The Economic Risks From Trump's War Are Real and Growing

The Economic Implications of Trump's War

This is one of the best explanations I have seen for what is going on, and what might be coming down the road.

A war of regression: How Trump bombed the US into a worse position with Iran

Four weeks into a war that was going to take four days, and that has so far cost the US about $30-40bn and Israel $300m a day, Washington is further away from a diplomatic agreement with Iran than it was in May 2025.

Not only has the war failed to persuade Iran to agree to dismantle its nuclear programme in the comprehensive and irreversible way the US demanded in a 15-point paper that it tabled on 23 May last year, Washington is now having to negotiate to reopen the strait of Hormuz, a strategic waterway that has been open ever since the invention of the dhow, with a short exception of a tanker war in the 1980s between Iran and Iraq.

This regression is proving to be perplexing for the American high command. Pete Hegseth, the secretary of defence, recently said that “the only thing prohibiting transit in the strait right now is Iran shooting at shipping”, but this was not quite right. Iran has not been shooting at shipping that much in recent weeks. Instead, it is the fear of Iran shooting at shipping that is scaring off insurers and tanker owners.

Still worse from the US perspective, Iran has set up a waterside stall whereby prime ministers and tanker owners can bargain with the Iranian navy over the toll they are willing to pay for their tankers to be given “free passage”. Iran plans to turn the strait into a money spinner, just as Egypt charges for access to the Suez canal. By some calculations, given the massive scale of the traffic that passes through the strait each year, Iran could raise $80bn a year. If a law currently being rushed through the Iranian parliament passes, tankers carrying oil from favoured non-hostile nations such as India, Japan, Pakistan, South Korea and China will be waved through or offered cheaper rates.

Little wonder Trump is thrashing around. The US along with Israel continues to bomb Iran, but he has now twice put back the date of threatened strikes on Iran’s civilian power stations – an action that would constitute a war crime. He continues to insist Iran has been defeated and yet Iran continues to behave as if it is not.

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Underestimating the Potential Energy Shock

It is hard to decide which is the bigger disaster: the unfolding car crash in the global gas market or the mounting danger that entire countries will run out of oil.

The benchmark TTF contract for gas in Europe was €29 (£25) per megawatt-hour (MWh) in mid-February. Bank of America says it could reach €500 this winter if the Strait of Hormuz remains closed for 10 weeks, as it may well do.

That would blow through the record high seen after Russia’s invasion of Ukraine and amount to a full-blown economic emergency for Europe, the UK, Japan, South Korea and South Asia.

The picture is dramatically worse after Israel attacked Iran’s South Pars gas field, adding upstream gas and oil infrastructure to the menu of targets on both sides of the Gulf.

Iran’s missile retaliation on Qatar’s Ras Laffan has inflicted serious damage to the giant complex, which alone produces a fifth of the world’s liquefied natural gas (LNG).

It will be months before shipments start again. Qatar Energy says 17pc of production is lost for three to five years. It will have to declare force majeure on LNG supplies to Italy, Korea, China and Belgium.

It is just as bad for oil. The paper market that we all follow does not capture the drama. Physical deliveries are under far greater stress than Brent futures, at about $113, would suggest.

Actual barrels of the Dubai basket and Oman’s Murban are fetching close to $170 a barrel as Asian refiners scramble to buy anything they can. Jet fuel deliveries have hit $210 in Rotterdam and $240 in Singapore.

Kurt Barrow, the vice-president of oil at S&P Global Energy, says it may become physically impossible to obtain supplies. “If the Strait stays closed for two months, you’ll have plants without feedstock and we’ll get real rationing. We’ll have panic buying and hoarding,” he said.

“This is the largest supply disruption ever. Net, we’re around 15 million barrels a day (b/d) short in the market. Crude gets the headline but the actual impact is further downstream in refined products, diesel, jet, fuel or naphtha. There are 68 refineries in the war zone.”

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Oil Crashes -300%

The price of oil collapsed deep into negative territory for the first time in history today with persons holding oil contracts paying around $35 a barrel for someone to take it off their hands.Traders however were cautioning that this is likely at least in part a technical event and that, as battered as the oil market is, the true value of oil remains positive.

Oil Slump and Sanctions Are Hitting Russian Economy Hard

"...Russia is already in a perfect storm," said Lubomir Mitov, Moscow chief for the Institute of International Finance. "Rich Russians are converting as many roubles as they can into foreign currencies and storing the money in vaults. There is chronic capital flight of 4pc to 5pc of GDP each year but this is no longer covered by the current account surplus, and now sanctions have caused foreign capital to turn negative, too."

