case, produce a more decisive move towards ending the air campaign against Iran. The president noted the achievement of mission goals to destroy Iran’s navy and air force, the “dramatic curtailment” of Iran’s ability to launch drones and missiles, and the destruction of Iran’s military industrial production capacity. He proceeded to claim that “these actions will cripple Iran’s military, crush their ability to support terrorist proxies and deny them the ability to build a nuclear bomb.” Combined with his (false) denial of having ever called for regime change, the speech essentially declared the Administration’s war goals for completed, though the President did (more prudently than last June!) concede the need remain vigilant about Iran’s nuclear program and to keep its nuclear facilities “under intense satellite surveillance and control. If we see them make a move, even a move for it [Iran’s highly enriched uranium], will hit them with missiles very hard again“.
As such, President Trump as expected prepared his “off ramp” from the conflict, but then inexplicably proceeded not to take it, but instead continuing to prevaricate about his next move, offering another 2-3 weeks timeframe during which the air campaign will continue to “hit them extremely hard…. we’re going to bring them back to the stone ages, where they belong“. It is hard to decipher any logical reasoning behind such continued procrastination, as the air campaign has to date not produced the strategic results the President would have wanted, and does not, as high value targets become fewer in number, look likely to do so in the coming weeks.
It is of course possible that the President intends to declare the air campaign over much sooner, based on the results already listed last night. But otherwise, continuing the war with a more or less unchanged campaign strategy will merely increase the gradually building economic pressures on the U.S. and global economy, putting further political pressure on the President and his Republican Party in a mid-term election year. Physical shortages of refined oil products will accelerate around the world in the coming days and weeks, leading to broadening demand destruction, declines in economic activity, and rising price pressures.
Countries’ real economies will be affected at a varying pace, likely hitting hardest first in Asia, then across Europe towards North America, but as a major component of the global economy, the United States and forward-looking U.S. commodity and financial markets will be immediately affected. The failure of the President to seemingly factor this into his strategy is hard to understand, and sets Donald Trump up to likely endure additional political setbacks directly related to his war strategy. It appears a clear own political goal was scored last night.
Most inexplicably of all, President Trump essentially offloaded responsibility for the reopening of the Strait of Hormuz to the rest of the world, stating that “the countries of the world that do receive oil through the Hormuz Strait must take care of that passage. They must cherish it. They must grab it and cherish it. They can do it easily. We will be helpful, but they should take the lead in protecting the oil that they so desperately depend on.” Recalling that while U.S. natural gas prices remain low from its large domestic supply, oil is a globally traded commodity, this amounts to handing control of at least U.S. oil and gasoline prices to other countries and not least Iran, in an election year giving these actors a likely direct sway over the President’s political fortunes. The rationale for such a war strategy is mystifying to say the least.
As laid out in earlier notes, I continue to believe that both Iran, China, the G-7 and the rest of the world “that receives oil through the Hormuz” will in the end for self-interested national economic and political reasons be quite constructive and facilitate the relatively quick normalization of maritime transits through the Strait. It hence remains the base case that the path for Hormuz is towards normalization, not the permanent imposition of some form of “war-time Iranian toll system” to extract rents from ships passing through the Strait. Ironically, President Trump in his own way actually acknowledged such a likely outcome, when he noted how “when this conflict is over, the strait will open up naturally. It will just open up naturally. They’re going to want to be able to sell oil because that’s all they have to try and rebuild. It will resume the flowing, and the gas prices will rapidly come back down.” Obviously, with an “America First Agenda” and his rhetorical description of the United States being in total control of the situation, he cannot acknowledge the policy agency he has ceded to Iran, China, and the rest of the world on the crucial Hormuz issue, so in his words the opening up of the Strait “just happens naturally”. The key triggering event for this however remains, as also directly stated by the President, for the “conflict first to be over”. Only then will the rest of the world begin to take action on normalizing Strait transit. Again, an outcome that only Donald Trump can initiate, but last night failed to trigger.
The most, perhaps only, genuinely encouraging element of the President’s speech was his complete lack of any mentioning of ground troops, hereby evidently foregoing a prime opportunity to prepare the American electorate for such a decision, surely multiplying the political costs for himself were he to nonetheless order any type of ground assault in the coming weeks. Consequently, political logic dictates that the risks of any such ground assault being ordered by President Trump remains very low.
Instead, the President explicitly returned to his earlier threats against Iran’s electricity production sector, stating how “If there is no deal, we are going to hit each and every one of their electric-generating plants very hard and probably simultaneously.” Given how Iran has already warned that such attacks would be met with retaliation against a wide range of Gulf region critical infrastructure, and how Iran carried out this threat in a measured way when the coalition on March 19th struck its South Pars natural gas complex, and Donald Trump at that time immediately called for the stop of such attacks, it is through difficult to take the President’s threats seriously, and it looks unlikely that Tehran will either. Only in the highly unlikely event that the coalition militarily very quickly succeeds in wholly eliminating Iran’s retaliatory capacity through missiles and drones against the Gulf region’s infrastructure does such a threat carry credibility.
In light of the President’s uncompromising rhetoric towards Iran and his non-credible threats of escalation, the outlook for an explicit negotiation process between the Trump Administration and Iran looks quite bleak, and the base case hence remains for an eventual in the coming days/couple of weeks more or less unilateral U.S. declaration of the end of the air campaign, handing over the issue of addressing the Strait of Hormuz transit to the rest of the world, while likely also leaving it to Israel to unilaterally decide when to end the conflict in Lebanon. Trump’s lack of explicit threats in the speech against NATO members and the organization’s cohesion possibly reflects his implicit need for a number of NATO members to be able and willing to actively assist in reopening the Strait of Hormuz.
In sum, following last night’s foregone opportunity, until Donald Trump finally decides he has had enough economic and political costs from this war of choice, the rest of the world will have to keep on waiting for Godot. It will regretfully be an increasingly economically costly wait for everyone.
Jacob
