President Trump seemed to hint at war with Iran on twitter on Sunday, in an all caps tweet directed at Iran’s president.
To Iranian President Rouhani: NEVER, EVER THREATEN THE UNITED STATES AGAIN OR YOU WILL SUFFER CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE. WE ARE NO LONGER A COUNTRY THAT WILL STAND FOR YOUR DEMENTED WORDS OF VIOLENCE & DEATH. BE CAUTIOUS!— Donald J. Trump (@realDonaldTrump) July 23, 2018
The tirade seemed to come in response to comments from Iranian president Hassan Rouhani, who warned the U.S. over the weekend not to block Iranian oil exports. Mainstream press carried one particular line from Rouhani’s comments, suggesting he threatened “the mother of all wars,” although the full sentence offered more nuance. “We’re not fighting or at war with any country, but the enemies have to clearly understand that war with Iran will be the mother of all wars and likewise peace with Iran is the mother of all peace,” Rouhani said.
Iranian officials are likely of the belief that the Trump administration is trying to lure them into a trap. Any provocation from Tehran could be used as a pretext for harsh action, up to and including war. Trump’s National Security Adviser John Bolton admitted as much in a statement on Monday. “I spoke to the President over the last several days, and President Trump told me that if Iran does anything at all to the negative, they will pay a price like few countries have ever paid before,” Bolton said.
Meanwhile, Secretary of State Mike Pompeo gave a speech on Sunday, accusing Iran’s leadership of deep corruption and once again offering support for Iran’s people, which appears to be a not-very-subtle attempt at fomenting unrest in Iran. Pompeo also announced plans to expand Farsi-language channels as part of the Voice of America in order to get around “fake news” inside Iran. Related: Ukraine’s Natural Gas Transit Woes May Be Easing
The confrontation and the exchange of threats carries echoes of Trump’s online verbal attacks against North Korea’s Kim Jong Un last year. The spat also comes as the Trump administration is trying to implement sanctions against Iran, warning other countries to dial back their purchases of Iranian oil.
There is a tension that the Trump administration is trying to grapple with: Trying to ratchet up the pressure by disrupting Iranian oil exports while also avoiding painful oil price spikes. To a large extent, those are mutually exclusive goals.
The oil market has seesawed back and forth as traders try to calculate how much of Iran’s 2.5 million barrels per day of oil exports will be knocked offline. Oil prices ticked up on Monday, but those gains were wiped out by midday, “reacting with amazing calm” as Commerzbank put it in a note. “The warning of Ayatollah Khamenei, the spiritual leader of Iran, that oil exports from the Gulf region would be blocked, also fell on deaf ears,” the bank said. Part of that is because fears about the fallout from the escalating U.S.-China trade war are offsetting some of the upward pressure from Iran.
But the collective shrug from the oil market also points to a skepticism from investors that the Trump administration has the stomach for war. For one, he threatened North Korea with “fire and fury” only to inexplicably hold a summit with Kim Jong Un, after which he declared victory and moved on. Related: India And China Could Mitigate Damage For Iran
Trump’s hawkish inner circle of Pompeo and Bolton always leaves open the possibility of an aggressive approach towards Iran. But the administration will be constrained by oil prices, even if their preferred position seems to be regime change in Iran (a position they deny). Knocking off 2.5 mb/d of Iranian oil exports would drive prices sharply up, something the administration wants to avoid, especially as midterm elections loom. National average retail gasoline prices are hovering around $3 per gallon, but war with Iran could easily add $1 or $2 to that figure. The domestic political nightmare of such a scenario is enough to keep even the hawks at bay.
If they want to disrupt that amount of oil, they probably won’t be able to do it all at once. The Trump administration is likely hoping to disrupt Iranian oil exports in stages, slowly tightening the screws while avoiding shocks to the global market. Also, the U.S. would have more room to maneuver towards the end of 2019 when more Permian production comes online after a series of pipelines are constructed.
All of that is to say that despite Trump’s belligerent tweet, he probably doesn’t have any interest in war anytime soon.
By Nick Cunningham of Oilprice.com
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"A thing said is not a thing done"
Potus banter about lowering oil prices is complete deception. Donald Trump is doing every thing possible to raise oil prices.
- Heavy Venezuela sanctions
- Threats of war with North Korea
- Abandoning the Iran nuclear deal without making a new one
- Threats of war with Iran
- Public berating of OPEC while sanctions have reduced more oil than anything
It's simply not true they want lower oil prices. They want oil over $70 and whenever it dips below just expect public demeanor to sour while so called corrupt media replay this game over and over.
The action is distraction.
"War makes strange bedfellows." - Helen Thomas
I figure oil prices will continue to rise and likely culminate in a spike eventually brought to earth by the FED induced recession. Then, if the banking system does not collapse for their being no bailouts, then comes the big swell in oil prices due to the lack of investment for discovery, production and distribution, all the while maritime sulfur emissions must be cut beginning in 2020, forcing ships to burn more efficiently and encroach on consumer gasoline and diesel prices after 2020.
The same logic applies to Trump’s empty threats against Iran. Though he is being prodded by Israel, Saudi Arabia and John Bolton to take military action against Iran, the United States doesn’t wish to get involved in a war it knows it can’t win short of using tactical nuclear weapons to destroy the country. Were a war to take place, the United States could say bye bye to its national interests in the whole Middle East whilst there would be an exodus of thousands of Israelis from populated centres in Israel in the face of Iranian missile barrage. For Saudi Arabia, it could suffer the destruction of some of its major oil installations including the huge oil-loading complex of Ras Tannura. The Americans should also take Iran’s threat of blocking the Strait of Hormuz seriously with the probability of oil prices rocketing beyond $130 a barrel at least for a short while.
And while Trumps escalating trade war with China is casting dark clouds over the global economy, China will not kowtow to President Trump and will always respond in a measured way. Moreover, China can easily sell the goods it is currently exporting to the US all over the globe. Therefore, the global demand for oil will continue unabated despite a concerted effort to dampen oil prices.
US sanctions on Iran are doomed to fail for two reasons. One is that the overwhelming majority of nations of the world including US allies and major buyers of Iranian crude are against the principle of US sanctions in general and particularly the sanctions on Iran. They resent the tendency of the United States to slap sanctions on any country with which it doesn’t see eye to eye. Another reason is the petro-yuan which has virtually nullified the effectiveness of US sanctions and also provided a viable alternative to bypass the petrodollar altogether.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London