Does anybody know how to go about cleanly extricating oneself from a spiraling conflict in the Mideast? Asking for Donald Trump, who I imagine’s open to ideas.
The war with Iran’s about to enter its fourth week, the low-end of Trump’s original “four- to five-week” timeline. Technically, it’s still “on schedule,” I suppose.
As noted here on Thursday evening, this has actually gone quite well from a choreography perspective. In terms of targeting, the three-week joint air campaign by the US and Israel is a masterclass with just one tragic exception: The horrible bombing of an elementary school in Minab. (The school building’s on the same block as an IRGC outpost.)
If any of that sounds insensitive, this’ll sound even worse: Overall civilian casualties in Iran (i.e., forgetting the chaos in Lebanon) are pretty low for state-on-state conflict of this scope involving major countries.
Finally, and for all the “worst-case scenario” articles published both here and elsewhere, it’s hardly surprising that a month-long, gloves-off, military conflict with Iran resulted in sharply higher energy prices.
And yet, it feels like chaos. Because it is. That’s war for you. On some days, I read headlines (including my own) and wonder what the alternative might be. When you suggest, as I did above, that the war’s “spiraling out of control,” you imply it could be going better, and I’m not actually sure that’s the case here.
Even if the first-day strike on the leadership compound in Tehran — which eliminated Ali Khamenei and several members of his inner circle — had sparked a nationwide revolt that overwhelmed the security apparatus and occupied government buildings, what would you have today, three weeks on? Probably a civil war, if we’re honest. Certainly not a constitutional convention.
I say all of that not to downplay the inherent lunacy of this misadventure, nor to pretend that the last three months are any less surreal than they surely feel to most observers, but rather to point out that all things considered, SPX 6600, Brent $106 and VIX 25 hardly constitutes a “worst-case” in this particular context.
Indeed — and with the caveat that triple-digit crude’s never great — a ~6% equity pullback (~10% in Europe) and a 25-handle VIX isn’t a worst-case in any context.
Also, Trump’s antsy. He’s shifting blame, contradicting himself and otherwise talking from both sides of his mouth about the war. Of course, he does that all day, every day on every issue, but as an investor, you’d be remiss not to at least consider the possibility that we’re going to get an April 9, 2025, session at some point relatively soon.
The figure above, from BofA’s Michael Hartnett, shows you the effect the war’s having on Trump’s single-issue approval rating. At 39%, the RCP single-issue average for the economy is a new second-term low.
As I said Thursday in a comment reply, I don’t think Trump cares what anyone thinks, and “anyone” includes voters. But the only thing shorter than his temper is his attention span. Trump loses interest quickly, he doesn’t care about democracy in Iran and he’s said repeatedly over the last 10 days that there’s basically nothing left militarily for the US to bomb.
Boots on the ground in Iran (other than elite commando boots) is a non-starter even for a completely shameless president willing to sell out his base and adopt policies antithetical to his campaign promises.
If there’s anything Americans are more averse to than inflation, it’s the notion of Marines in Iran. And if this war goes on for, say, six more months, Trump could end up saddled with both of those liabilities headed into the mid-terms.
I don’t see that, especially not when there’s a very plausible — I’d even call it mostly accurate — case to be made that the US military has done everything it can do in Iran without putting troops in the country, and without risking more incidents like the above-mentioned school bombing.
On Thursday, Benjamin Netanyahu claimed Iran’s capacity to enrich uranium and manufacture ballistic missiles is for all intents and purposes destroyed. Maybe that’s true, maybe it isn’t, but it’s an “out” for Trump.
I wouldn’t be surprised (at all) if Trump were to claim, at some point over the next two weeks, that major combat operations are over, that all major goals were accomplished and that an agreement’s been reached on safe passage through the Strait.
Obviously, I could be wrong. But forgetting what anyone else wants, I don’t think Trump wants this to go on forever. And that’s what really counts at a time when the course of history unfortunately pivots around the every whim of a mercurial narcissist.
