“It is ironic that the US who unlawfully withdrew from the Joint Comprehensive Plan of Action now calls Iran to come back to negotiations and diplomacy”, a statement from Iran’s permanent mission to the UN reads. “Iran calls upon the international community to live up to its responsibilities in preventing the reckless and dangerous policies and practices of the US and its regional allies in heightening the tensions in the region”.
Oh, and if anybody is wondering about the tanker attacks on Thursday, Tehran “categorically rejects” Washington’s “unfounded claim” that Iran is responsible, and “condemns it in the strongest terms”.
It’s possible that the latest Gulf escalation will fizzle out, but to reiterate, US foreign policy is now in the hands of not one, but two notorious Iran hawks in Mike Pompeo and John Bolton. Pompeo delivered a scathing press briefing on Thursday afternoon, assigning blame to Iran for the second maritime incident near the Strait of Hormuz in the space of month.
Brent eventually pared about half of its early gains (see visual). The bottom line is that between surging US stockpiles and fears of demand destruction tied to slowing global economic growth, even poignant visuals depicting ships ablaze in the Gulf aren’t enough to push prices sharply higher. Or at least not yet. “[The price reaction] remains constrained by high inventories”, Eurasia Group wrote in a note on Thursday.
The US would later distribute a video to back up claims that an Iranian boat removed an unexploded mine from the Kokuka Courageous, the Japanese-operated vessel involved in the incident. “At 4:10 p.m. local time an IRGC Gashti Class patrol boat approached the M/T Kokuka Courageous and was observed and recorded removing the unexploded limpet mine from the M/T Kokuka Courageous”, US Central Command spokesman Capt. Bill Urban said in statement.
This represents a pretty serious escalation, but as Eurasia Group wrote in the same note mentioned above, “the individual attacks appear to be carefully designed to avoid crossing a threshold that would demand US military intervention”.
Of course, Trump’s appetite for a military conflict is also tempered by concerns about the deleterious effects of rising crude prices on US consumers (especially at a time when tariffs could start to bite) and, perhaps even more importantly, campaign promises about keeping the country out of expensive foreign wars.
“While we expect the US administration to continue to declare its resolve in the face of Iranian aggression, we note that President Trump has consistently said he does not want to embroil his country in costly overseas operations”, BNP wrote last week, adding that Iran “will be unwilling to risk direct confrontation with the US, settling instead for tough rhetoric, moves by regional proxies and an incremental and defensive approach.”
At the same time, Trump’s economic pressure is obviously taking its toll. As BNP goes on to note, “since January, the rial has tumbled by about 60%, and the latest inflation print of 51.4% in April demonstrates clear pressure on household incomes and the cost of living.”
(BNP)
Pressure on Iran’s economy has been mounting for quite some time, and it’s possible Iranians will eventually blame the theocracy. “The steady deterioration in economic conditions might trigger unrest inside the country over the coming months, which we think has been vulnerable to an ‘Arab Spring’ of its own since 2009”, BNP goes on to suggest.
That said, it’s also possible that Trump’s zero tolerance policy will backfire by accidentally lending credence to the incessant drumbeat of conspiratorial anti-American rhetoric from Tehran’s hardliners. After all, Steve Mnuchin isn’t exactly the most convincing person in the world when it comes to reassuring an entire populace that an unhinged US president and his two hawkish foreign policy advisors aren’t aiming to punish everyday Iranians.
Read more:
Steve Mnuchin Pens Iran Sanctions Op-Ed, Swears Trump Not Trying To Impoverish Iranian Citizens
With Rial In Free Fall, Iran Readies Emergency Measures On Eve Of U.S. Sanctions
It doesn’t help that Trump has insisted on employing his signature bombast and showmanship whenever there’s an escalation or whenever he thinks it might garner some publicity. Indeed, one of the ironies of the Trump administration’s “tough on Iran” stance is that the fanfare has arguably strengthened the mythos around Quds commander Qassem Soleimani, an already legendary figure. Last year, he famously traded Game of Thrones memes with Trump.
(Twitter, Instagram)
Where this goes from here is anyone’s guess. Europe has been keen to play the role of mediator in the dispute, but the bloc’s efforts to establish a special purpose vehicle to evade US sanctions undermines the peacekeeping effort.
Late last month, Treasury’s undersecretary for terrorism and financial intelligence warned Instex (Europe’s vehicle for maintaining trade with Iran in defiance of Trump) that the SPV is exposed to US sanctions. As we’ve seen with Huawei and Hikvision, the Trump administration doesn’t differentiate between trade negotiations and other concerns (e.g., national security), which means it’s entirely possible that trade talks with Europe will get bogged down over NATO disputes and arguments about Brussels’ non-compliance with Iran sanctions. That won’t help defuse the situation between Washington and Tehran.
“Although our base case is one of persisting tensions but no escalation, we cannot rule out a material deterioration in US—Iran relations”, BNP cautioned last Wednesday. The bank went on to warn that “severe disruption to… oil-tanker movement through the Strait of Hormuz might trigger a joint US—Gulf response.”
As of Thursday, consider oil tanker movement “disrupted” – again.
