Humiliation or Escalation?

"Several U.S. officials and Trump associates drew the same conclusion: the president thinks the U.S. has achieved everything it can militarily and wants out of the increasingly unpopular war." So reports Axios' Barak Ravid this morning. Given that Ravid is essentially a conduit from the U.S. and Israeli governments, this basically puts an official imprimatur on something that has been very obvious for some time. In his war against Iran, cult leader, convicted felon, and failed President Donald Trump has two options: humiliation or escalation. Escalation is very unlikely to result in the achievement of Trump's goals. Therefore, he is left with attempting to dress up humiliation in order to declare it a victory. Unfortunately for Trump, the Iranians are not cooperating.

Following what has become a predictable pattern, Trump spent the weekend — a time when oil and financial markets are closed — making threats against Iran. However, once markets opened again on Monday, Trump — as we have come to expect — softened his tone, saying that "Iran can have a great and prosperous future!" Later on Monday, Trump continued in an optimistic vein, writing that:

The DEAL that we are making with Iran will be FAR BETTER than the JCPOA, commonly referred to as “The Iran Nuclear Deal,” penned by Barack Hussein Obama and Sleepy Joe Biden, one of the Worst Deals ever made having to do with the Security of our Country.

Expectations were that an U.S. negotiating team led by Vice President and reply guy JD Vance would travel to Pakistan yesterday for a second round of talks with Iran. However, the Iranians didn't send a team to Pakistan. Instead, Iranian social media channels circulated a Mr. Bean meme mocking Vance waiting for the Iranians. In the end, Vance stayed home.

Trump's latest ceasefire extension was due to run out yesterday evening but, as has been his practice, Trump TACOed. Posting on Truth Social, Trump wrote that:

I have therefore directed our Military to continue the Blockade and, in all other respects, remain ready and able, and will therefore extend the Ceasefire until such time as their proposal is submitted, and discussions are concluded, one way or the other.

It appears that it is the continued U.S. blockade of the Strait of Hormuz that is of issue. The Iranians have been refusing to reenter talks until the blockade is lifted. It is questionable just how effective the blockade actually is, however. Lloyds List, reported that at least 26 Iranian vessels had been able to bypass the U.S. blockade. Two Iranian ships were seized by the U.S. and several others were reported to have been turned back. According to Trump, one of the ships headed to Iran that was stopped by the U.S. Navy had a "gift from China" that "wasn’t very nice". Trump went on to say that he "was a little surprised" because he thought he had an understanding with China’s President Xi Jinping. Last week, Trump said that Xi had assured him that China would not provide weapons to Iran. Therefore, the implication is that the seized ship was carrying Chinese weapons meant for Iran. Possibly in response to the capture of its ships, Iran seized two ships in the Persian Gulf.

As I have written previously, the U.S. and Iran are engaged in an economic game of chicken. Each believes that it can suffer economic hardship longer, forcing the other to blink first. However, it is likely that Iran is in a more advantageous position. As an autocracy, Iranian leaders can discount public sentiment to an extent that Trump cannot. Moreover, the Iranians have decades of experience evading sanctions. As the Lloyd's report about Iranian ships passing through the blockade demonstrates, announcing a blockade is one thing but enforcing it is another. Trump must also remember that keeping Iranian oil off the market also works against U.S. interests as it will only force oil prices to rise even more. This morning, both West Texas Intermediate crude and Brent crude prices are heading up, with Brent over $100.00 a barrel again. As a result, the average price per gallon for gasoline in the U.S. is still over $4.00.

Financial markets appear to be oblivious to the economic disaster that is about to hit the entire world. According to oilprice.com, quoting Goldman Sachs analysts, "Global crude oil inventories are approaching a record low". Moreover, "Even if the Strait of Hormuz reopens by May, the shrinking in global oil inventories will extend into May and even June". Just to emphasize, oil shortages will continue to grow even if the strait opens in a week or so. Getting back to pre-war supply levels will take months or even years.