Today I see chatter about putting US troops on Kharg Island. Mmmm…. is that being pushed as a way to strangle Iran’s energy exports without physically destroying the oil fields? In theory, it’s not a bad chip.
Would declaring it ‘over’ open the Strait? I’m not sure it would. Minimally, it seems like high gas prices are going to linger through the summer and that might mean grumpy voters in November.
Or maybe that’s just wishful thinking. Nothing seems to become a real world negative for the guy.
The overarching point is: Everyone (including me) said almost exactly the same kind of things about the tariffs that they’re saying now about the war vis-à-vis markets. “Oh it’s the end of the world,” “he’ll never get out of this,” and so on. Then stocks made three-dozen new ATHs from late June to October. I’m not saying that’s going to happen here, but we have a tendency with Trump to declare that he’s ushered in the end times, and then when the end times don’t come, we pretend we didn’t say that (or “forget” that we did). I know I’ve done that. The difference between me and the mainstream media is that I admit it later.
The original Liberation Day tariffs would have wrecked the economy, it seems like it’s the TACO effect that always saves him in instances that someone viewed as more resolute would see greater impacts from their miscalculations.
Yeah, but I mean look: That still sounds a lot like an excuse for not trading it properly (I don’t mean you, personally, didn’t trade it properly, I’m speaking in generalities here). I’m not trying to be abrasive, and God knows I’m not defending Trump, but the fact is, consensus is often wrong about him and the outcomes of his decisions. Venezuela’s just the latest example. If you go back and read the Foreign Affairs articles published in the lead-up to January, you’ll discover that not a single expert — not one analyst, not one regional specialist, not even people who live there — “knew” more about what would happen in the event Trump deposed Maduro than Trump did. Of course, Trump didn’t know anything, but time and again that seems to be his greatest asset. It’s like he continually (and accidentally) discovers and applies Socrates’s “wisest man” introspection, but in the most ironic possible way: Trump’s a guy who thinks he knows everything, but in fact knows almost nothing, and in acting not just on incomplete information, but in some cases on no information at all, happens into unexpectedly decent (or at least not worst-case) outcomes relative to what experts predict. I think that’s a function of expert hubris. Outside of the most acute mental disorders, “crazy” is subjective and relative. Why didn’t we just drop the SEALs into Baghdad, kidnap Saddam, and leave with him? “Because that’s crazy!” Ok, but we ended up kidnapping him anyway, it just took forever and we had to find him in a hole. Again, I just think we need to recognize that there’s no “right” or “wrong” way to go about doing things. Anything(s). There are customs and there’s tradition and there are people who will tell you that they know the “right” and “wrong” way to go about stuff, but at the end of the day, it’s all a crapshoot. There are just too many factors to incorporate for anyone to say, ahead of time, “this is absolutely, definitely, 100%, not going to work” when it comes to something like global tariffs, or kidnapping a Maduro or launching a sky war against Iran. When you think about it — and much as it pains me to admit this — the sheer number of variables involved in determining how those kinds of decisions will ultimately pan out pretty much means no one’s any better informed than anybody else, regardless of experience.
Think about it this way. For all we knew, there was some middle-ranking IRGC commander with delusions of grandeur just waiting on an opportunity to declare himself “His Excellency President for Life, Lord of All the Beasts of the Earth and Fishes of the Seas and Commander of the Persian Empire,” Idi Amin-style, with enough buy-in to make it happen in a power vacuum. On the other hand, Kim might’ve taught Khamenei how to make a crude nuke that was stored at some site we’d never heard of just waiting to be deployed in the event of a US attack. In the former scenario, Trump would’ve looked every bit like the genius he claims to be. In the latter scenario, Tel Aviv wouldn’t exist today. Point is: Nobody really knows much of anything, about anything. Experts are wrong more often than they’re right, not because they don’t know as much as it’s possible to know, but rather because it’s impossible to know as much as you need to.
