Unless things change dramatically, the Middle East seems set for massive escalation.
President Trump yesterday warned every missile, rocket, or drone Iran fires at ships in Hormuz will be met with the destruction of an Iranian bridge or power plant.
This morning, the IRGC says a tanker is on fire after an explosion in the strait and Kuwait is under drone attack. Moreover, the Houthis claimed attacks on two Saudi tankers in the Red Sea, raising the risks of a new global energy chokepoint besides Hormuz.
Reports say the US is surging military forces to the region, heavy bombers are being prepared, and Mossad is coordinating with the CIA. Equally, Iran’s Ghalibaf has stated there will be no safety if Iran’s security is not guaranteed, read as more or less a declaration of war against the entire region’s infrastructure and energy should its own be hit.
Worse, Iranian strikes on CIA Middle-East facilities are prompting US questions about Russian involvement, which would conflate the war more deeply with Russia-Ukraine, where epic damage to Russian energy, shipping, and logistics infrastructure continues to mount. On that note, after Kazakhstan was forced to stop piping oil via the Black Sea due Ukraine’s drone attacks, the EU is launching a mission to board Russian shadow fleet ships in the Indian Ocean; however, Russian LNG is to remain exempt from EU sanctions – realpolitik or real weakness?
In the Middle East, the UK is evacuating its remaining diplomatic personnel from Iran, just as it did the day before the Iran war started in February, but Bulgaria is aiding US military operations from its territory. That could potentially make it a target for Iranian reprisals – and it’s a NATO and EU member, each with collective defense clauses.
If we see military escalation, it’s likely to drive energy prices even higher than the $95.5 level Brent was at this morning with benchmark crack spreads at $68. However, it’s unlikely to last long. Neither the US nor Israel, nor Iran, nor the GCC can sustain a no-holds-barred war for long – and the world economy obviously can’t either. As such, we may be close to the beginning of the end of this crisis – it’s just unclear if it will prove a bridge too far for the US or Iran.
Hellbound and Down 