The Iran War’s Impacts Have Only Just Begun

Another morning arrives and the Strait of Hormuz remains closed, the price of oil is more than $105/barrel, the average gasoline price in America is around $4.18/gallon, higher fuel prices are driving up the cost of numerous consumer products, and there are no schedule negotiations to end the war of choice that the Felon launched against Iran. The Felon was warned about the potential for Iran to close the Strait of Hormuz and chose to ignore the warns and now the world is living with the consequences of the Felon's arrogance and poorly thought through (if thought through at all) war.  Despite the Felon's attempts to distract and spin the situation, the one thing he cannot avoid is that he and he alone is to blame for the current quagmire.  Also bearing culpability are congressional Republicans who have voted down war power resolutions that would have put some constraints on the Felon. Obviously, the longer the quagmire continues, the higher the economic price to be paid by regular Americans and, hopefully, the higher the political price paid by Republicans (only 22% of Americans approve of the Felon's handling of the economy). As a piece in The Atlantic lays out, the consequences of the Felon's actions will linger for quite some time with economic pain continuing:

[The Felon] President Trump, celebrating Tehran’s declaration that the Strait of Hormuz would reopen to commercial shipping, posted on Truth Social on April 17, “IRAN HAS JUST ANNOUNCED THAT THE STRAIT OF IRAN IS FULLY OPEN AND READY FOR FULL PASSAGE.” The opening didn’t last. But, in his haste, [the Felon] Trump had inadvertently spelled out possibly the most consequential result of his eight-week war: The Strait of Hormuz now looks, in practice, like the “STRAIT OF IRAN.”

Although none of the Trump administration’s goals—an end to Iran’s nuclear ambitions, destroying Iran’s missile capability, neutralizing proxy forces, regime change—has been fulfilled, the war has led to enduring changes. Two sweeping conclusions—one short-term, one longer—have become clear, experts in defense, diplomacy, business, and economics told us.

In the short term, despite an indefinite cease-fire that kicked in last week following an initial two-week pause in hostilities, a durable end to the war isn’t coming anytime soon. The disparity in U.S. and Iranian demands for how negotiations should proceed, along with blockades by their respective forces in the strait, has locked the two sides in a stalemate. Many Americans still expect a quick end to the war’s economic strain. But that’s unlikely. . . . A retired general, a retired CIA analyst, and an energy-industry executive said anywhere from two to nine months, prompting a collective intake of breath from the audience.

Meanwhile, the economic geography of the Persian Gulf is likely changed forever. Iran now has greater authority over the strait than before the war began and stands to benefit from its closure. Iran might start charging exorbitant tolls for all ships that cross the strait. Or a consortium of nations, including Iran, might manage the waterway and split the profits. . . . the regime has proved that it can close the strait at will, despite being confronted by the world’s most powerful military.

That gives Iran extraordinary leverage over the roughly 20 percent of global oil and liquefied-natural-gas supplies that used to pass through the strait. In response, energy companies and shippers are exploring options that could involve billions of dollars in investment in new pipelines, port expansions, and alternative (though hardly fail-safe) routes through the Red Sea. Such a rewiring of global trade routes—akin to supply-chain changes made after the coronavirus pandemic—could ultimately render passage through the Strait of Hormuz unnecessary. But any such result is likely years away.

In the meantime, the grip Iran has on the strait is expected to disrupt business, keep global energy and fertilizer prices elevated for years, exacerbate inflation—and make it much harder for Trump to claim a win in the war he started. . . . Iran has shown no inclination to abandon its leverage, and no further negotiations are scheduled. . . . . That leaves the two countries in a test of who can endure more economic pain.

[P]ushing Iran to the point of yielding could take months or even years, potentially tying up U.S. military resources to enforce the blockade, respond to disruptions, and enforce the terms of any peace settlement.

Representative Ro Khanna of California claimed that the war will cost the average American household $5,000 a year in increased gas and food prices. Trump may face his own imperative to make concessions, given those costs and what the war has done to his popularity: A Reuters/Ipsos poll released this week found that the president’s approval rating stood at 34 percent.

The White House has heard from unhappy Gulf and European allies about the strait’s closure and the unwelcome prospect of future Iranian control. China, whose economy was already struggling, depends heavily on the strait and has urged its reopening. A senior White House official told us that Trump is concerned that the issue could complicate his summit with Xi Jinping in Beijing in a little over two weeks. Yet there are no signs of a quick resolution.

The global economic damage from the first two months of the war has been stark. Traffic through the Strait of Hormuz has been reduced by about 90 percent, from some 120 to 150 daily transits to a handful, according to a new dashboard by the United Nations Conference on Trade and Development. This week, Brent crude reached its highest level in four years, at $126 a barrel. The gas-station billboards that line so many American roads reflect the increase: The average price of a gallon of gas hit $4.18. . . . The World Bank forecasts a 16 percent rise in food-commodity prices this year, driven by increased transport costs and the supply squeeze on the fertilizer industry, which relies on exports from the Gulf. The International Energy Agency has said that the world is on the brink of “the biggest energy security threat in history.”

The prevailing question facing those whose economic survival relies on Gulf exports is no longer when the Strait of Hormuz will reopen, but what role the strait will play in the postwar marketplace. Perhaps in anticipation of the disruptions to come, the UAE announced Tuesday that it was leaving OPEC, which it has long threatened to do, allowing the small country to chart its own course outside OPEC quotas.

Before investing billions, Gulf nations and companies are likely to want some reassurance that those new investments won’t become Iranian targets. In addition to shutting down traffic in the Strait of Hormuz, Iran in the past two months has hit energy infrastructure in neighboring countries. In Saudi Arabia alone, daily oil output is down by 600,000 barrels because of Iranian strikes, a Saudi state news agency said earlier this month. The Fujairah port, a potential new alternative, also has been targeted by Iranian forces.

One diplomat from the Middle East stressed to us that anything other than a return to the strait’s prewar status of being free and open would be unacceptable. But other observers aren’t sure how feasible that is, noting that countries dependent on the strait may decide to work with Tehran instead. “The longer this goes on, the higher the likelihood that countries will look to protect their own economic interests and cut deals with the Iranians, even if that triggers the wrath of the U.S.,” Richard Nephew, a former U.S. deputy special envoy for Iran, told us.

“One of the ironies of this war is that Iran discovered that it had this weapon,” he said. “There was so much talk about nuclear ability, but they have the strait.” . . . Secretary of State Marco Rubio said in a Monday appearance on Fox News that the U.S. would not tolerate Iran “trying to normalize” its control of the strait.

How the U.S. and its Gulf allies might avoid that reality is a question that will linger long after the fighting has ended.