Musings on the Hormuz crisis

Decline of the USA

 One of the things that I learnt today is that the USA has this policy called the petrodollar. It means that oil is bought in US dollars. This creates an artificial demand for US dollars and keeps it high, and allows the USA to keep on printing money. This creates a commanding fiscal position for the USA and allows a lot of countries to be effectively paying the USA when they buy oil. This system is one of the reasons why the USA is such a powerful country in our world.

Saddam Hussein's Iraq triggered the war in 2003, because a few years earlier, he tried to take Iraq off the petrodollar system. The petrodollar is a more compelling explanation for the Iraq war compared to the weapons of mass destruction, or raiding Iraq for the war.

If and when Iran has instead cornered the supply of oil through the control of the Hormuz, it is a big blow to the petrodollar system. I think one of Saddam Hussein's mistakes was that he tried to switch his oil trade away from the dollar. If and when Iran gets to decide which ships pass through the Hormuz, they'll also be able to trade oil with countries on a bilateral basis, and bypass the petrodollar system.

Another reason is that the USA is the guarantor of security for shipments of oil. Other countries in the world sign up for the petrodollar because the USA is in charge of security. There are quite a few people out there who are quite happy to criticise the USA for all the blood spilled when you're securing the oil supplies, and yet they are the beneficiaries of this oil system, and would be yelling and screaming if the price of oil were to shoot through the roof, as it is doing now.

The end of the petrodollar will have a lot of consequences for the USA. The USA already paid a very high price for the preservation of the petrodollar. For Trump to squander that away because of a spectacularly stupid mistake would be a great shame. Maybe not a great shame for the Middle East but for the soon-to-be former allies of the USA.

Another reason why the USA always supports Israel is that Israel is the attack dog of the USA, and a partner in the oil security system, even though their interests are not perfectly aligned. For many many years, this has meant that Israel felt entitled to pick any fight they ever wanted to pick, without having to worry about the repercussions.

I see some people getting triggered at the prospect that the petrodollar system may be ending. But I think it is reasonable to say that this Iran thing has been a big blow to the petrodollar system.

The other repercussion of this Iran crisis is that the Israel Gaza conflict is brought even closer to home. Previously we could say that Israel Gaza is none of our business. This time, Southeast Asia is impacted by the Iran wars in 2 big ways. First, is that the stoppage of oil and fertiliser from the Persian Gulf is an oil shock for many countries in the region. Second, is that the balance of power will probably be tilted away from the USA to China as a result of this foolishness. And then this will spark a lot of talk about the US Israel crisis. 

A second Suez

Some ppl are comparing the Iran war to the Suez incident. I am very surprised that Bilahari Kausikan did not forsee what Iran was going to do, that he bought into the logic that the USA was necessarily going to defeat Iran. First, he underestimated how easily the Iran could strangle the Straits of Hormuz (this is a pretty basic error). And second, he thought that it would be easy to defeat Iran. It's NEVER easy to defeat Iran, as Iraq has already found out. Iran is mountainous, it has a tough terrain. And now Iran isn't just close to a nuclear bomb, but it is a military superpower where drones are concerned. Thirdly, it can screw over the metropolises of the Gulf pretty easily. 

The most consequential events in world history are also the most unexpected. In your personal life, your house could be set on fire. You could be the victim of homicide, or receive a life changing medical report.

The reason that he gave for the US to go in on Iran is simple: the US will simply have to project its strength in order to maintain its credibility. I agree with him on the part that the outcome of this episode will speak volumes for the credibility of the USA. But if you make a stupid mistake, you could lose a lot of credibility for the USA. I’m reminded of the boy who licked the lamppost in the movie “A Christmas Story”.

There were previous incidents, where Trump executed senior members of Iran’s leadership, when Iran and Israel fought a 12 day war. After each episode, Iran opted not to escalate. That, in hindsight, was practicality. Iran could not risk doing something crazy and stupid, because it knew that its situation was precarious.

But with the latest attack, even the anti-government protesters had to realise that the US and Israel was not their friend. Plus the senior ayatollah leadership had been decapitated. This prompted Iran to launch attacks on the Gulf states and the Straits of Hormuz. What changed this time was that Iran suddenly was in a situation where it had nothing left to lose. If Iran had nuclear weapons, they could have used these nuclear weapons.

Iran is a country that in many ways resembles Afghanistan. It is ruled by Muslim hardliners. It is mountainous. Both of them are infamously impervious to foreign invasion.

There are a few concepts in foreign policy that are pertinent to this incident. One of them is escalation dominance. Israel got used to the fact that whatever Palestine or Hezbollah did to Israel, Israel could enact a larger retribution on their enemies. But they didn’t know what to do with Iran, who holds 2 trump (pun intended) cards: Iran basically controls the straits of Hormuz – not now, but forever and ever. And Iran can extend its military power onto the Gulf States.

Previous US administrations realized that Iran had these trump cards, that it could play. But this particular one has a shaky grasp on reality.

The USA is being confronted with a sea change in international relations. Its unipolar moment is gone. That moment was basically squandered with the invasion of Iraq in 2003. That laid bare the extent of its power.

⦁ It weakened the will of the USA’s people to extend its military strength across the globe, and hampered the extent to which the federal govt can conduct military expeditions across the globe.
⦁ It weakened the fiscal position of the USA
⦁ It angered the Muslim world and caused a downturn in its relationship with its allies.
⦁ It distracted the US from building other components of national strength:
    ⦁ An industrial base
    ⦁ Supply chains
    ⦁ Trade relationships
⦁ It took the USA away from the pivot to East Asia and allowed China to come into that vacuum.

Some people are comparing the Iran Hormuz crisis to the Suez crisis. In 1956, the UK made a big blunder in that it had collaborated with the French and the Israelis to take the Suez. The USA forced the UK to back down. This showdown exposed the weakness of the UK and forced them to reckon with the reality that they had to give up their global empire. 

Also, the problem with Israel is that Israel may just talk you into doing dumb and stupid things. 

Saudi Arabia wants Iran to be defeated. Actually none of them want an Iran who will pull that crazy stuff on them. So in terms of screw ups, this one is so bad that:

Straits of Hormuz is blocked for nothing.

Infrastructure in the Gulf states is destroyed for nothing.

The cold war between the Gulf states and Iran has turned hot.