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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.
In 3W’s most recent analysis of the US – Israel Alliance War on Iran, we discussed how Israel most likely sold the US on its plans regarding Iran.
Israel first sold the War on Iran to the US through the storyline that the Iranian “regime” would quickly collapse if there were a few decapitation strikes, wrote The New York Times. This storyline appealed to Trump’s ego. He loves the idea of being able to do what presidents before could not or would not do. And delivering regime change in Iran would enable him to say he brought positive change to the Middle East, after decades, and thereby reignite his call for a Nobel Peace Prize for himself.
Since things did not work out as planned/hoped, the US now finds itself in a quagmire. In this situation, we said yesterday, Israel is most probably telling the US that the current situation isn’t really bad, because the US adversaries are in a worse situation. They struggle more with the disruption of energy, petrochemicals and fertilizer supply to the global economy than the US does. Relativly speaking, therefore, the current situation is a “win” for the US. We believe this is why after first lifting sanctions on Iranian (and Russian) oil, to prevent disruption of the global economy, the US is now consciously pushing towards exactly this disruption, with US treasury secretary Scott Bessent recently saying the “sanctions waver” will not be extended, according to The Associated Press. This means, in our 3W view, that the most likely forward trajectory of the US – Israel Alliance War on Iran has become prolonging of the current status quo, where there is neither war nor peace; where Iran controls the Strait of Hormuz, allowing only ships of “friendly nations” to sail through; while the US engages in a naval blockade of Iran to ensure these “Iran friendly nations” do not actually receive any of the mentioned critical inputs into the global economy; such as Persian Gulf oil, natural gas, petrochemicals, fertilizer, helium, aluminum, and sulfur.
The first evidence in support of our thesis came yesterday, when The Wall Street Journal wrote the US is now preparing for a longer term US naval blockade on Iran. Trump believes this will push Iran to collapse, after which the war will be won. Restarting hostilities, meanwhile, would likely cause Iran to retaliate against the broader Gulf’s energy infrastructure. 3W notes that what WSJ neglects to mention is the fears that the US cannot afford to restart the war, since it is running out of critical military systems, as 3W discussed earlier this week. More importantly, however, 3W notes that the belief that a naval blockade will lead Iran to sign an unconditional surrender is just as ludicrous as the idea that killing a few people at the top of its sophisticated and well-entrenched government system would lead to its institutions collapsing. Iran’s geography means it cannot practically be cut off from the rest of the world. It has continued to trade with Russia through the Caspian Sea, for example. This “Middle Corridor” effectively gives it a backdoor to China and Europe. It also has a direct rail connection to China. Meanwhile, Pakistan, though not a completely reliable partner in the 3W view due to its military’s (too) close relationship with the US, has allowed Iran to use its territory to import critical supplies, writes Dawn. As far as the originally stated objectives for the current War on Iran are concerned, therefore, the US naval blockade should be expected to be completely ineffective. This means Trump has been again sold an idea which disguises its true objective by something that appeals to him. The disguise is, “this fits in with your ‘Denial’ strategy, can bring the world to its knees and make your adversaries come and beg at your doorstep for your oil and gas”. The reality is, “we can inflict serious longer-term damage on the entire Persian Gulf region which will leave us enabled to focus on annexing Gaza, southern Lebanon, the Golan Heights, and thereafter kick Turkey our of northern Cyprus and Syria”.
Since things did not work out as planned/hoped, the US now finds itself in a quagmire
Of course, the naval blockade strategy will damage US standing in the world tremendously, further eroding its political and soft power through the pain it inflicts on the global economy. Eventually, this will turn the US into a pariah state, strengthening the hand of its main adversary China which is presenting itself as a lone voice of reason in geopolitical affairs. Earlier this week 3W explained that the US was not forced to go down this route. It had other, better tactical options regarding Iran that would have served its geostrategy much better, but it chose to go down this disastrous route, leading to a self-inflicted wound, which is still bleeding and turning gangrenous, because it has allowed Israel to dominate US policymaking.
The most current facts support our 3W assessment.
As to the crisis developing in the Persian Gulf, the current status quo prevent the GCC countries from exporting and thereby earning money. The UAE has therefore approached the US about a “swap line”, writes The Wall Street Journal. In a conversation with US treasury secretary Bessent the Emiratis emphasized that they had so far avoided the worst economic effects of the conflict but might still need a financial lifeline, WSJ adds. The swap line would give the UAE central bank inexpensive access to dollars to support its currency or shore up its foreign reserves in case of a liquidity crisis.
Bloomberg writes that according to Bessent, the UAE is not the only country that has asked the US for additional dollars on an emergency basis. “Many of our Gulf allies have requested swap lines,” Bessent said. “Numerous other countries, including some of our Asian allies, have also requested them.”
