Trump is looking at the wrong Gulf Economy

Trump needs to stop bleating on about how the Iranian economy is on the verge of collapse, and start looking at the economies of his “allies” in the Gulf. The immediate and longer term impact on the Gulf countries only gets deeper every day Trump continues his blockade (of the Iranian blockade) of the Strait. UAE is the first to ‘break’ with history, declaring that it is withdrawing from OPEC and OPEC+, a direct rebuke to Washington on its neighbours who are not pushing back against Washington.

Economic hardship can lead to social unrest. Trump is claiming that is imminent in Iran. He’s looking in the wrong direction. 

I repeat my earlier predictions that, unless Trump finds a way out of this mess (more bombs will only make it worse), the end will be a Middle East free of Amerikan bases and  power, a humbled Amerika, and potentially an economically failing Amerika.

I keep seeing the figure “$500 million per day” that the war is costing the Iranian economy in lost oil revenue and associated economic activity. While I’m sure there is some substantiation of this number, it seems to be, um, cherry picked, at best. After all, Iran was  exporting 3.2 million bbl/d before the war, and is estimated to be exporting 1.5 million bbl/d now,so a drop of 1.7million bbl/day. At the wartime price of $90/bbl,that would come to $153 million/day in lost oil revenue.

Based on the pre-war price of oil and Iran producing 3.2 million bbl, their ‘revenue’ would have been around $208 million/day. The difference, and my maths is complete rubbish on this, seems to be around $55 million/day, not $500 million/day. So even if my maths is completely off, I cannot see the net negative oil revenue impact being more than $50 - $75 million/day, even including knock-on effects to the rest of the Iranian economy. The Trump administration's numbers are a fantasy.

That number is for lost oil sales, yet Iranian oil was already under sanction, so oil revenues would not have been anywhere near that level - or it shouldn’t have been.

Missing from this is the daily cost to Trumpian “allies” in the Middle East whose oil exports have stopped or been hugely curtailed by the Iranian/Trumpian blockade of the Strait.

When we look at Saudi Arabia, their oil production has dropped by half from 9 million/d to 4.5 million/d, or a  loss of oil revenue of $405 million per day, three times the supposed Iranian losses. But again, let’s consider the pre-war and current price in the estimated lost revenue. So 9 million barrels per day versus 4.5 million at $90 results in a current net loss around $90 million/day. Again, terrible maths would suggest an ongoing loss of $90 - $150/day.

These losses are being felt across the Gulf. Total gulf revenues are probably down by over a half billion per day across all  products, in terms of exports only. Internal economic activity across the Gulf states is also falling, rippling out from the energy sector across economies.

In Dubai, the property sector has taken what I expect will be a multi-year negative hit to valuations, and the coming ‘safety’ premium payable to attract knowledge workers will increase while property values plummet. The same is happening in Qatar’s property and financial markets, and their LNG production capacity has been damaged and will take years to recover, stunting future income to pay for their recovery.

In all Gulf countries, migrants and manual labour (including lower skilled construction and services) are suffering. How long before there is open unrest? Will those countries begin to see serious problems with their migrant workforce? Historically anyone who stepped even a little out of line could simply be ‘put on a plane’ out. That’s not possible now. 

If the US carries out Trump’s threats against bridges and power infrastructure, what will be the impact on Gulf states if their power infrastructure is damaged? What will be the impact of loss of desalination and the availability of that most fundamental resource? How long will the poor, and yes the Gulf countries are full of the poor, accept degrading conditions. 

The Arab Spring was a series of economic rebellions. Are we looking at a Gulf Summer?

The more Trump ignores the potential impact on his “allies”, the sooner they will understand, as the Qatari Foreign Minister said, they have been living next to Iran and Iranians for centuries, and will continue to live next to them into the future. And the more they will understand that good, or at least tolerable, relations with their neighbour will be more important than very flawed relations with a stranger who has shown a willingness to abandon them at a moment's notice.

Gulf relations with the US and the world a year from now will be unrecognisable.

Hormuz is the new Suez

I’ve seen more than one report suggesting that, since the US Navy escorted ships through the Strait of Hormuz in the 1980s, it can do so again now. That is a mistake, and a very dangerous mistake. The situations are not analogous at all. Maybe we should be looking at the Suez Crisis instead.

 

In the 1980s “Tanker War”, Iran and Iraq extended their land war to each other’s oil export capabilities, including both terminals and ships. Iran mined the Straits, and Iraq attacked ships. To restart the flow of ships, the US raised its flag on tankers and escorted them through the Gulf and the Straits. Both sides avoided attacking US-flagged ships, because to do so would have been an attack on the US, and that was something that neither side wanted to allow, at least not allow themselves to be viewed as the one attacking the US Navy. 

 

That is not the case today. 

