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Inside Economics

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This is a space for me to comment on Economics both in terms of the specific bits if economics, how the discipline works and the academic politics. I might also be tempted into talking about the economy!

Iran Update

Politics and the world Posted on Tue, July 09, 2019 12:42:31

Iran update.

Much has happened since the Tanker attacks (the drone shot
down, the US attack cancelled 10 minutes before opening fire). On the Tankers, I think that on balance it
probably was the Iranians. It was a calculated demonstration of what they could
do, but with no loss of life. I think a “false
flag” would have been more spectacular with some loss of life. There was a meeting of the UN Security council,
called by the US, to discuss both the Tanker attacks and the drone that Iran
shot down. Iran was excluded by the request of the US.
The US ambassador, Nikki Haley’s successor Jonathan Cohen presented the US
evidence on both counts: the Iranians were responsible for the Tanker attacks
and the US drone was in international air space when shot down. The net result
was disappointing for the US: the Security Council condemned the Tanker attacks
but did not blame Iran. The three EU permanent
members (Britain, Franc e and Germany) gave a joint press statement calling for
“maximum restraint”. The US ambassador had to stand on his own simply repeating
the US allegations. Worse still, the UAE has shifted its public statements.

In the earlier attacks on ships
in Fujairah, the UAE had agreed with the Saudi government in blaming Iran.
However, by the 26th June, it retracted the statement, saying “there
is not enough evidence to suggest Iran carried out recent attacks on oil
tankers in and around Gulf waters”.
Worse still, the UAE is quietly withdrawing from the Yemen conflict
(according to the Economist July 6th 2019). Probably their proximity
to so many Iranian missiles has focused their minds against a conflict with Iran
and the Economist reports growing dissatisfaction with the cost of the Yemen
intervention. This is bad news for the
Saudis (and their British and American backers): the UAE army is more effective
than the Saudi forces, largely because it has a strong mercenary element. If
the combined UAE-Saudi forces proved insufficient to defeat the Houthis, then the
withdrawal of the UAE forces effectively means game over for the war in Yemen. The Houthis will retain their hold on northern
Yemen and possibly recapture some territory. More importantly, if the UAE is
drawing back to a position of neutrality vis a vis Iran, then this will make
life much more difficult for the Saudi and US in the event of war with Iran. Currently Oman is “neutral”, although in the
past both Saud and UAE have accused it of allowing the smuggling of weapons to
the Houthis from Iran. It does host the US airforce as a “tenant” in a couple
of bases (which were used in both Gulf wars), but in the event of war with Iran
may not permit their use. Qatar is “neutral”,
but subject to a blockade by the Saudis for over a year now. Qatar has remained friendly with Iran and
whilst it would not side with Iran, it would certainly attempt to remain
neutral (although the Al Udeid Air Base airbase in Qatar used by the US air force would almost certainly
come under heavy attack if war broke out). Kuwait is also a friend of Iran and
has been at the forefront of trying to mediate between Iran and the other Gulf
States. Iraq has stated that the US
cannot use its bases there to attack Iran. The Island of Bahrain is the only anti-Iranian
part of the Gulf besides Saudi: it hosts a large naval base for US and Royal
Navy ships and has had problems with its majority Shia population since the
Arab spring. In the event of war with Iran,
the US has little wiggle-room in the Gulf beyond the Saudi coast (ports of Al
Jubayl, Ad Dammam and Dharan) and the island of Bahrain.

The US does of course have many
bases bordering Iran outside the gulf: in Afghanistan, Pakistan and
Turkmenistan. How useful these would be
in an Iran-US conflict is doubtful, particularly if the host governments are
not participating. Furthermore, in the
two Gulf wars, with Nato support, the US was able to transport large quantities
of men and material through Incerlik airport in Turkey and use European bases
as stepping stones to the Gulf. Without the support of Turkey and NATO this
would not be possible except perhaps on a small scale.

So, for me, if the Economist
report is correct and the UAE is dropping out of the “coalition” that leaves
just the US, the Saudis and probably Israel.
The logistics of any war with Iran are formidable without more allies in
the region and support from Nato. As an economist, I am interested because a
war with Iran would be one of the biggest economic “shocks” since the Second
World War, possibly as large as the OPEC shock in the 70s. The Iranians would be able to close the straits
of Hormuz and destroy the existing infrastructure of the oil industry in Saudi
Arabia. This would lead to a sharp reduction in the world’s oil supply and
massive increase in the oil price. The shock would last for a long time. This could trigger a world recession,
stagflation and much besides. Let’s hope it does not happen.

Sources mentioned in Blog.

Al Jazeera: “The foreign minister of the United Arab
Emirates says there is not enough evidence to suggest Iran carried out recent
attacks on oil tankers in and around Gulf waters.” June 26th.

The Economist: The UAE begins pulling out of Yemen (July 6th)

Statements after the UN Security Council meetings (24th
June 2019):





Politics and the world Posted on Sat, June 15, 2019 21:51:39

I am fascinated by the interplay of what goes on with what
we know and what we are told. Of course, we often do not know what is actually
going on: the “truth” will emerge in the future when scholars study
the present as history. Of course, some things will never be known to us, but
only the people who were directly involved. The current case of the Tankers in
the sea of Oman is a fascinating case.

