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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.
Before introducing and analyzing current events, at 3W we believe it is worthwhile to summarize the current situation.
The ceasefire between the US and Iran went into effect on April 8, and was supposed to last for 14 days. It was then extended unilaterally by the US, twice, but with implicit agreement from Iran. At the last extension, on April 21, US president Trump said the ceasefire would remain in place indefinitely, such that negotiations on a final deal would not be hindered.
In the negotiations the US and Iran are far apart. Before the war, the US demanded an end to Iran’s nuclear and ballistic missile programs, as well as an end to its support for regional allies such as Hezbollah in Lebanon. Iran, meanwhile, insisted on its right under the Non-Proliferation Treaty (NPT) to have a civilian nuclear program, and on its sovereign right to set its own foreign policy.
Since the start of the war, Iran has effectively closed the Strait of Hormuz. Ships wanting to pass through it now need to seek Iranian permission to do so. Iran justifies this move based on the United Nations Convention of the Law of the Sea (UNCLOS), under which a nation’s territory expands 12 nautical miles into the sea. The Strait of Hormuz is just 21 nautical miles wide, which means it lies fully within Iran’s and Oman’s sovereign territory based on UN conventions. However, under UNCLOS, Iran (and Oman) is supposed to guarantee “transit passage” for vessels through the Strait, since it is an “international strait” as it connects the Persian Gulf to the Gulf of Oman. Iran argues that the 1958 UN Territorial Seas Convention allows Iran to implement rules for safety and the environment, and to block passage if it is “non-innocent”, as in associated with a country that is at war with or supporting a war on Iran. According to the US, however, UNCLOS demands that Iran allow free passage to all ships under all circumstances. Interestingly, The Conversation notes, the US is not a signatory to UNCLOS, but Iran. In other words, the US is now using a UN convention it does not agree with to justify its position regarding the Strait of Hormuz. But that said, it all means that the current negotiation positions are that the US also demands that Iran open the Strait of Hormuz unconditionally, while Iran now also demands a right to toll ships passing through the Strait for safety and the environment reasons.
the US is not willing to compromise on anything of substance, and that a negotiated deal between the US and Iran is near impossible at this stage
In addition to the above, in the current negotiations Iran further demanded that the US release the Iranian funds frozen in US and non-US bank accounts on the order of the US government, which, according to Al Jazeera, add up to $100 billion. Both US president Trump and his secretary of state Rubio have said the funds will remain frozen and that they refuse to negotiate over this Iranian demand.
Lastly, Iran has insisted that negotiations on a peace deal cover the entire region. Not just Iran. “For us, a ceasefire in Lebanon is just as important as a ceasefire in Iran,” the speaker of Iran’s parliament, Mohammad Bagher Ghalibaf, told his counterpart in Lebanon, Nabih Berri, writes Al Jazeera. The US, through president Trump, has said Lebanon is not part of the ceasefire deal, calling it a “separate skirmish”, writes Deutsche Welle.
It is in this context that current events are taking place.
Of note in current events is, firstly, the US – Israel Alliance efforts to create the impression that Lebanon is a separate issue, that has nothing to do with Iran. To achieve this, the US is forcing the Lebanese government to negotiate and sign agreements with Israel. Most recently, last Wednesday, Israel and Lebanon “agreed” that Israel would stop attacking Lebanon if, with US army help, the Lebanese military remove all “Hezbollah operatives” from southern Lebanon, forcefully halt Hezbollah attacks on the Israeli army, and disarm Hezbollah, writes the BBC. The agreement between Israel and Lebanon does not demand that Israel halt its attacks on Lebanon, or remove its army from sovereign Lebanese territory. And just hours after the attack, Israel announced it would escalate its attacks on Lebanon under the pretext of “targeting Hezbollah”.3W analysed this extensively last week. Obviously, Hezbollah refused to accept this deal between Israel and Lebanon, highlighting the terms equate to “surrender, defeat and achieving the enemy’s goals”, writes NPR.
To make matters worse, or to again highlight the US – Israel Alliance’s complete disregard for any agreement it signs, and thereby the complete futility of negotiating with it, Israel on Saturday attacked a convoy of the Lebanese army, killing three, writes The New York Times. Two Lebanese military officers were killed in the attack, a brigadier-general and a captain, writes The National. The National added the Israeli army also issued new displacement orders, a further violation of its ceasefire agreement with the Lebanese government. Israel demands that residents of Aramta, Mashghara, Kfar Houna, Sajad and Ansariyah in southern Lebanon move north of the Zahrani River. 3W notes that what usually follows from such displacement orders is that the Israeli army moves in to completely destroy the village and surrounding infrastructure. Slowly but steadily, Israel is repeating its Gaza strategy in Southern Lebanon.
the US – Israel Alliance’s complete disregard for any agreement it signs, and thereby the complete futility of negotiating with it
Secondly, with reference to Iran’s demand that the US unfreeze its assets held internationally, the US has proposed that these frozen assets be given to the states of the Arabian Gulf, to finance their reconstruction, writes Reuters. What this indicates above all, 3W notes, is that the US is not willing to compromise on anything of substance, and that a negotiated deal between the US and Iran is near impossible at this stage – even if the US were willing to reign in Israel, as we discussed last week.
Thirdly, the US and Iran continue to exchange fire. The US military has been striking Iranian coastal surveillance radar sites, which Iran has been responding to via attacks on US affiliated assets in Kuwait and Bahrain. Bloomberg writes the attacks continued over the weekend.
This leaves the global economy as exposed as ever to the greatest crisis in modern history, in our 3W view.
Bloomberg writes that the closure of the Strait of Hormuz has created the worst supply shock in modern history. So far, a combination of record US exports, a sharp and unexpected slowdown in Chinese demand, inventories and a steady trickle of crude still finding its way through the strait has mitigated the impact. But this situation is not sustainable. “Each week that goes by, the system is tightening by 70 to 80 million barrels. You can’t do that forever,” one market analyst said to Bloomberg. “Over the course of the next few months, generously speaking, you’ll really be staring at a system that could be lacking flexibility because the buffers have been really depleted.” In the US, overall oil inventories shrank to the lowest level in more than two decades last week. Emergency reserves have little oil to spare and fuel stockpiles are facing critical lows as peak summer demand months approach. China, meanwhile, will eventually return to pre-Iran war oil purchasing rates. (The amount of oil arriving in China by ship in the past 30 days fell to 7.5mn b/d from about 13mn b/d at this time last year, writes The Financial Times). When China reverses back to normal, $200 oil becomes a realistic possibility.
For now, it seems, therefore, that the limited impact on the global economy has given the US the false belief that the status quo is manageable. That no major tactical changes, or concessions, are required. And that the US can try to wait-and-see who is hurting more the global economy or Iran. This we at 3W belief is fundamentally misguided. Some 6 weeks ago already we explained how the status quo will eventually cause global economic collapse, and why the US appears to not properly recognize this.
Every day that passes will only make matters worse. In a sense, therefore, it is as though the world is again sleepwalking into disaster.