The US violated every term of the MOU from day one, while Iran continued to follow the terms until now. They have now declared it null and void, and have said there will be no further discussions with an agreement-incapable US run by a profoundly ignorant and demented mad man. Apart from failing to rein in Israel’s barbarism in Lebanon, and setting up a conflicting MOU with the Lebanese puppet regime, the US was also encouraging ships to bypass Iran’s control over Hormuz by skirting the coast of Oman. Iran warned shipping that to do so would mean being fired upon, which is exactly what happened, and what they had a right to do under the MOU, as it granted them control over the strait. The US retaliated by striking Iranian civilian infrastructure and land-based connection points with Iran’s neighbours. Iran responded by bombing American bases in the region. Israel told Trump the Iranians were going to assassinate him, and he foolishly believed them as he always does, even though any assassination would almost certainly be an Israeli false flag. Another possibility is that Trump’s health is now so poor that a natural death could be spun as assassination to produce a causus belli. Trump is now completely paranoid, and is back to threatening to anihilate Iran. There is no obvious end to where the escalation ladder could lead.
The US cannot reach Iran’s strategic assets, as they’re all deep underground. In contrast, Iran can very easily and cheaply inflict considerable damage on American assets and on those of the Gulf countries which have made themselves co-beligerents. Those assets are above ground, and essentially undefended, due to the abject failure of American air defence (as discussed here in a post two days ago). Iran has a massive geographical advantage, which they have improved over many years to create what is now an impregnable defensive fortress. No amount of bombing will prevent Iran from continuing to control Hormuz, and now Ansar Allah (the Houthis) are planning to close the Bab-al-Mandab strait at the southern entrance to the Red Sea, due to an attack on their airport at Sanaa. This appeared to be a Saudi attack, but could well be a false flag, since the attack was not in Saudi interests. Closing access to the Red Sea would very significantly compound the negative effects of the war on the global economy. The US is now reimposing its ineffective naval blockade, and Hormuz is closed once again.
Last week, the US secretary of state was declaring that Hormuz is international waters, and that no one had the right to charge a fee for passage. He is incorrect. Hormuz lies entirely within Iranian and Omani territorial waters. They are entitled to charge for access, as Turkey does for passage through the Dardanelles. Iran was proposing a 1-2% administrative fee, in lieu of reparations for all the damage inflicted upon them in this illegal war of aggression. This week, Trump has declared that the US will call itself the Guradian of Hormuz, and will charge a 20% fee, as a protection racket. This is not going to happen as the US is incapable of protecting shipping or its allies in the region, and this is widely known. Trump’s ignorant pronouncements are simply making the US look foolish. He has on occasion, even claimed that Hormuz should be renamed the Strait of Trump. Whatever mental faculties he may once have possessed have deserted him.
The consequences for the global economy have not yet manifested in earnest, but they are coming, some sooner than others. The first order effects are predictable, but supply chains are so complex that there will inevitably be severe impacts that could hit with no warning. Global energy supply will hit a wall once reserves are fully depleted. Prices have been kept low through manipulation in the paper market by the US, but this has encouraged shorting, on the mistaken belief that peace is right around the corner, as Trump keeps saying it is. This cannot continue forever. Once reserves are gone, the futures price will converge with the spot price at a much higher level. The shorts will then have to cover, driving prices even higher in a short squeeze. Diesel, aviation fuel, and bunker fuel will be in very short supply due to a lack of the longer chain hydrocarbons necessary to produce them.
As a result, expect rationing, with the public being at the bottom of the heap. Expect considerable difficulties with distribution of goods and services, and for air travel to be almost entirely curtailed as aviation fuel becomes reserved for the military. High energy prices will feed through into everything else, leading to large scale demand destruction from the public and a global depression. If oil begins to flow again at some point, demand from countries seeking to replenish and increase reserves will be enormous, likely keeping energy prices out of reach for ordinary people. Travel in any mechanised form will become problematic at best, and may be impossible for all but the super-rich. As goods may not be able to move, people will have to rely on their local reality, but few even know what this looks like, as they’re so used to a globalised world. Adaptation takes time, but what’s coming will be a rug-pull. Those who’ve taken no steps to prepare in advance are going to find trying to do so belatedly very difficult. Even those who have prepared will likely be hit with unpleasant surprises.
Other essentials that are now supply-constrained include liquified natural gas (LNG), fertiliser, aluminum, helium, and sulphuric acid. Much of Asia relies on LNG, and Europe is also increasingly dependent. Natural gas is neccessary to produce nitrogen fertiliser through the Haber-Bosch process, which is extremely energy intensive due to the need to crack the triple bond between the two atoms in atmospheric nitrogen. Phosphate fertiliser relies on supplies of sulphuric acid to extract the resource from phosphate rock. Without fertiliser, crop yields will plummet. Some regions are already hard hit, because their planting window has been missed. Others will lack the energy to run the machinery they need for harvesting, or both the energy and fertiliser they need formplanting next year. Famine is now inevitable. This war has signed the death certificates of potentially hundreds of millions of people.
Helium is essential for the production of computer chips, and much of the supply came from the Gulf. China, which was also a large producer, has now banned exports. The AI bubble is already very fragile, as there’s no business case that could make the industry profitable in its current form. A shortage of chips would seal its fate, with trillions in potential losses. This will, of course, aggravate the coming depression. So will the on-going destruction of infrastructure, both in the Gulf and in Russia, which is now an energy importer due to NATO-backed destruction of refineries and shipping. The loss of aluminum smelting in the Gulf will also have a major impact. The process is extremely energy-intensive, so there are relatively few places where it can be done. The energy required must be both plentiful and cheap, and that is increasingly unlikely.
Even if the war were to end tomorrow, which it won’t, it would take years to restore supply chains for many things. The pre-war level of oil production will never be restored, due to damage to shut in fields. LNG infrastructure in Qatar, which was a major exporter, has been badly damaged and will take 3-5 years to repair. The world is looking at a depression much more severe than the 1930s, and potentially longer lasting due to physical constraints that were not present back then. In the 1930s, the shortage was of the money required to connect producers and consumers, or buyers and sellers. It was a depression that occurred while surrounded by a virgin continent’s worth of resources due a the collapse of a human system – finance.
This time resource constraints will be very real, although demand destruction will have dropped demand by the public very substantially. Most people will be living in a very different world than they had anticipated, and for them depression conditions could last for the rest of their lives. Working together and pooling resources among extended families and communities will be essential. While material prosperity will likely be a thing of the past, people may well rediscover the genuine human connection that has largely been missing for a long time. Life at a basic level of material wealth need not be the end of the world, even though the adjustment will be difficult. Build relationships of trust now, before people start to panic and cease to be functional. Preparation, both physical and social, is the best antidote to losing one’s mind when adverse events hit, and also the best way to make a fulfilling life from whatever circumstances prevail after the dust settles.