 

Israel and its puppet, the United States, are at war with Iran. There is no other word for it, no matter how President Trump might want to dance around it to avoid breaching the US Constitution. Nonetheless, this is a war. And in a war, the opponent's military assets are fair game. Likewise, economic assets are equally ‘in play’ if it hurts the opponent's ability to sustain military action. 

Today, Iran wants nothing more than the US Navy to saunter through the Strait of Hormuz. I suspect they would even allow one or two ships to pass on the way in. Maybe even more. They can wait. They can wait until those ships want to leave.  

 

Once Iran has ‘allowed’ the US Navy into the Gulf, with maybe a token missile fired or drone attack (designed to fail), hubris on the American part will take over. A convoy will be put together, made up of a few US Navy vessels and a couple of tankers that have been reflagged as US ships (possibly even purchased by the US government to force them to attempt the Strait). 

  

What happens then is anyone’s guess. Does Iran let it pass again, with a few token attacks to lull others into risking a larger convoy? Or does Iran take this as the opportunity to attack US Navy ships with the intent of sinking them in the Strait?  

  

Either option works to Tehran’s benefit, not to Washington’s. 

  

Gaza and Southern Lebanon are the most heavily surveilled areas on the planet. Yet still the rockets fly, and still they are fired into Northern Israel. The combined military might of Israel and its offshore military industrial complex (the US) has been unable to stop the missiles, even with years of suppression. 

  

Does anyone have any confidence that Iran, with decades to prepare for exactly this event or circumstance, has not developed exactly the capability needed to keep the Strait closed and to sink anything that goes through without its permission?  For many years, it has been clear that there would be a war with Iran. Even in 2013, when I was in the Gulf, the talk then among expats (of all sorts) was when there would be a war with Iran, and what their individual plans were to mitigate such a possibility. Maybe those expats and the ones who followed all had such plans, and maybe they are working. But I equally suspect that too many either did not have plans, or bought the image of the Gulf as a new land of peace and tax-free prosperity for all (well, all the white-collar workers and ‘influencers’).  

  

And so the war has come, and each side (all sides) is acting out their plans, hoping to contain this. But containment for Iran means the defeat, yes defeat, of the United States and its ejection from the Gulf once and for all.  

  

That only happens when the US Navy has been proven to be unable to open the Strait and keep it open. The price to the GCC countries and Saudi Arabia will be high. The price to Iran will be higher. But the payoff for Iran will be decades of real peace, a seat at the table, and a region devoid of US military bases.  

  

Israel will be contained and forced to negotiate with its neighbours.  

  

How will this happen?  

  

Keeping the Strait closed for six months or more will bankrupt the United States. Even “boots on the ground” will not open the Strait. It will only highlight US impotence in the face of drones and missiles. Cheap drones swarming missile defences. Even when the US (or Israel) is able to effectively deploy powerful enough laser systems to shoot down drones and missiles, there will still be mines, torpedoes, speedboats, and more drones and missiles. There will be the munitions held in reserve, and the longer-range artillery that can be driven close to the coast, firing three or four shells before scampering away. 

  

This is without Iran going full scorched-earth and sinking three, four, or more of their own tankers in the middle of the Strait, creating hazards to navigation that would take months to remove in the best of circumstances. 

  

Asymmetric warfare is on Iran's side. 

  

They know it. 

  

Washington knows it (well, those who plan and understand capability). 

  

China knows it. 

  

Yes, most of the world knows it. And while Trump will lose interest and be distracted by something else (Cuba?), the Strait will remain closed. Oil will flow. Fertiliser will flow. To China, and a few other countries willing to pay the price. It is a price they’ve wanted to pay for years but have been unable to. Now they must, or their people will starve. Enough oil will stop flowing to countries like India, Indonesia, and Thailand. 

  

The price will be breaking from the US alliance system. Selling US Treasuries. Rejecting US Navy visits and bases. Dealing directly with Tehran. These countries understand that picking the US over Iran will be picking the US over their own people, and their people will let them know that.  

  

This could be the US’s Suez, when Great Britain became the “Island formerly known as Great Britain”. Because when the UK (and France, to be fair) invaded Egypt in 1956 to seize the Suez Canal, the US threatened to call in the UK’s debt. At that moment, the British pound stopped being the global reserve currency (though that was arguably already well underway), and the US dollar began its 70-year run. It doesn’t matter if you have the largest navy today if you cannot pay for it tomorrow. 

The era of US hegemony is coming to an end. It will not happen overnight, but the process is now fully underway.

  

And Israel cannot have the world’s biggest military if the US component of its military cannot pay for itself. When the US can no longer afford its own military and the American people are losing their houses and jobs in the coming Greater Recession, they will reject perpetual and unlimited support for the “Israeli Dream”. US money will stop flowing to Israel, and Tel Aviv will be forced to do the unthinkable: negotiate with its neighbours.  

  

Only then will peace be possible in the Middle East. 

  

Or maybe the US can keep the Strait open.  

  

Maybe.