As we know, false flag operations are commonly used to stat
wars: from the Gulf of Tonkin to the more recent “babies in
incubators” at the start of the first Gulf war. Such events or news can
influence public opinion and make it more amenable to war. We also know that
two of President Trumps advisors (John Bolton and Mike Pompeo) have frequently
spoke of their desire for a war with Iran. Indeed, Iran has been on the
“hit list” since 9/11 and before, and we have seen other members of
the list (Iraq, Libya and Syria) hit in various ways: Iran and North Korea are
the last two standing. Also, although Trump ha spoken out during his election
campaign that he wants to end foreign wars, he is also very committed to
Israel, and some believe Iran to be an existential threat to the state of
Israel. So, it would make perfect sense for a “false flag” operation
to kick of such a war. In a sense, the sanctions are an economic war that has
already been started by the US. War would be very unpopular in the US with the
electorate, so a false flag is needed to make it possible.

A war with Iran would be costly for the US, which has many
troops and ships in the area that are very vulnerable. Troops in Syrian and
Iraq, naval and air bases in the Persian Gulf. Of course, the US has the
resources to defend them: the recent pentagon advice was apparently the need
for 120,000 troops. To conduct a war with Iran would require more. The cost for
Iran would also be very great, but short of using tactical nuclear weapons, the
US could not successfully invade Iran and indeed would probably just use
missiles and bombs to destroy as much as possible.

However, we also know that whilst all this is true, there
are also tensions in Iran. There may be some who would want a war with the US.
To strike now, before the US can beef up its assets would allow Iran to reek a
lot of damage. Like Americans, most Iranians do not want war.

So, we see two tankers in the Gulf of Oman hit by something:
mines exploding or some “flying objects”. One, the Norwegian Tanker
Front Altair and the Japanese tanker Kokuka Courageous. The first to report on
this were the Iranian Press TV: they showed the pictures of the burning tankers
subsequently used by the world press. The Iranian navy rescued the crew of the
Front Altair (and released a film of the crew), whilst the US navy rescued the
crew of the Japanese tanker. The US navy issued a grainy film of something
going on and claimed that this was an Iranian vessel removing an unexploded
limpet mine. They also released a picture of the Kokuka with an unexploded
limpet mine on it. The owners of the Japanese tanker issued a statement saying
that it was not a mine, but some “flying objects” that had caused the
fire. Neither tanker was sunk and neither suffered any great damage.

So, what do we make of all this? Well, the US has blamed the
Iranians. But this is standard. Pompeo and Bolton (and many Americans) always
talk of Iran as a state sponsor of terrorism
who “meddles” in the Yemen, Lebanon, Iraq and Syria. Of course, to many of us the Iranians were
crucial in helping the Iraqi government defeat ISIS: both helping the Kurds and
later helping the Shia militias who were to a large part responsible for
fighting ISIS on the ground along with the Americans. Anyway, the Americans do not see it that way:
the Iranians follow their own foreign policy which is rarely aligned with US
policy (and opposed to it in Syria, Lebanon and Yemen). However, there are of course other possibilities.
scepticism of US claims (at least in the twitters-sphere) and the grainy video
is hardly a slam dunk.

The BBC of course usually follows the US line. This has been the case since the Andrew Gilligan
affair on the Today programme, when Gilligan and the director General of the
BBC Greg Dyke lost their jobs over a truthful report that there were no WMDs in
Iraq (and David Kelly subsequently lost his life). However, to do this they
have to be selective in how they present the news. The BBC did not state that the Iranian navy
had rescued the crew of the Norwegian tanker, nor did it show the video of the
crew. The fact that the fires were first reported by Iranian TV and that the
Iranian government had condemned the attacks was quickly forgotten. We were
left with the grainy video and repetitions of the US line. In fact, of the British press, only the
Telegraph really showed some basic attempt to investigate the claims.

The other main sources are of course RT and Al Jazeera. RT
naturally emphasises the US hostility to Iran and the possibility of a false
flag. Al Jazeera simply states both sides of the argument. Both the Russian and
Qatari governments have called for an investigation. The British government has
come out fully supportive of the US “our closest allies”.

In the fog of war the first casualty is the truth. I cannot
say who was behind the attack. It could be Iran, trying to do something with “plausible
deniability” that will disrupt the oil trade. There are those who would like to
draw the US into a war with Iran (Saudi Arabia, the UAE and Israel). Indeed, if
the US did a false flag it would use a proxy not its own assets. However, the vehemence of the US seems to be
to little avail. They have alienated many of their former allies and no one
else wants a war. For Europe a US war
with Iran would mean sky high oil prices and a flood of refugees. Even if the
Iranians were doing some mischief it would not make a war worthwhile. Whatever Jeremy Hunt might think, being a new
Blaire and dragging us into a war with Iran would not be at all popular with
the British public.

Over time, we may well start to learn who was behind the
Tanker attacks. But for now, we just have to see how the different narratives
unfold and hope that cool, calm minds carry the day and we do not drift into