All bets are off on Iran war as the old normal looks unlikely to return

Everybody is asking about the war in Iran: How long will it last? Equally important is the question: How will it end?

 

We don’t have definitive answers yet. What we do know is that the answers the United States and Israel had when they initiated the conflict two weeks ago have turned out to be patently incorrect.

 

President Donald Trump has not got the quick, decisive victory he wanted. The Iranian government has not imploded following the killing of its Supreme Leader and around 40 senior leaders. The people of Iran have not risen in revolt. The Iranian leadership is in no mood to give Mr Trump the “unconditional surrender” he has demanded.

 

Even on the strictly military dimension, the war has not turned out as the US and Israel had expected. On March 7, a week into the war, Karoline Leavitt , White House spokesperson, made an astonishing statement. Ms Leavitt told reporters that the US was “on track to achieve air superiority and control over Iran’s airspace.”

 

The statement was astonishing because we had all been led to believe much earlier that Iranian air defences had been wiped out. That American and Israeli aircraft were dropping missiles and bombs at will from the skies over Iran. Two days before Ms Leavitt made her statement, Israel’s Army Chief of Staff Lt Gen Eyal Zamir had announced that 80 per cent of Iran’s air defences had been destroyed and Israel had achieved “almost complete air superiority over Iran”.

 

Larry Johnson, a former Marine officer whose blog on military matters is widely followed, provides an insight into what’s going on. He says that the US and Israeli planes are flying close to Iran’s western border and delivering missiles with a range of anywhere between 370 km and 980 km. That is not quite the same as having dominance of Iran’s skies.  It is one reason why the war is stretching out longer than thought.

 

It is hard to tell how long the war will go on because we lack clarity about America’s objectives. President Trump and his colleagues have cited different objectives at different times. Eliminating Iran’s nuclear weapons (already “obliterated” last June). Crippling Iran’s ballistic missile capability. Ending Iran’s support for proxies in West Asia. Liberating the people of Iran from a theocratic regime. Regime change, which could mean a set of leaders (even if theocratic) that are kinder to the US and Israel. Any combination of these objectives will take longer than the four to six weeks that most analysts have been talking about.

 

Neither Israel nor Iran favours a quick end to the war. Israel wishes to continue its bombing campaign until Iran’s military and industrial infrastructure are degraded to a point where it ceases to pose a threat to Israel. Iran, for its part, has learnt from its experience in the 12-day war of last June. Any ceasefire, it believes, will only be a prelude to another attack on itself. It is determined to convey that any attack on Iran will impose heavy costs on Israel, the US, America’s allies in the Gulf — and on the world at large. Imposing those costs will take more than the two weeks that have elapsed.

 

The price of Brent crude rose to no more than $85 until March 6.  Analysts judged that the conflict would be limited to four to six weeks. They were confounded when the price of oil rose to $108 by March 8. They now judged that the markets were pricing in a war longer than four to six weeks. There is a world of difference between an oil price of $80 and an oil price of $100. The former is an annoyance. The latter constitutes a serious disruption to the global economy.

 

As widely reported, about 20 per cent of the world’s oil and liquefied natural gas (LNG) passes through the Strait of Hormuz. The leap from $80 to over $100 per barrel of oil happened after Iran announced that it would attack any ship that passed through the Strait. The threat has been hugely successful. The Centre for Strategic and International Studies in Washington estimates that, based on ship-tracking data that is publicly available, the daily average of vessels transiting the Strait has fallen from 153 to 13. That is more than a 90 per cent drop in sea traffic.

 

Oil that is produced and cannot pass through the Strait of Hormuz has to be stocked. The oil producers are close to their storage capacity. Saudi Arabia and other oil producers have, therefore, responded with cuts in oil production.  Some of the oil passes through pipelines on land. Iran’s missiles are trained on them. The oil refineries themselves have been attacked. Brent crude’s price briefly leapt up to $120 a barrel at one point. That reflected the perception that the entire energy infrastructure is at risk in the next step up the escalation ladder.

 

President Trump has indicated twice in recent days that the war will be shorter than most people fear.  On March 9, Mr Trump told reporters that the Iran war would end “very soon”. He said that Iran’s air force, navy and communications had been destroyed and that the war was “very complete, pretty much”. Oil prices tumbled promptly to below $90 per barrel in the belief that an early exit for the US was on and normalcy would soon return. They have risen back to $100.

 

How the war ends is as important as when the war ends. On present indications, the war is unlikely to end on America’s terms.

 

Iran’s regime will not have fallen and the character of its leadership will not have changed. The reopening of the Strait of Hormuz will not happen quickly.  The restoration of insurance for ships passing through the Strait will take time and the premia will be higher than in the past, given the changed perception of risk. The resumption of normal output of oil at refineries that have shut down will be a long-drawn-out affair. The Gulf countries that have sought to diversify away from oil into tourism and finance will be adversely impacted in a situation in which the Iranian government is intact. In short, the ending of the conflict will not mean the old normal will be restored in a short time; in some respects, it will not be restored at all.

 

The war in Iran may end in four to six weeks. Or it may stretch out longer. Because the war will not end on America’s terms, the damage to the world economy will not be insubstantial in either scenario.

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