This is a clear sign that the global economy is indeed, as the BBC writes, heading for a financial crisis, triggered by the supply chain disruption caused by the US – Israel Alliance War on Iran. Already before the war the global financial economy was in a weak state, the BBC notes, pointing to the problems in the “private credit” industry. Sarah Breeden, the deputy governor of the Bank of England with specific responsibility for financial stability, said regarding this, “There are echoes of the global financial crisis in what we’re seeing now. Private credit has gone from nothing to two and a half trillion dollars in the last 15 to 20 years. There is leverage [borrowed money], there’s opacity, there’s complexity, there’s interconnections with the rest of the financial system. All of that rhymes with what we saw in the global financial crisis (GFC) back in 2008.” The BBC notes also that a surge in energy prices in the run up to 2008 was a contributing factor in the GFC, and that the War on Iran is similarly leading to a rapid increase in energy prices. Again Sarah Breeden of the Bank of England sees a “worst case scenario” where the supply chain crisis triggers a financial crisis, pulling everything down. “What happens if a number of these risks crystallise at the same time?”, she asks. “Major macroeconomic shock, at the same time as confidence in private credit goes, at the same time as AI valuations and other risky asset valuations readjust. What happens in that environment and are we ready for it?”. Quite obviously, the answer to that question is “no”, 3W notes. No country in the world is ready for that.
3W notes that every day that normal traffic through the Straif of Hormuz is disrupted, and every dollar the price of oil inches higher, brings this worst-case scenario closer to reality. In this regard, after the news leaked that the US is preparing for a longer term disruption of the Strait of Hormuz, Brent oil surged to its highest price since 2022, writes The Financial Times. Brent was up almost 10 per cent to $122.15 a barrel late on Wednesday, while WTI was up 7 per cent at $106.88 a barrel.
The Financial Times’ Martin Wolf recognizes that the US – Israel Alliance is to blame for this situation, and that the world is taking note of the fact that the Alliance partners have become “roque actors” akin to Saddam Hussein, and “unreliable”.
the world is taking note of the fact that the Alliance partners have become “roque actors” akin to Saddam Hussein, and “unreliable”.
Foreign Affairs notes that the US’s “impulsive militarism” regarding Iran has weakened its position relative to China’s. Trump’s “America first” branding, the impulsive war with Iran has been a master class in putting America last, it says. The real winner of the conflict therefore won’t be Washington or Tehran; it will be Beijing. China has insulated itself against a near-term disruption in energy supplies. With the US military bogged down in the Middle East, China has a freer hand in East Asia while it is honing its military tactics through analysis of US military operations. As Trump behaves erratically and violates international law, China presents itself as a responsible peacemaker. And once the smoke clears in Iran and Gulf countries, China will probably step in with reconstruction contracts for damaged ports or energy facilities and long-term investments in infrastructure.
In the background to all this, Israel is quietly progressing its objectives. It is further expanding its annexation of Gaza, with its military enlarging the “restricted area” in the territory, writes Reuters.
In Lebanon, the Israeli military has continued to occupy southern Lebanon and destroy the infrastructure there, while expanding again its military strikes throughout the country, writes Axios. Of course, Israel claims its actions are all defensive in nature. It is only “responding” to Hezbollah “provocations”, writes Axios. And, Axios adds this is also the US government’s position. “Hezbollah’s strategy is clear: provoke, attack, and then blame Israel in order to kill the negotiations and make the Lebanese government look bad. We cannot feasibly expect Israel to just take the hits. This is not the Biden administration,” one US official told Axios. 3W notes that anyone who follows developments in Lebanon on a daily basis, not monthly or even weekly, will realize this Israeli narrative does not align with the facts. Israel agreed a ceasefire with the Lebanese government in Washington DC. Hezbollah, in response, then said it would abide by the agreement if Israel would stop attacking it, wrote the BBC at the time. But Israel never did and continued to attack Hezbollah. That is how the Lebanese situation got to the current point.
Someone inside elite US circles must realize the disaster that is unfolding for US interests. Perhaps this explains why some are pushing for one more round of US military attacks on Iran, as Axios writes. US president Trump is slated to receive a briefing on new plans for potential military action in Iran on Thursday from CENTCOM Commander admiral Brad Cooper. CENTCOM has prepared a plan for a “short and powerful” wave of strikes on Iran — likely including infrastructure targets — in hopes of breaking the negotiating deadlock, and forcing a reopening of the Strait of Hormuz through occupation of land in the area. One hopes professor Richard Wolff is right in his forecast that the US will go down this route, not to really change the situation on the ground but to create an opportunity for the US to declare victory, pack up and leave. And thus that this is the real objective of the military operation under discussion. If, however, these discussions continue to be led by ideas and plans originating in Tel Aviv, any military operation will only make things infinitely worse.
And that, we at 3W fear, is the most likely outcome of all this…