The US–Israel Alliance War on Iran Turns From Bad to Worse

Welcome to The Geopolity’s What We’re Watching (3W), our daily look at the interconnected worlds of Geopolitics, Economics and Energy. Curated from the world’s leading sources of information, our analysis and commentary is designed to help you make sense of the events driving the major developments in the world.

US president Trump was very optimistic about the US – Israel Alliance position in its War on Iran ahead of the weekend, saying to Axios that he expected US and Iranian negotiators to meet again this weekend and hammer out a final deal to end the war. “The Iranians want to meet. They want to make a deal. I think a meeting will probably take place over the weekend. I think we will get a deal in the next day or two,” he said in a brief phone interview. Axios adds that the deal would be based on Iran handing over its nuclear enriched material in return for the US releasing some of the Iranian funds it has blocked in foreign bank accounts. In addition, Trump said Iran would fully open the Strait of Hormuz. Only after that the US would then end its naval blockade of Iran.

3W notes that this expectation would have been realistic if the US – Israel Alliance had been in a clearly dominant position, with escalation dominance in hand, leaving Iran incapable of countering of and when the Alliance were to decide to tighten the chokehold on Tehran. However, to any rational observer, it is clear this is not the current reality. At best, the US – Israel Alliance and Iran are hurting equally. More likely, though, the Alliance is hurting more, also because its pain threshold is significantly lower than that of Iran. In this reality, Iran should be expected to demand real concessions from the Alliance, not just a return of funds that have for all practical purposes been stolen from Iran. Trump’s optimism is based on fantasy, in other words. One can only hope he realises this, and talks nonsense as part of a strategy – however bad. The alternative means the US president has lost touch with reality, which makes him far more dangerous (and brings back memories of president Joe Biden).

Trump’s optimism is based on fantasy, one can only hope he realises this, and talks nonsense as part of a strategy – however bad. The alternative means the US president has lost touch with reality, which makes him far more dangerous (and brings back memories of president Joe Biden).

As to why Trump suddenly aired his optimism, at 3W we refer back to our analysis of the Lebanon ceasefire “2.0” which was announced last Thursday. We said at the time, the Alliance probably thinks this would make Iran make concessions, through which escalation dominance would be returned to the US and Israel.

Later on Friday Iranian Foreign Minister Abbas Araghchi said on his X account that the Strait of Hormuz was “completely open”, writes The Guardian. 3W notes that one should not read into official statements what one wants to be told. Rather, one should understand what is most likely intended by the communicator. In this regard, note that Iran has always said the Strait of Hormuz is open – to friendly nations and provided they register with Iran and agree to pay a toll. Why anyone would expect Araghchi’s statement on Friday to suddenly mean something completely different is beyond us, to be honest. Especially since Aragchi’s co-negotiator with the US, speaker of parliament Mohammad Bagher Ghalibaf at almost the same time warned that if the US blockade of Iran continued, “the strait of Hormuz will not remain open”.

But many analysts did make the mistake of thinking, firstly, that Iran would see the Lebanon ceasefire as a concession by the US, and secondly, that because of that Iran was announcing a concession to the US by Araghchi’s statement. “Araghchi’s statement appears more aimed at unlocking negotiations than unblocking the Strait of Hormuz” that “followed a US concession—the cease-fire in Lebanon—and signals Iran’s interest in a deal”, Michael Singh, former senior director for Middle East affairs at the National Security Council, said according to The Wall Street Journal. Being proven wrong just hours later, Singh then crated a narrative in which Iranian “hardliners” overruled Iranian “liberals”.