Trump absolutely suffers from the Dunning-Kreuger effect or, as an Adam Grant describes it, he lives on Mt. Stupid. For those uninitiated, Dunning-Kreuger discovered that the less experience someone has with a subject, the more of an expert they feel like they are. This can be seen in every Fox News watcher running around parroting talking points their favorite talking head told them to say about a subject they are completely unfamiliar with.
The fact that none of these things have turned out to be catastrophic is likely a factor of the short time horizon we’ve been on since he took office. There is also the likelihood of his terrible decisions compounding one another to generate an even greater catastrophe. ie. Invading Iran destabilizes the energy market which drives up all costs which are then further compounded by tariffs and then looming job losses in an economy where Trump policies benefit Capital against Labor which is further compounded by the lack of availability of Obamacare and so on. And this is all assuming that a destabilized Iran won’t continuously create chaos in the Middle East forcing the US Military to constantly intervene over the coming half decade until we end up in WW3 with Russia invading more of Eastern Europe, China invading Taiwan, North Korea invading South Korea, India and Pakistan coming to blows, etc.
I say all of that to say, it is less likely that he will continue to not create a global meltdown than it is that each of these events has further emboldened him to take more risks than he already has.
Incredible thread, thank you.
“Of course, Trump didn’t know anything, but time and again that seems to be his greatest asset.”
That sounds like we might be living in a sequel of the Forrest Gump movie. Forrest Goes To Washington – now it all makes sense. I’m looking forward to the scene where Captain Dan Hegseth gets shot in the butt.
I don’t disagree with any of this – God knows I (among many others) have underestimated him. Just his true believers out there overestimate him. I know very little about Venezuela, but it seems he’s been very lucky there (so far). Having spent 40 years engaged with the Middle East in various capacities, I know just enough to be aware that I don’t know jack and shouldn’t be too sure about myself. There’s this thing called luck, karma, or Kismet. Trump’s had a hot hand so far with Iran (Solimani, etc), but this time he may have punched the tar baby. There is a certain point where having brains or common sense helps and he hasn’t got any.
but tariffs did end badly, they were ruled illegal and now millions of Americans have been robbed with basically no recourse! As far as Iran, sounds like the plans have been laid to put boots on the ground from reports out today. Marines have been on the way for days with reports of those numbers being doubled.
Yeah, the point Walt is making is, up to this juncture, his reckless and impulsive moves have all resulted in far more benign consequences than you would reasonably think.
The Navy vs Houthis contest in the Red Sea suggests the US cannot forcibly open the SoH by airstrikes alone, at least not soon, which may be why two MEUs are en route with the second still two to three weeks away (how’s that for planning). Assuming Trump cannot declare victory with the SoH closed or under Iranian control, then his TACO must be served up by the IRGC.
The IRGC’s conditions for peace are unclear (to me anyway). Sketchy reports have them demanding reparations, removal of US bases, security guarantees, and an Iranian role in controlling the Straits. That doesn’t sound like an edible TACO.
The IRGC must, I’d guess, be feeling emboldened by yesterday. US and Israel strike Iran’s South Pars as a message that Iran must open the SoH, Iran strikes Qatar’s Ras Laffen, and Israel quickly promises not to hit Iran’s gas again, no mention of the SoH still being closed.
As long as I’m speculating about what the IRGC thinks, I’ll guess they would love to see two MEUs of Marines land. By drawing the US into a ground war, Iran would finally be able to inflict large numbers of US casualties, and two battalions cannot control much of a 1500 mile coastline, almost all of which is in missile range of tankers in the SoH or going to or from the SoH.
Netanyahu’s comments yesterday were intriguing. “It is often said that you can’t do revolutions from the air.” “That is true,” “There has to be a ground component as well. There are many possibilities for this ground component and I take the liberty of not sharing (those) with you.” (as reported by SCMP). Is he hinting at an insurrection or an incursion?
