What is the global impact of a US-Iran war? From rising oil prices, to regional catastrophe, every outcome looks bleak

If Washington declares a war on Tehran in support of its ally, the Saudis, the repercussions could be devastating. Here is a look at how a war will affect the Middle East in terms of security, diplomacy, oil trade and most importantly, Donald Trump's re-election prospects.


                            What is the global impact of a US-Iran war? From rising oil prices, to regional catastrophe, every outcome looks bleak

The international community has anxiously monitored the developments in the Middle East after two key oil installations in Saudi Arabia -- Abqaiq and Khurais -- were attacked on Saturday, September 14. The strikes disrupted five per cent of the global oil supply and cut output by 5.7 million barrels a day. Oil prices jumped to as much as 20 per cent, the largest in a single day since the 1991 Gulf War, and although President Donald Trump authorized use of oil from the US’ emergency supply to manage the situation, the impact was still felt across the world.

Politically, too, the attacks had a big repercussion. Though the Houthi rebels in Yemen, backed by Iran, claimed responsibility for the strikes, Tehran has came under suspicion for orchestrating the attacks. Trump was less certain in his assumption as to who carried out the strikes but his Secretary of State Mike Pompeo said confidently that the attacks were not launched in Yemen. The president, too, started believing a day later that Iran – the No.1 enemy of the Saudis – looked to be the culprit.

However, although Trump initially said that the US was “locked and loaded” and was waiting to hear from the Saudis about ‘who’ and ‘how’ to go about retaliation, he backtracked later to say that America doesn’t want to go to war.

 



 

 



 


But the attacks could stll reverberate and lead to a serious repercussions all over the world? Here we look at the ways it may impact.

How will it affect Middle East security?

Although Saudi-US relations form the cornerstones of Washington’s Middle East policy, going forward with any military offensive against Iran would lead to serious repercussions and can see things spiral out of control in the region. The problem with the Aramco attacks in Saudi Arabia is that nobody has any clear idea about ‘Whodunnit’ and this leaves a lot of grey areas that could see more nations getting involved and complicate the security situation even more. Since speculation is rife that the attacks had taken place either from Yemen or Iraq (by elements linked with Iran), there is ample possibility of these countries also getting involved in a regional conflagration.

U.S. President Donald Trump (R) meets with Mohammed bin Salman, Deputy Crown Prince and Minister of Defense of the Kingdom of Saudi Arabia, in the Oval Office at the White House, March 14, 2017 in Washington, DC.

 

Moreover, Iran also has friends in Turkey and Russia while the Chinese will not let pass an opportunity to oppose the US if it decides to declare a proxy or direct war on Iran. That will leave very little room for the US to maneuver, and the weariness of the Iraq war still weighs heavily on the American public. An American attack on Iran may also boost other non-state actors that play a big role in regional politics, resulting in a rise in terror activity.

Will America's Allies back a war against Iran?

In an already volatile region where a spark can lead to a wildfire, an American war on Iran would be fatal for not just regional but world peace. The Arab world is less homogenous a place today with several regional rivalries, terror threats and the Israel question dominating its politics. An American intrusion siding with Saudi Arabia when the problems in Iraq and Syria are far from over will endanger regional security.

Top American officials like Pompeo and Secretary of Defense Mark T Esper have said the US is working with its partners but it is unlikely that even Washington’s most trusted allies will join the war party as they did in the past during the First Gulf War. A number of leading European powers (mainy France and Germany) are still trying to save the Iran nuclear deal (Joint Comprehensive Plan of Action or JCPOA) that the US left last year. Tehran has expressed its frustration with European nations for not being able to help it evade America’s economic sanctions and has threatened to walk away from the deal. Under these circumstances, it is less likely that the US will find an easy and willing ally to attack Iran, although with Boris Johnson calling the shots in the UK, it could rely heavily on the 'special relationship' to bolster support for any military initiative.



 

 



 

 

Experts have also expressed pessimism over America’s plan of creating a maritime coalition in the Persian Gulf. Hisae Nakanishi, a professor of International Relations of the Middle East at Doshisha University, Kyoto, Japan, feels Washington’s efforts towards such an arrangement is “unwise and even not feasible”.

“The U.S. hopes to encircle Iran by the cooperation with those states which the U.S. considers its allies in the Middle East and by pressuring Iran. I consider this U.S. move unwise and even not feasible. So far, a limited number of states have joined the coalition and many other states are prudent not easily expressing their desire to join,” Nakanishi was quoted as saying by the Tehran Times in an exclusive interview.

Suspecting that Trump is looking to fuel tensions in the Gulf to garner electoral support at home ahead of the 2020 presidential elections, Nakanishi praised countries like Japan and Germany for not blindly trusting America’s assessment of the volatile situation in the Middle East after the recent series of attacks on tankers near Iranian territory. Even the UK, which is considered among the US’s most loyalists, decided to make its own assessment after the attacks on the tankers. The British foreign secretary, Dominic Raab, said it was not clear who was behind the attacks in Saudi Arabia even while calling the act a “wanton violation of international law”. 

What role will Israel play in a war with Iran?

Israel’s perennially rocky relationship with Iran and growing rapport with the Saudis makes it a key cog in the Washington-Riyadh alliance. Prime Minister Benjamin Netanyahu, who faced a crucial election, told the country’s Army Radio that his country is prepared for the possibility of getting drawn into any kind of US-Iranian confrontation in the wake of the attacks. “I am taking care of our security on a 360-degree basis, and I can tell you that we are well-prepared," Netanyahu was quoted as saying when asked whether Iran might try to provoke Israel in the prevailing tension.

