48 Hours to Crisis
Shockwaves of the strikes on Iran
Like you, I woke this morning to the US-Israeli strikes on Iran. My initial analysis, shared below in bullet points. Will be going deeper as the situation evolves and more information comes to light…
War has come to Asia with a bang… There are now two geographically back-to-back wars taking place: US-Iran, and Pakistan-Afghanistan. Last year, three wars took place over the summer. Now, in Q1, two conflicts have ignited. These are connected. The bonhomie between the US and Pakistan has given Islamabad carte blanche in certain respects. With the US occupied in Iran, Pakistan could double-down on strikes against the Taliban. Equally important is the potential activation of the Pakistan-Saudi Arabia mutual defense treaty after Iranian missiles hit Riyadh.
No coincidence that this has occurred on Friday night/Saturday morning, when global markets are closed. There is a clear “desensitization window” forming. By Monday, investors may not be as shell-shocked by the war in the Middle East compared to if the US and Israel struck Iran on Monday or next Wednesday. Of course, much depends on where the fighting goes next. Should Iran mine the Strait of Hormuz or strike regional energy sites, markets could be in crisis within the next 48 hours.
There is complete ambiguity as to when regime-change targets are met and the “situation” is handed over to the “people” (and how those who support the revolution are backed against those who do not). As Israel says there are “signs” that Ayatollah Khamenei is no more, within the coming days, Iran’s top leadership may be eliminated. After that, the focus turns on rogue commanders, less-known political leaders, remaining military branches (i.e,, navy), and the industrial base. Once these goals have been met, the US and Israel could pull back and tell protestors to take control of the nation. This is not guaranteed, and sets the stage for real civil strife. Already, massive pro-government protests are taking place throughout Iran.
The Iranian regime is on its last legs. This makes it the most dangerous kind of animal: wounded and cornered. Much of Iran’s rhetoric will now be tested: underground missile cities, the alleged thousands of ballistic missiles, stockpiles of Shahed drones, dozens if not hundreds of swarm attack boats (including civilian fishing vessels), and of course, cordoning off the Strait of Hormuz. Iranian leadership has to decide whether to use its “inventory” as the US and Israel seek to topple the regime, or hold-off and hope that de-escalatory moves and attrition allow the regime some kind of survival.
Once again, China and Russia watch from the sidelines as their “axis” falls apart. First Venezuela. Now Iran. For China, this is more critical, as around 15% of its crude oil comes from Iran (while Venezuela was around 4% or 5%). This shrinks the Beijing-Moscow club. Those “key allies” that China and Russia could depend on are disappearing, now limited to just North Korea. However, Beijing and Moscow may also exploit the situation. With the US eye fully on Iran for the next week or two, Russia could seize more land in Ukraine. Meanwhile, the US will want to ensure stability on other fronts, meaning China could demand greater concessions from the US in the runup to US President Donald Trump’s visit to China the end of March. Already, US customers are being turned away from critical metals as China refuses to reopen the taps, and the US still has not cleared any H200 chips from being sold to Chinese customers.
Global energy production is in a bind. This is not only about oil supplies. Consider that Iran produces around 3 million barrels of oil per day (bpd). In the scenario that 100% of this production goes offline, Saudi Arabia has spare capacity of anywhere from 1.8 million bpd to 2.9 million bpd, while the UAE has 1 million bpd spare capacity - meaning Riyadh and Abu Dhabi could pump out more oil if needed. The bigger worry is whether energy transit is disrupted. This is not just about the Strait of Hormuz. The Houthis could be activated, converting the Red Sea back into a battlefield. And the risk of another 2019 incident, where Houthis struck Saudi Arabian oil production, shuddering 50% of activity, remains high across the region.
For now, most nations are biting their tongue beyond issuing calls for deescalation or opposing the joint US-Israeli move against Iran. But, as the situation evolves, the Muslim-world in particular could demand a pause in hostilities or threaten action, specifically against Israel. They may view this, less as a crackdown on an “evil regime” and more as an extension of Gaza. The US has to once-again carefully balance its ties with Tel Aviv with its increasingly strategic relationships like Indonesia, Malaysia, Pakistan, or parts of Africa.
-Abishur Prakash aka “Mr. Geopolitics”
Mr. Geopolitics is the property of Abishur Prakash/The Geopolitical Business, Inc., and is protected under Canadian Copyright Law. This includes, but is not limited to: ideas, perspectives, expressions, concepts, etc. Any use of the insights, including sharing or interpretation, partly or wholly, requires explicit written permission.