Trump’s Unpreparedness for the Iranian Oil Crisis

As of this morning, the Felon's war of choice against Iran continues, four more American military personnel have died (two more are missing), Iran keeps counter attacking, especially against shipping in the Strait of Hormuz, and oil prices are continuing to rise. Indeed, Iran has said it will keep the Strait of Hormuz closed and that it wants oil to hit $200 per barrel.  On the home front, yesterday saw two terror attacks - one in Norfolk just across the harbor - potentially related to the Iran war.  Meanwhile, as noted in prior posts, the Felon has no clear exit plan and seemingly is shocked at the impact of the war on the price of oily, something that any responsible planning should have taken into account. Indeed, both studies and past experience should have made it obvious that Iran would use the closure of the Strait of Hormuz as it number one economic weapon leading to economic damage to not only the USA but the world as a whole. One can attribute this lack of planning to hubris, dementia, having a circle of buffoons as the Felon's advisors of choice, but none of these excuses for the inexcusable lack of common sense planning.  A piece in The New Yorker looks at this idiocy and lack of any real plan:

Two weeks after the United States and Israel launched an air war on Iran, there has been no let up in the conflict—or its financial repercussions. On Thursday, Iran’s new Supreme Leader said that his country would keep closed the Strait of Hormuz, a vital shipping lane through which about a fifth of the world’s oil flows, and more vessels in the Persian Gulf were attacked, including two oil tankers that were set ablaze off the coast of Iraq. On world markets, the price of a barrel of crude jumped to more than a hundred dollars.

Here in the U.S., the price of gasoline has risen by about more than twenty per cent since the war began, and energy analysts warn that it could rise a lot further if the Strait isn’t reopened. The Dow has fallen by about four per cent. Donald Trump, having plunged the country into a potentially disastrous war, with no clear rationale or exit plan, is flailing around for ways to mitigate its economic consequences. On Thursday, he suggested in a social-media post that the U.S., as the world’s largest oil producer, makes a lot of money when prices go up—an argument that even the most slavish G.O.P. congressman facing a reëlection campaign might hesitate to embrace.

Perhaps the most startling thing about the whole situation is that the Trump Administration was apparently surprised by, and unprepared for, Iran’s capability to inflict economic pain on the U.S. and its allies. This despite the fact that during a showdown in Trump’s first term the regime in Tehran used the same tactics of threatening to block the Strait and of attacking oil infrastructure in neighboring Gulf states that are allied with the U.S. Whether out of arrogance, capriciousness, or collective amnesia, this recent history was ignored.

In 2018, after rashly pulling out of the nuclear deal that the Obama Administration had negotiated, Trump launched a “maximum pressure campaign” against the Islamic Republic, which included extensive sanctions on its oil industry, the country’s biggest revenue generator. The response from Tehran was robust. In February, 2019, the Navy commander of the Islamic Revolutionary Guard Corps said that if Iran had no buyers for its oil it would take military steps to close the Strait. Ultimately, it backed off—it was able to continue exporting oil to China and other countries that ignored the U.S. sanctions—but the government and its foreign proxies did carry out a campaign of aggression in and around the Gulf. In May and June of 2019, four oil tankers docked in the United Arab Emirates were sabotaged and two freight vessels, one Japanese-owned and the other Norwegian-owned, were damaged by Iranian mines in the Gulf of Oman, which sits below the Strait. Months later, in Saudi Arabia, drone attacks struck oil-pumping stations that were operated by Aramco, the state-run oil giant.

At the time, there was speculation that tensions between the U.S. and Iran could spiral into military conflict—Mike Pompeo, then Trump’s Secretary of State, had described one of Iran’s attacks on Aramco facilities as an “act of war.” The Columbia report considered various scenarios, including small-scale hostilities in the Gulf and a major war that closed the Strait of Hormuz and drew in other countries in the region. In the latter scenario, the price of a barrel of crude could spike up from sixty-five dollars to “$110–$170 after one month, $95–$125 after six months,” the report said. The good news, it went on, was that “none of the parties are interested in pursuing massive escalation and have shown little will to do so even as the crisis in the region has worsened.”

Enter Trump 2.0, whose addled mind seems to have difficulty keeping a thought in place for a few days, let alone for the six years that have passed since the previous showdown in the Gulf. . . . Trump signed the order for Operation Epic Fury, with eminently predictable results. Having survived the initial U.S.-Israeli onslaught, the Iranian regime rolled out an expanded version of its playbook from 2019, exploiting its choke hold on the Strait, while launching missile and drone attacks on U.S. bases and energy infrastructure in the Gulf states.

With the Strait effectively blocked and hundreds of tankers stranded, many millions of barrels of oil are stuck at sea. And as onshore storage facilities have filled up Saudi Arabia, Iraq, and Kuwait have shut off some of their wells because they have nowhere to put the oil they produce. In volume terms, the hit to global supply is now the largest ever, energy analysts say, and, the longer the conflict goes on, the worse it will get. On an corporate earnings call last week, Amin Nasser, the chief executive of Aramco, said that a lengthy closure of the Strait would have “catastrophic consequences” for the world’s oil markets. Gas prices haven’t hit six dollars yet, but in parts of California they have come close. At a national level, the average price has risen from $2.94 a month ago to about $3.60, according to the American Automobile Association.

The previous time that Trump almost blundered into an economic catastrophe was on “Liberation Day,” nearly a year ago, when, from the Rose Garden, he announced punitive tariffs on dozens of U.S. trading partners. Financial markets, including the U.S. bond market, which lies at the heart of the global financial system, promptly went into a tailspin. . . . And with the midterms on the horizon the last thing that he and other Republicans want to talk about is higher gas prices.

But it turns out that doing a wartime TACO is considerably harder than doing a peacetime one. The decision to cease hostilities isn’t Trump’s alone; Israel and Iran also have a say. The potential loss of face is much larger: at least seven American service members have been killed in Operation Epic Fury, while more than a hundred have been wounded. And oil wells and refineries can’t be turned back on overnight. “Many processes are out of (Trump’s) hand,” Marko Kolanović, a financial commentator who was formerly co-head of global research at JPMorgan Chase, remarked online last week.

An extended period of higher energy prices would hit low- and middle-income households, many of which are already struggling to keep up with the cost. It could also feed through to higher inflation, which could prompt the Federal Reserve to keep interest rates on hold, or even raise them. Assuming the Senate confirms Kevin Warsh, Trump’s nominee to replace Jerome Powell as Fed chair, an interest hike seems like an unlikely outcome, but the possibility of the Fed not responding to higher prices also raises awkward possibilities. If investors come to think that the central bank is going soft on inflation, there could be a big sell-off in the bond market. That would leave Trump in the same predicament he was in last year after Liberation Day.

Nothing is certain, except the fact that the President is floundering, making conflicting statements from one day to the next about how long the war will last. As it continues, rule at the whim of a strongman seems to be giving way to rule by slapstick. . . . Trump is turning into Oliver Hardy. Earlier this week, he said that he launched the war based on information he received from Steve Witkoff, Jared Kushner, Pete Hegseth, and Marco Rubio that led him to believe Iran was preparing to attack the United States. The search for the fall guy is on. Only the truth is we are all Trump’s fall guys—not just Americans facing higher fuel bills but the inhabitants of other countries, particularly energy-importing ones, such as Japan, Germany, China, and India, which will bear the brunt of higher prices. Hopefully, that will be the full extent of the economic damage caused by Trump’s recklessness. It can’t be guaranteed.