The fact that the Lebanon ceasefire was very clearly fake, as we at 3W noted our analysis last Thursday, probably didn’t help the US – Israel Alliance. While Trump said that Israel would cease attacks on Lebanon, claiming: “They are PROHIBITED from doing so by the U.S.A.”, Israeli prime minister Benjamin Netanyahu uploaded a video to his official YouTube page declaring that Israel was not done yet with Hezbollah, writes The Guardian. He said: “We have not yet finished the job. There are things we plan to do to address the remaining rocket threat and the drone threat.” Soon after, reports emerged that an Israeli drone strike had killed one person in southern Lebanon. The Israeli defence minister, Israel Katz, then insisted that the IDF was not withdrawing from the country and that military action could resume. In this context, why would any sane person expect a resolution, at 3W we ask? The fact remains that the US – Israel Alliance has not made any concessions on any of its demands, and it has not delivered a decisive turn in its favor in the military conflict. So why would Iran compromise on anything at this stage – except if it was stupid? Note that Iranian Deputy Foreign Minister Saeed Khatibzadeh, in an interview with The Associated Press, said Iran is not yet ready to hold a new round of face-to-face talks with US officials due to Washington’s refusal to abandon “maximalist” demands on key issues.

The fact remains that the US – Israel Alliance has not made any concessions on any of its demands, and it has not delivered a decisive turn in its favor in the military conflict.

So, where does the conflict go from here?

The US military is preparing in coming days to board Iran-linked oil tankers and seize commercial ships in international waters, writes The Wall Street Journal. The US “will actively pursue any Iranian-flagged vessel or any vessel attempting to provide material support to Iran,” general Dan Caine, chairman of the Joint Chiefs of Staff, said. “This includes dark fleet vessels carrying Iranian oil. As most of you know, dark fleet vessels are those illicit or illegal ships evading international regulations, sanctions or insurance requirements.” The move, which Caine said would be carried out in part by the US Indo-Pacific Command, will implement a new phase of the US pressure campaign against Tehran, which Trump administration officials have dubbed “Economic Fury.”

3W notes this is a very dangerous move by the US. Firstly, it is not certain at all this will bring Iran to its knees, we said in our analysis of the blockade plan last week. The New York Times agrees. In addition, it will worsen the global energy shortage, which is currently threatening to implode the global economy. While Trump might be happy this is increasing demand for US energy, strategically speaking, the fact that now more than 70 very large crude carriers are on their way to the US, more than double the usual writes Nikkei Asia, is of course making the US more enemies than friends, as the US is communicating complete disregard for the interests of others. Worse still, most of Iran’s roughly 1.6 million barrels a day of crude exports are bound for China. Is the US really going to board China-linked vessels? Will China really sit back and do nothing about such acts of piracy, were they to occur? The New York Times already noted that China’s language on the US – Israel Alliance War on Iran has changed since the US announced its naval blockade on Iran.

The US military is preparing in coming days to board Iran-linked oil tankers and seize commercial ships in international waters

So, while many in the oil & gas trading space believe there is a significant likelihood the worst of the US – Israel War on Iran is now over, as explained by Javier Blas of Bloomberg, the 3W view remains that the US – Israel Alliance will soon seek an escalation in its War on Iran. Possibly in collaboration, possibly independently (Israel) in order to make the other party (US) join.

This means the outlook for the global economy is currently making a decisive turn from bad to worse. Even if the Strait of Hormuz opens fully it will still take weeks for substantial amounts of Persian Gulf oil and gas to reach buyers around the world, writes The New York Times. Even then, the war has inflicted the kind of damage that takes months, if not years, to repair. Not only have producers turned off an estimated 10 percent of global oil supply, but more than 80 energy facilities in the region have been damaged, many of them severely, according to the International Energy Agency. Restoring output to prewar levels could take up to two years, Fatih Birol, the agency’s executive director, said last week, according to The New York Times. Previously, 3W mentioned the economic fallout of the War on Iran is limited to energy but also includes petrochemicals including fertilizers, and helium which is a important input in semiconductor manufacturing. Reuters adds to that list aluminum, copper and nickel. The conduit is sulfur, a by-product of the Gulf’s oil and gas industry. Sulfuric acid is a key input for copper miners using solvent-extraction technology ‌on oxide ores and for nickel production from high-pressure-acid-leach (HPAL) plants.