(L-R) U.S. President Donald Trump and Prime Minister of Israel Benjamin Netanyahu shake hands while walking through the colonnade prior to an Oval Office meeting at the White House March 25, 2019 in Washington, DC. 

 

Israel will in fact be one of the few parties that would gain from the war. On one hand, Washington will rely heavily on its capacity to hit Iran and secondly, it will also give Israel a golden opportunity to settle scores with Iran and Hezbollah whose increasing militarization has threatened Israel’s borders.

What role will Russia and China play in a US-led attack on Iran?

After America’s slog in Afghanistan and Iraq, Washington has showed less interest in getting involved in a military conflict abroad. Barack Obama did not opt for regime change in Syria and Trump is even more reluctant to undertake military adventures abroad after slamming past US presidents who did. This strategic American step-back has seen its strategic and political adversaries like Russia and China try to fill the vacuum in whatever capacity they can. It is not surprising to see the way Moscow and Beijing have responded to the Saudi oil attacks in a manner more about maintaining a balance between Riyadh and Tehran. Russia has offered to sell the same weapons system to the Saudis as it did to Iran after the oil attacks as an alternative to the US defense system that failed to prevent them.

China, on the other hand, had a cautious reaction saying it was not fair to blame anybody (read Iran) without having all the facts. Clearly, the Russians and Chinese were catering to American discomfort with Iran -- militarily and diplomatically. A US attack on Iran will help Russia and China make major gains in the Middle East in terms of diplomacy, geo-politics and geo-economics (oil).

What will be the impact on oil prices?

The biggest casualty of a war with Iran will be the oil sector. The prospect of a military conflagration in the Middle East has already prompted international benchmark Brent crude to climb around five per cent last week while US West Texas Intermediate has seen a jump by more than 10 per cent. The oil sector has already seen turbulence after the US pulled out of the Iran deal in May 2018 and rising restrictions on Iran’s oil supply have disrupted the geo-economics. 
 
In a report, CNBC cited energy analysts saying that oil traders are unprepared to tackle a US-Iran clash as the Trump administration gets ready to impose major new sanctions on the Middle Eastern Islamlic Republic. In between America’s withdrawal from the Iran deal and the Saudi attacks, a number of oil tankers and a US surveillance drone have been attacked in or near the Straits of Hormuz -- the world’s busiest transit lane for oil trade and within the reach of the Iranian regime. Trump had approved military retaliation against Iran after its drone was shot down but backtracked at the last minute.

David Hewitt, an energy specialist at Macquarie, told CNBC’s ‘Street Signs Europe’ on Monday, September 16, that oil traders were still taking the impact of another US-Iran flare-up lightly. 

“If we go to more sanctions today… You would expect that they will react more. So, back to the geopolitical pricing in crude, you have got to think that there is a greater potential for something to happen at some point in the future be it this week or next, or as we go forward,” Hewitt was quoted as saying.

Trump said on Monday that going to war is not a plan he likes, but if it eventually breaks out, his country is more than prepared. 

Fereidun Fesharaki,  a former energy adviser to the Iran government in the 1970s, told CNBC’s ‘Squawk Box’ on Monday that chances of a conflict are 50 per cent and that is enough to disrupt energy supplies. “They will strike back one way or the other; I think chances of tensions becoming bigger is very, very high in the near future,” he said.
Earlier in September, a top military aide to Iran’s Supreme Leader Ayatollah Ali Khamenei had warned that the “first bullet fired in the Persian Gulf will push oil prices above $100”. Though experts feel such a claim is exaggerated but even at a minimal risk, the global oil trade is vulnerable. 

Map locates May attacks on oil tankers in the Strait of Hormuz (Source: AP)

 

A full-scale war can have several devastating consequences for the global economy -- direct and indirect. While higher oil prices will push the US and other big economies towards a recession. Industrial output will take a hit because of the economic downturn and countries that are heavily dependent on oil from the Middle East could see their economy coming to a standstill. For Middle-Eastern economies, a war will be fatal as instability will see foreign companies leaving their shores and that will leave infrastructure in disarray. A war could also see a big geostrategic impact in the form of the closing down of the Straits of Hormuz or at least a confrontation over its security. That will invariably disrupt the global flow of other energy sources like liquefied natural gas, leading to a spike in its price as well.

How will this affect Trump’s 2020 election?

While Nakanishi suspected that Trump is fuelling the Iran crisis to garner more votes in the next presidential elections, other experts differed. Russel Lucas, assistant professor and director, Michigan State University, however, has a different take on the connection between Trump’s re-election bid next year and his confrontation with Iran. Speaking to MEA WorldWide (MEAWW), he said: “Effects like spike in oil prices should remind the world that a full-fledged US-Iran crisis will be painful for everyone. This is more likely to be a burden for President Trump if he seeks re-election during a global recession – especially one seen as being caused by his foreign policy.”

Professor Lucas conceded that the oil installation attacks will rekindle tension between the US and Iran that seemed to have eased in  recent times. “It remains to be seen if Yemen’s Houthi movement is actually responsible as they claim, or if Iran actually conducted the operation as the US alleges,” he said. The professor, however, expressed uncertainty over Trump’s Iran policy and said since the exact aims of his policy are not clear, it will be difficult for the US to influence events in the Middle East if a military conflict erupts.

The Trump Administration has remained divided over how to tackle Iran. Former national security adviser John Bolton was one who wanted to force a regime change in Tehran and had serious differences with both Trump and Pompeo who were against going into a military conflict. The differences reached a point of no return when Bolton was shown the door. There are still advisers who have tried to cite the example of George W Bush who won a second term despite starting two wars and hoped that the American people could sympathise with a leader and rally around him after a foreign policy crisis unfolds vis-a-vis Iran.  
 

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