Things getting out of hand: US miscalculations keep West Asia on the boil

The escalating US-Israel war with Iran deepens global uncertainty, disrupts energy supply chains, and exposes geopolitical fractures from NATO to Asia

If evidence were needed, the West Asian war, which is entering the fourth week, has proved that the United States (US) has miscalculated the outcome of its attack, along with Israel, on Iran — just as it did with the invasion of Iraq in 2003. Despite being bombed in different parts of its territory and suffering assassinations of leaders, Tehran has signalled its intent to fight a sustained asymmetric war. Over the weekend, Iran struck close to Israeli nuclear facilities in Dimona and fired two ballistic missiles in Diego Garcia, a US-United Kingdom military base in the Indian Ocean in retaliation for US-Israeli attacks on its Natanz uranium-enrichment plant. By expanding the theatre of war in unexpected directions and revealing Iran’s extended strike capabilities — potentially to European bases — Tehran has removed any credible off-ramp for US President Donald Trump. 

Now the US has threatened to attack Iranian power plants, forcing the rest of the world to grapple with adverse long-term consequences. With the objectives of the US and Israel clearly diverging, the prospect of an orderly conclusion appears remote. Dislocations in supply chains around the Straits and Iranian attacks on US allies have brought unprecedented disruption to the Gulf itself. Qatar, Iraq, Kuwait, and Bahrain have declared force majeure on energy exports, with Qatar declaring that it would take five years to revive its energy infrastructure. The region’s status as a hub for tourism and global capital flows has been hit in lasting ways as the threat of terror groups rising from the ashes of the conflict — as the Islamic State of Iraq and Syria (ISIS) did in Iraq — gains traction. Soaring prices of global oil and gas have forced the US to resort to transactional policy announcements to contain the fallout, such as lifting sanctions on Russian oil companies and permitting the purchase of sanctioned oil already on the high seas. The unintended consequence has been to deliver significant gains for Moscow because it augments fossil-fuel revenues to finance flailing efforts to conquer Ukraine. China’s ambitions for Taiwan have also gathered momentum, safe from the threat of US intervention. 

With the US’ military attention focused on the Gulf, Washington has shifted even more of the burden of support for Ukraine’s defence (against Russia) to nations of the North Atlantic Treaty Organization (Nato). The US’ Iranian adventure has widened the breach between Nato and the US, potentially weakening the alliance’s ability to resist an enriched Russia’s forays into Eastern Europe. Nato members stalled US requests to help secure the Straits. They have allied instead with Japan to issue a tepid statement expressing their readiness to contribute to “appropriate efforts” to ensure safe passage through the Straits. 

The war’s impact on global business is evident across financial markets, with almost every asset class and commodity showing the second-order effect of disruption in supply chains for crude oil. For India, the vulnerabilities are evident in the steadily weakening rupee and shortages of fuel and cooking gas, most of which is sourced from the Gulf. As a result, the Indian basket of crude oil has risen significantly higher in value than the global benchmark Brent crude. Impending state elections have restricted the government to raising pump prices only for premium fuel. With the world’s most powerful nation allying with West Asia’s most powerful nation in a war of destruction, more uncertainty, thus, remains the only certainty in the foreseeable future.