War Games
It seems to me that everyone is looking at the Iran War as a reaction to the latest news, and not as a medium-term “game” where differing parties have various objectives and maneuvers available to them. For example, there is zero information content in a hostile-sounding Iran, because even if they wanted to “talk,” they have to “sound good” for the followers of the party currently in power. As another example, Trump always has the option to leave and claim a massive victory – even if this involves leaving a tattered Iran. We all listen to the news, but I don’t hear a lot of processing of the news. I present how I look at the US and Iran, from the perspective of goals and options.
But first the Week in News:
· Oil looks to be taking off (again). The million-dollar question for the yield curve will be, “how long will it last?” This is the main aspect of the War that Iran is in control of, as they can attack Hormuz as long as they want. Some discussion has occurred regarding the Treasury selling oil futures and/or releasing the SPR. However, WTI a year from now settled at <$72 six months from now. That is not a crazy-enough mispricing to start punting around in futures, IMO. And it wouldn’t surprise me if Trump is waiting for more visibility (and closer to the elections) to release oil from the SPR. I suppose the main take-away from this paragraph is that the markets expect oil prices to normalize in “months” rather than “years.”
· Trump had some candidates to be the new leader of Iran, but he killed them. #WileECoyoteMoment I don’t mind if something unexpected happened, but I am a little disturbed that we don’t have a stronger Plan B than “the people should rise up” and “we may arm Kurds.” I discuss some potential off-ramps in the main essay.
· Russia is apparently providing targeting information to the Iranians. I don’t think much will come of this, since we are providing targeting information to the Ukrainians. However, it does open up an escalation tail.
· We are seeing some minor signs of terrorism, whether it’s in Austin, NYC or Norway. These look mostly like isolated incidents, but a broader attack can’t be ruled out.
· The Fed speakers have all stated the obvious that both inflation and employment risks have increased, and that they may be on pause for the near term. It is interesting to note that in the EU and Canada the next move is priced to be a hike. The UK removed almost all eases and are pricing in a hike later. However, these countries all have inflation as their “primary” mandate, rather than the dual mandate of the US.
· The Employment Report got lost in the War headlines. This data was generally much weaker than expected. However, there was a revision to population estimates, a revision to the birth-death model, winter storms, and strikes. So it’s possible the data “may” be more noise than signal.
War Games
It should be obvious to all that Trump only had “Concepts of a Plan” when he started the War. The Concept was something similar to the Venezuela model, where the old leader was removed and we got a more amenable leader take their place. The Concept leads to four results: (1) a defanged Iran (no nukes and reduced military), (2) a presumably better situation for the people, (3) no permanent boots on the ground, and (4) a share of the booty. The main stated objective is to prevent Iran from developing a nuclear weapon. Other goals include the well-being of the Iranian population, removing a terrorism threat in the region and heavy restrictions on the manufacture and export of drones and other weapons. These are all “noble” goals. What is not talked about is the obvious goal of taking “20+%” of the proceeds from Iranian oil. We lift sanctions (that we imposed) and that creates the room for Iran to be just as well off as before while giving us our mob vig. Call it “protection,” “terrorism reparations,” “revolution reparations,” “military costs,” or whatever. Win-win. So not only do we need to find someone amenable to not restarting the nuclear program, we need an Ayatollah Delcy that will give us oil money.
As for the Iranian leadership, their goal is basically survival, without looking weak. It seems like they used up most of their heavy ammunition, but they still have drones and guerilla weaponry to attack shipping. I suppose revenge could be on their mind (eventually). But it’s unclear that should be a priority, when they are probably still trying to put out fires.
It should be blatantly obvious to anyone that Trump currently has no strong Plan B. He somewhat had a decent Plan A in that he had some leaders in mind to take over. I guess when all the leaders get together for a meeting and you decide to blow up their HQ, there’s going to be some collateral damage. So here are Trump’s options as I see them:
1) I am not removing the possibility that one or more of Trump’s “picks” are still alive, and the military convinced him to “act dumb,” so that the pick would be more readily accepted by the IRGC. It’s possible. However, given Trump’s insane penchant for bragging I find it improbable for him to shut his yapper for that long. So if this was the case, we will know about it soon, unless the military didn’t tell him.
2) Trump can play Whack a Mole with the new chosen Iranian heads, until he gets one that isn’t terrible. Allegedly Khamenei’s son is not agreeable. Junior’s entourage shouldn’t be that hard to find. They have an election this weekend. Let’s see if a new mole pops up.
3) There was chatter about arming Kurds. I always felt bad for those people – the way the borders were drawn have not been kind. Generalissimo Choi would take this idea one step further and offer land to Pakistan and Turkey if they want to send in troops. I mean Turkey probably controlled parts of Persia for centuries, and northern Iran has oil fields. Maybe we have Pakistan control Hormuz, under supervision of the “UN” so the world’s oil is never interrupted again. They can get some oil too. They both have unusually large armies. Who doesn’t want more land in this new age of imperialism? I mean if any of the Arab countries want in, why not? This could be an actual plan. I’ll leave it up to the lawyers to talk about the legality. But if what has transpired isn’t a major war crime already, I don’t know if lawyers matter. The beauty of this idea is that the mere mention of it will scare the crap out of the Iranians, as they do not have the resources to fight a war on three (or more) fronts – west, east and above. They are barely competent to fight a one-front war. It’s one thing to feel “safe” because you know there won’t be US boots on the ground. Good luck trying to hold off advancing armies with no air cover. It’s also hard to send drones to blow up tankers when you probably need them to fight off the multiple invasions! I suppose this is an application of that old mob tactic of threatening to cut off limbs until someone signs a favorable contract. People don’t think out of the box. Don’t mess with the Generalissimo.
