The memorandum of understanding (MOU) signed today is a clear surrender by the US. Under the MOU, Iran would get almost everything it wanted, while the US gets no concessions. Sanctions are to be lifted, reparations are to be paid, Lebanon is to be included in the ceasefire, no nuclear material is to be handed over, and Iran retains control over the strait of Hormuz. Iran is now a major regional power, in a much stronger position than it was at the beginning of the war. Israel is, of course, absolutely livid. They have said they will not abide by the terms of the agreement. Anyone paying attention will be expecting them to sabotage it, perhaps with a false flag attack on an American asset. Netanyahui s set to lose the upcoming election, and his likely successor, Naftali Bennet, has promised to be Iran’s worst nightmare. Bennet is considerably more extreme than Netanyahu. Israel is not the only party that is appoplectic about the deal. Trump’s supporters are furious as well, as it repudiates everything Trump has been saying throughout the war. This does not bode well for the implementation of the MOU. Trump flip-flops constantly under pressure, and he will be experiencing more pressure than ever before during his presidency.
Given how desperately unpopular this deal is in much if the US, it’s suprising that Trump agreed to it. It appears to be that two parties sat him down for a talk. The first was the oil company executives, who pointed out that the US strategic oil reserve is virtually exhausted, and that this will lead to a huge price spike in oil, and then in everything else, as the manipulated futures prices meets the much higher spot price in the very near future. Trump appears to believe that allowing Hormuz to open now would avoid a global economic depression for which he would be blamed by the whole world.
Unfortunately for him, that eventuality is already guaranteed. Even if the strait is fully opened now, resuming production will take months to years, depending on the damage done. It will be months before tankers can deliver to their destinations. Trapped tankers will need to queue up to leave, then return to port for maintenance. They may or may not choose to return to the region, given the heightened level of risk. At least they would be expected to wait for weeks to see if hostilities actually do calm down. Insurance may or may not be available. Trump has already said that he may resume bombing if he doesn’t like Iran’s actions. By the time shipping resumes, assuming it does, supply chains will have fractured, industrial sectors may have ground to a halt, various modes of transport will no longer be operational, planting and harvests will have been missed, food distribution will be heavily impacted, and famine will have hit vulnerable regions.
The second group to bend his ear was the US military, which lacks the capacity to resume the conflict. Missiles and interceptors are in short supply and cannot be replaced quickly. The aircraft carriers are sitting ducks, unable to approach close enough to be useful. US military assets in the region have been very heavily damaged. 16 bases have been hit, all the radars have been eliminated, many aircraft have been lost, and the casualty numbers are much higher than has been admitted. The Gulf countries are no longer keen to allow their airspace to be used for attacks, as this has made them targets. The rest of their energy infrastructure would be destroyed if hostilities resumed. They no longer believe that the America can, or even wants to, protect them, so they may be rethinking their alliance with the US. The empire is being driven out of the region, although its Israeli outpost is still bristling with hostility and thinking itself capable of taking on its neighbours by itself. Israel has become consumed with hatred for all its neighbours, continues to covet their land, and may yet resort to its nuclear Samson option. Trump is caught between a rock and a hard place. He cannot resume the war, but will not be forgiven at home for failing to do so.
If oil does flow out of the Gulf again, demand will be very high, as every country will be wanting to build a substantial reserve supply. Given that supply will still be limited, this is a recipe for strictly rationing fuel use by the public, or perhaps preventing it altogether. There will be substantial demand destruction on behalf of ordinary people and industries crippled by shortages. This will reduce some of the upward price pressure, but higher prices can still be expected. As the world will be in a depression, unemployment will be very high, and purchasing power for ordinary people will have fallen off a cliff, making fuel and other essentials much less affordable whatever the nominal price. Bond markets around the world are signaling risk, hence interest rate hikes are likely, and in a world drowning in debt that will create a sovereign debt crisis, as well as a flood of bankruptcies.
The US appears to be oblivious to impending domestic disaster. It projects a 20% increase in energy demand for its datacentre build out, but it is not the energy self-sufficient superpower that it thinks it is. Only one fracked basin is not yet in decline. Drilling in the arctic would take years as the necessary infrastructure would have to be built first. Imports from Venzuela cannot materialise for years for the same reason. There is so far little interest in developing either of these sources. The datacentre boom is unlikely to continue, even if datacentres are allowed to co-opt energy supply from the population. That entire industry is in a massive bubble, which will eventually implode as all bubbles do. With luck this will derail elites plans for a technocratic police state and a transition to a digital finance gulag. These would require a huge increase in socioeconomic complexity, but complexity is a function of surplus energy, and that precondition will not be met. Huge global changes have been set in motion. Chaos is likely to ensue.