“I also see this war ending a lot faster than people think.”
In other words: Israel had better get on with it before they have to change course again mid-air… Let’s hope that’s the case.
More marines, taking Kharg, and creating a critical amount of resultant economic damage seems like the minimal actions and associated timeframe necessary here. That’s ugly. Regime change is still necessary to get the “on-the-ground, in-your-face” access that will be needed to root out the nuclear program, extract all the ingredients, and ensure it can’t all be restarted. That’s even uglier.
I still can’t believe the US military bought into an obviously inadequate strategy of simply blowing stuff up and hoping that nothing would be left afterward but a peaceful, free, and democratic Iran. If trump turning this around on a crapshoot basis is what Americans are now collectively basing our hopes on, I’d have to question just how many sigmas it will take to find an outlier “success” scenario in that chart.
Reports I read said the military warned Iran would close SoH and otherwise enlarge the war, but Trump had a “feeling” the regime would quickly crumble and went with it.
I guess the question boils down to feb 2020 or liberation day?
Last I read there are well over 8 billion people in the world. All of these are individuals who can each act as they please. While some of their actions will be somewhat predictable, most will not be. Eight billion people acting independently have the power to create infinite chaos. The same stats that support that conclusion also support the daily chaos in asset markets. Add in the fact that the person we (barely) chose to lead us to our doom is a mental child who can be led anywhere by anyone who tells him he’s wonderful and the best and biggest thing around, who will initiate the end of our version of civilization which will no longer exist at the end of this century. Trump is most surely a cancer that has metastasized and will soon occupy and destroy all our organs. We’re the ones with a need for a moderate junta that will sadly never come.
I will say, I don’t think the Kharg invasion idea is a good one. That has the potential to get a bunch of Marines killed, and it just sounds like something that might go down in the annals of US military history as a debacle. You know? Like, generations from now they’ll say, “Yeah, that sounds good in theory, but remember Kharg Island.”
The other thing is, are there not enough Green Berets, Rangers, SEALs, contractors and so on for this if we’re going to do it? Once you commit the “regular” Marines you’re kinda “out there” with it. The media’s going to be all over that, every death will be national news, and just on and on. It seems like if you’re going to do this, you try it with special operators first. Because if you commit the Marines, you’ve basically already invaded.
I don’t see the point of taking Kargh. If the US wants to shut off the terminal with minimum damage, just hit the docks to sever the lines, or hit the power generation station. The Marines may do more damage invading if strongly opposed. 10K people live on Kargh, presumably plenty of IRGC included? Afterwards, is a battalion of Marines just going to sit there getting droned? While who does the rest of the ground work? I see the photo-op appeal of US Marines standing on Kargh but it doesn’t make sense. Maybe we can just AI them in.
John – it might be a BUSINESS decision. If the IDF and the US destroy the oilfields what would be left for Jarod and MBS to take over? But if US soldiers can choke Iran’s exports while leaving the oil and natgas infrastructure intact, it would open up some awesome business opportunities for the pair.
Ah right, I forgot the real aims.
From today’s media parade:
“Israel’s ambassador to Washington, Yechiel Leiter, cautioned against an all-out attack like the one Trump threatened. “We want to leave everything in the country intact, so that the people who come after this regime are going to be able to rebuild and reconstitute,” he told CNN’s ”State of the Union.”
We can guess who “those people come after this regime” are.
My bet is on Iran keeping the Strait closed until the other Gulf nations agree to rescind their agreements that allow the US to maintain bases in their respective countries.
On cue:
*TRUMP’S TEAM BEGAN TALKING ON HOW PEACE TALKS WOULD LOOK
*KUSHNER, WITKOFF INVOLVED IN TALKS ON POTENTIAL DIPLOMACY
*ANY DEAL TO END WAR WOULD INCLUDE REOPENING HORMUZ