Trump is Losing Bigly

I have written a lot about the United States-Israel war against Iran, so today's post is going to be a bit repetitive. However, I think it is worth taking a step back and considering just how badly cult leader, convicted felon, and failed President Donald Trump has harmed U.S. interests. It is now almost indisputable that Trump lost the war within the first 24 hours. His expectation was that killing Iran's top leaders would lead their successors to capitulate and make a "Venezuelan-style" deal with Trump. When that failed, Trump had no Plan B. In fact, Trump has said that "You don’t need a backup plan," completely ignoring that this was a near-perfect example of when he should have had one. Trump did not expect that Iran would close the Strait of Hormuz, but the strait has been closed since February 28, and Trump still has no plan for reopening it. As a result, the global economy is on the brink of disaster. Trump is now flailing with no clear idea for what to do next. As I have repeatedly written, he has to choose between a humiliating deal with Iran to end the war peacefully or escalate and restart the fighting. Renewed fighting is unlikely to significantly change the status quo, leaving Trump with the same two choices again. In the meantime, Trump is temporizing and simply allowing things to get worse.

While financial markets and oil prices may fluctuate wildly based on the latest Trump statement, the reality is that almost nothing that happens with regard to the war has an immediate effect. There are generally long timelines between an action and its impact. For instance, the last oil tanker to leave the Gulf before the war has only recently arrived in California. Therefore, physical shortages arising from the closure of the Strait of Hormuz have only now become a reality worldwide (they have impacted Asia for some time). It has taken nearly two and a half months to get to this point. But this also illustrates the time that recovery will take. If the strait opened tomorrow, it would be over two months in the best scenario for a tanker to again reach California. Certainly, if or when traffic through the strait resumes, it will not be the best case scenario. Oil shortages are going to be long-lasting and recovery will be very slow. The economic impact on the world in general and the U.S. specifically will be severe and the situation gets worse and will last longer every day that goes by without the strait reopening.

Today, both West Texas Intermediate crude and Brent crude are over $100 a barrel. Gasoline in the U.S. is over $4.50 a gallon based on the national average. The situation is only going to become more dire as reserves are further depleted. JP Morgan recently issued a statement concluding that "the accelerating pace of oil inventory depletion will ultimately force the reopening of the Strait of Hormuz, one way or another. Our base case envisions the Strait reopens in June—anchored on June 1 for simplicity". Understand what is being said here: JP Morgan assumes that things will be so bad in just over two weeks that the status quo will no longer be sustainable. This is an economic and financial analysis. But what is happening with Iran involves politics and military conflict and is, therefore, based on different timelines.

Trump's current plan, launched with the U.S. imposing its own blockade on the Strait of Hormuz, is to essentially starve Iran out. While almost all traffic through the strait has been prohibited, Iran has allowed tankers carrying its own oil. This has provided Iran with a steady income stream. Incidentally, it also relieved some pressure on global oil prices, which is why Trump lifted sanctions on Iran's oil. However, Trump now hopes that by stopping such shipments, Iran will run into financial problems. The reality, however, is that Iran will be able to hold out longer than Trump. According to an article published last week by the Washington Post:

A confidential CIA analysis delivered to administration policymakers this week concludes that Iran can survive the U.S. naval blockade for at least three to four months before facing more severe economic hardship, four people familiar with the document said, a finding that appears to raise new questions about President Donald Trump’s optimism on ending the war.

One reason for this is the long timelines that I discussed above. Iran has plenty of oil in tankers at sea that left the Gulf before the blockade was imposed. In addition, Iran is developing land routes through neighboring countries and utilizing links to Russia through the Caspian Sea. Remember that Iran has decades of experience in avoiding sanctions. It is not an easy country to shut down. If JP Morgan believes that Trump has two weeks or so and Iran can last three or four months, time will run out for Trump.

Iran understands that it currently has the upper hand and, therefore, has been taking a hardline in its negotiations with Trump. While both sides have exchanged proposals, Trump declared that the most recent Iranian offer was "TOTALLY UNACCEPTABLE!" The bad news for Trump is that things are not going to get better. Iran is certainly aware of JP Morgan's June deadline. Iran will not offer a deal better than that to which it agreed with former President Barack Obama, leaving Trump the choice to humiliatingly accept an agreement worse than the one he railed against and tore up.

