The price of a barrel of crude oil surged past the $100 mark as the situation in the Middle East escalated further. A small price to pay, according to the president of the United States. Yet I suspect Trump is taking too narrow a view of the true cost of this new military intervention – if he is even considering those costs at all.
I regularly think I can discern some kind of strategy in Trump’s actions. Whether that strategy is always particularly clever is another debate, but when it comes to developments in Iran I do wonder what the overarching objective actually is.
Naturally, that objective will be framed as the need to prevent Iran from becoming a nuclear power. In any case, under the new national security strategy it does not take much to be labelled a threat by the United States.
That said, the optimistic rhetoric we once heard about how Iranians might finally reclaim their own country has been absent for some time now. Not least because those same Iranians have now spent nearly two weeks hoping that no stray missile will land in their neighborhood. It is difficult to ‘rise up’ and ‘fight for your rights’ when drones are constantly flying overhead.
A high price
The aim here is not to weigh the merits or futility of this war. My focus is Trump’s remark that a higher oil price is a small price to pay. In my view, that is short-sighted. For Americans, that may be true, although they will ultimately pay for the war at the gas pump – something that rarely plays well in elections. Globally, however, the picture is very different. For the rest of the world, the price is anything but small.
To understand this, you need to take a step back and consider what all the energy that passes through the Strait of Hormuz is used for. One important example that receives little attention is nitrogen-based fertilizers, which require large amounts of natural gas. Natural gas accounts for as much as 90 percent of the production costs of these fertilizers.
You can probably guess what that means. The longer the Strait of Hormuz remains fully or partially closed, the more fertilizer prices will rise, with higher food prices as the result. And that is precisely what you do not want. Many revolutions and wars have been triggered by food prices spiraling out of control.
If the oil price rises by 30 percent – as is the case at the time of writing – food prices tend to increase with some delay by around 4 to 5 percent. If the oil price climbs back above $110 in a conflict that lasts longer than expected, food prices could eventually rise by about 10 percent. That would hit precisely the part of the global population that can least afford it. From both a humanitarian and a geopolitical perspective, that should not be something Trump wants.
A way out
The United States and Trump now find themselves in an awkward – and probably partly unforeseen – dilemma. Israel is using the situation to eliminate as many hostile targets as possible, while the American president is facing pressure at home to end this war as quickly as possible.
That becomes much easier if it can be argued that the current regime has definitively fallen and that Iran, under a different political wind, can begin rebuilding. So yes, I do have my doubts, and I hope that despite everything Trump will bring this conflict to an end soon. The price of this war is somewhat less favorable than Donald makes it out to be – and paradoxically it could become the ‘fuel’ for future conflicts.
Jeroen Blokland analyzes striking and current charts on the financial markets and macroeconomy. He is also manager of the Blokland Smart Multi-Asset Fund, a fund that invests in stocks, gold, and bitcoin.