"The financing gap has reached 3pc of GDP, and they have to repay $150bn in principal to foreign creditors over the next 12 months. It will be very dangerous if reserves fall below $330bn," he said.

"The benign outcome is a return to the stagnation of the Brezhnev era [Застой in Russian] in the early 1980s, without a financial collapse. The bad outcome could be a lot worse," he said.

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BP Is Barred From Taking Government Contracts

WASHINGTON — The United States government has temporarily banned the British oil company BP from new federal contracts, citing the company’s “lack of business integrity.”

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Was Oil Manipulated Too?

Concerns are growing about the reliability of oil prices, after a report for the G20 found the market is wide open to “manipulation or distortion”.

Traders from banks, oil companies or hedge funds have an “incentive” to distort the market and are likely to try to report false prices, it said.

Politicians and fuel campaigners last night urged the Government to expand its inquiry into the Libor scandal to see whether oil prices have also been falsely pushed up.

They warned any efforts to rig the oil price would affect how much drivers pay at the pump, which soared to a record high of 137p per litre of unleaded earlier this year.

Robert Halfon, who led a group of 100 MPs calling for lower fuel prices, said the matter “needs to be looked at by the Bank of England urgently”.

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To Dodge US Sanctions; China Will Buy Iranian Oil With Gold

Beijing is planning to avoid U.S. financial sanctions on Iran by paying for oil with gold.  China’s imports of the metal are already large, and you can guess what additional purchases are going to do to prices.

On the last day of 2011, President Obama signed the National Defense Authorization Act for Fiscal Year 2012.  The NDAA, as it is called, attempts to reduce Iran’s revenue from the sale of petroleum by imposing sanctions on foreign financial institutions conducting transactions with Iranian financial institutions in connection with those sales.  This provision, which essentially cuts off sanctioned institutions from the U.S. financial system, takes effect on June 28.

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Iran halts oil shipments to Britain, France

Iran’s oil ministry said Sunday that it has cut off oil exports to France and Britain in what officials described as the first in a series of punitive measures targeting “hostile” European countries for supporting economic sanctions against the Islamic republic.

The mostly symbolic move appeared aimed at blunting the political impact within Iran of a European oil embargo set to begin in the summer. Iranian officials have sought to play down the loss of the country’s European customers, who collectively consume about 18 percent of Iran’s petroleum exports.

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Europe (sort of) bans Iranian oil imports

BRUSSELS — Europe banned the import of Iranian oil Monday and froze Europe-based assets of the Central Bank of Iran, intensifying an international campaign to choke Iran’s economy and force the radical Islamic government to dispel fears that it is working to develop nuclear weapons.

The ban, decided by foreign ministers of the 27-nation European Union, is a dramatic escalation of sanctions against Iran, joining with the United States to squeeze the oil earnings and financial transactions that the Tehran government depends on to sustain its citizens and finance its military. The British foreign secretary, William Hague, called the E.U. effort “unprecedented” and said it shows the resolve of European governments to prevent Iran from becoming a nuclear power.

But the decision also includes broad loopholes — including a six-month delay before it goes into effect — that soften its immediate practical impact. Existing contracts for Iranian oil can be respected until July 1, an announcement said, and the ban will come under review before May 1 to see if more flexibility is needed.

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Obama administration to reject Keystone pipeline

The Obama administration will announce this afternoon that it is rejecting a Canadian firm’s application for a permit to build and operate the Keystone XL pipeline, a massive project that would have stretched from Canada’s oil sands to refineries in Texas, according to people who have been briefed on the matter.

However, the administration will allow TransCanada to reapply after it develops an alternate route around the sensitive habitat of Nebraska’s Sandhills. Deputy Secretary of State William J. Burns will make the announcement, which comes in response to a congressionally mandated Feb. 21 deadline for action.

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Oil could hit $220 a barrel on Libya and Algeria fears, warns Nomura

Libya's descent into civil war has led to drastic cuts in oil shipments and prompted warnings that an escalation of the crisis could see Brent crude prices double to $220 a barrel.

Nomura's commodity team said oil prices risk vaulting to uncharted highs over coming weeks if chaos hits Algeria as well, reducing global spare capacity to the wafer-thin margins seen just before the first Gulf War.

On Wednesday, Brent crude rose more than 5pc to almost $112 a barrel, threatening levels that could derail the global economy. It closed at $111.25.

"We could see $220 a barrel should both Libya and Algeria halt oil production. We could be underestimating this as speculative activiites were largely not present in 1990-1991," said Michael Lo, the bank's oil strategist.

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