In addition to not winning the economic war against Iran, there is evidence that the U.S. was not as successful in the military conflict as Trump has led us to believe. Yesterday, the New York Times published an article saying:

The Trump administration’s public portrayal of a shattered Iranian military is sharply at odds with what U.S. intelligence agencies are telling policymakers behind closed doors, according to classified assessments from early this month that show Iran has regained access to most of its missile sites, launchers and underground facilities.

Most alarming to some senior officials is evidence that Iran has restored operational access to 30 of the 33 missile sites it maintains along the Strait of Hormuz, which could threaten American warships and oil tankers transiting the narrow waterway.

The article also noted that "Iran still fields about 70 percent of its mobile launchers across the country and has retained roughly 70 percent of its prewar missile stockpile, according to the assessments."

What this means is that Iran still retains significant defensive capabilities and the ability to inflict damage on neighboring countries, further harming the region's oil and gas production. Moreover, an attempt to open the Strait of Hormuz by force may not be feasible in light of Iran's missile capabilities in the area. During the short-lived Project Freedom, significant U.S. military assets were required to escort just two ships through the strait. Such an operation would simply not be sustainable.

It is also not clear whether the U.S. is even capable of undertaking another round of large-scale fighting with Iran. Last month, Fortune reported regarding U.S. weapons supplies that:

The inventory math is brutal. The Center for Strategic and International Studies (CSIS) finds that in Iran alone, the United States burned through 45% of its Precision Strike Missile stockpile, half of its THAAD interceptors, nearly half of its Patriot PAC-3 inventory, roughly 30% of its Tomahawks, and more than 20% of its long-range JASSMs.

Logic would suggest that if the U.S. used up half of some weapons systems during the first round of the war, it would use up the second half in another round of fighting at the same scale. But the U.S. cannot allow itself to deplete these inventories. Realistically, this means that the U.S. can only engage in a limited amount of fighting and would have to rely on less sophisticated weapons. As I wrote Monday, Saudi Arabia has apparently already concluded that there is no longer a military solution to the conflict. This would seem to be a common sense deduction.

Nevertheless, the Trump administration does not appear to have given up on the military option. NBC News reported yesterday that, in order to circumvent the mandated 60-day limit on armed conflict before Congressional approval is required, the Pentagon is considering naming a renewed conflict "Operation Sledgehammer" rather than the current "Operation Epic Fury." But given the limits on capabilities that will likely be imposed on the U.S., a renewed fighting might better be termed "Operation Rubber Mallet." Moreover, additional military action will almost certainly extend the Strait’s closure, lengthen the time needed for recovery, and ensure increased economic suffering. It is not clear what Trump might hope to accomplish in more limited fighting that he couldn't accomplish in the first round. But bombing Iran might just be an act of frustration in response to the situation in which Trump has gotten himself.

For his part, Trump appears to be in denial about the bind in which he has placed himself. He has frequently brushed off rising gas prices, suggesting that the increase is temporary despite all evidence to the contrary. Yesterday, when asked about the financial situation of Americans, Trump said "I don't think about Americans’ financial situation". That is a quote that we can expect to be featured in numerous campaign ads this fall. Trump publicly insists that his primary objective now is to prevent Iran from having a nuclear weapon. That would appear to be an easy goal to obtain given that Iran had already made such a concession to Obama. Therefore, either Trump is lying about his objectives or he doesn't understand Iran's offer. Iran has traditionally been willing to give up its nuclear weapons program but is insistent on maintaining the ability to enrich uranium to low levels for domestic uses. Trump has suggested that Iran should not be allowed even to have access to low-level enriched uranium, let alone enrich it itself. He may not understand that enriched uranium has peaceful uses.

Trump is causing considerable damage to the already weak Republican hopes for the midterm elections. No wonder Republicans, including those on the Supreme Court, are intent on wiping out as many Democratic Congressional districts as possible. Heading into the fall with gas above $5 a gallon, a collapsing world economy, and a closed or tolled Strait of Hormuz is not going to be good for Republican candidates. Trump is facing lower approval ratings on the economy than either Jimmy Carter or Joe Biden. Once Republican primaries are concluded, we can expect many Republican candidates to become critical of Trump's actions.

Trump has done tremendous damage to U.S. interests. Our weapons stockpiles are depleted, U.S. prestige has been destroyed, the U.S. military has been shown to be vulnerable, and Trump is responsible for a potential global economic collapse. Still, as bad as things are, Trump has no idea what to do about it. This suggests that things will only get worse.