Escalation on escalation

The US returns to the sandbox

The US strikes have yet to prove their effectiveness regarding the stated goals; Iranian regime change and stopping the nuclear program. Boots on the ground might seem far-fetched at the moment, but it can’t be ruled out since the escalation began.

June 22 at around 5:30AM Tehran time, B2 bombers unleashed their GBU-57 MOP ‘Bunker Busters’ on the three Iranian nuclear sites in Fordow, Natanz and Esfahan.

DJT claimed “key nuclear enrichment facilities have been completely and totally obliterated.” in an address to the nation. This claim has come into question since.

The damage assessments have not been released as of writing. There is little to no evidence on satellite images to what extent damage was done to the facilities.

Iran had been busy with preparing the sites for potential US strikes days before the attack, details of this work are still unknown at the time of writing.

Market reaction

Oil’s back on the menu

Oil jumped up 4% in the first trading hours since the strikes, to 77$ a barrel. Regaining its highs from Trump’s inauguration and the Israeli strikes on western Iran on the 13th of June.

Iran’s parliament voted to allow the closure of the straight of Hormuz. 

Important to note is that the straight is not closed yet, the final decision rests with Ayatollah Ali Khamenei as he has the final say on this matter. But the market is already reacting to the news, not only in oil prices. Marinetraffic (https://www.marinetraffic.com/) shows an unusual low amount of tankers in the area and some supertankers already turning around to mitigate the risk of being targeted in any possible retaliation.

There already was an incident where two tankers collided last week in the straight of Hormuz, British security firm Ambrey told the press that the incident was not related to the situation between Israel and Iran. This claim is still debated about, as there is suspicion about GPS interference.

Benchmark freight premiums were already up 90% before the vote and strikes on Iran’s nuclear facilities. War risk insurance for freight shipping is sure to skyrocket again, just like when it rose after the attacks of the Red Sea shipping lanes started.

Any fiscal hawks worrying about inflation and growth are in for another worrying confirmation of the stagflationary effects this conflict will have on the global economy.

The Fed already mentioned the ongoing uncertainty in the middle-east as a reason not to cut rates. While also revising its inflation expectations up and GDP growth down.

Alone in a big big world

Iran stands alone, for now

Iran’s proxies and aligned nations have condemned the US strikes. Yet it hasn’t gone much further than that, just words.

This conflict seems like a blessing in disguise for nations like China and Russia. Thanks to the rising oil prices, Russia now gets more $/barrel it sells via its shadow fleet. Thus extending the lifeline it has in its fight against Ukraine.

Just like Russia, China does benefit from this distraction. It makes the US refocus resources on a different area in the world, far from the pacific theatre.

The USS Nimitz aircraft carrier group, one of only 2 in the pacific region, was relocated and en route to the middle-east while preparations for the strike were being made. Thus freeing up the area to more Chinese boldness around its sea claims in the South-China sea. Weakening the US allies that relied on American power to back them up.

Iran’s proxies, while warning they’d rejoin the fight on Iran’s side if the US intervened, have been awfully quiet. It is far from certain that they will do as they say, although they could also be waiting for a more favourable moment to strike. Proxies like Hezbollah in Lebanon have been devastated in the years following the Oct 7 attack.

The Houthis have vowed to reopen attacks on shipping in the Red Sea again, while this is mostly symbolic it shows that Iran does not stand fully alone and there are still groups willing to take up arms for their sponsors.

The US is not known for fighting effectively against these unconventional and guerilla-like fighters.

What’s next?

So what now?

DJT has warned against retaliation from Iran, as it would be met by even more force. Although, a path to de-escalation seems unlikely.

Many western nations are ushering Iran to de-escalate the situation and come back to the negotiation table. Whether this will happen is something completely different. Iran finds itself alone, their old nuclear treaty ripped up by the nation attacking them and vowing to retaliate.

Tel Aviv has been hit by more and more missiles since the strikes, and Israel is still bombing Iran’s western regions with full control of the airspace. A path to de-escalation seems very unlikely in the current situation, as Iran may see no other option than to keep on fighting in any capacity they still can.

How that will look like, or any side’s next step, is still uncertain at this point.

That’s it for this restart of Maric’s weekly.

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Stay safe,

Maric