Already, farmers are paying more for fertilizer, assuming that they can get it. Helium, essential for producing semiconductor chips and for medical equipment, is in short supply. Anything that uses petroleum products as an ingredient or as part of its manufacturing process is going to see price increases or even shortages. Due to soaring jet fuel costs, Lufthansa just announced that it would cut 20,000 flights. Even Karex, the world's biggest condom maker, said that it is being forced to increase prices by 30% due to raw material shortages.

This explains Trump's desperation to make a deal. Every day that traffic is still unable to use the Strait of Hormuz is another day contributing to a potential global recession. For Trump, financial problems arising from the war are a political matter given the approaching U.S. midterm elections. Republicans appear to already be facing a historic wipeout. High oil prices and increased inflation will only make things worse. However, there is also a personal side to the economic issue. Trump is personally beholden to the United Arab Emirates, which owns 49% of his World Liberty Financial cryptocurrency company and invested heavily in Trump's stablecoin. Now, the UAE is facing a possible dollar shortage. The Wall Street Journal reported that "U.A.E. Central Bank Gov. Khaled Mohamed Balama raised the idea of a currency-swap line with Treasury Secretary Scott Bessent and Treasury and Federal Reserve officials in meetings in Washington last week". In addition, "Emirati officials told the U.S. officials that if the U.A.E. runs short of dollars, it may be forced to use Chinese yuan or other countries’ currencies for oil sales and other transactions". The UAE is one of the world's wealthiest countries. If it is already facing potential financial problems, imagine what poor countries are going through? Needless to say, Trump expressed an eagerness to help the UAE that likely won't be extended to most countries.

Events surrounding the second round of talks that didn't take place as expected provide a good illustration of where things now stand. Trump is eager to make a deal. Vance was standing by for almost a full day, prepared to depart to Pakistan. The Iranians are less interested. Iran has twice been attacked while engaged in peace talks. Therefore, Iranian leaders are very suspicious of negotiations and appear to be convinced that the U.S. is planning to attack them again.

Moreover, Iran shows no sign of being willing to compromise on their primary demands. The Iranian leaders will not agree to give up uranium enrichment, and they demand continued control of the Strait of Hormuz. The JCPOA negotiated by former President Barack Obama limited enrichment to low levels — something to which the Iranians would probably still agree — but Trump insists on prohibiting all enrichment. Obama didn't have to worry about control of the strait because it was completely open. If Trump accepts the Iranian position, he will reach an agreement that is basically the same as the JCPOA but also bestowing Iran control of the strait. This would be utter humiliation for Trump. However, if Trump believes that he can spin a humiliating deal as a victory, that may be his preferred option.

Returning to open warfare would result in Iranian retaliation against Gulf Arab countries, likely furthering damage to petroleum production facilities. Fighting would probably extend the time that the Strait of Hormuz remains closed. Moreover, the U.S. is reported to be critically short of advanced weapons and further fighting with Iran could deplete some stockpiles. Additional fighting would also embroil the U.S. further in an unpopular war and be politically damaging to Trump. At the end of the day, if the Iranian leadership survived, their demands would be unlikely to change. All of this explains why Trump is so eager to make an agreement, despite his repeated threats to destroy Iran.

One sideshow that took place over the last couple of days involved eight Iranian women who had been allegedly sentenced to death. Despite leading the world's most advanced intelligence services, more often than not, Trump will rely on social media for information. In one such example, he posted a viral claim that Iran was about to hang eight women due to their participation in anti-regime protests. Trump asked Iranian leaders to release the women. According to Iranian judiciary sources, Trump had been misled. Human rights groups have claimed that only one woman has been sentenced to death — this was for dropping concrete blocks from a building onto security forces. Another woman could face execution if convicted. However, the Iranian judiciary sources claimed that some of the women whose pictures Trump posted had already been released. The others faced charges that would only result in imprisonment, not the death penalty.

Today, Trump posted a "truth" saying that:

Very good news! I have just been informed that the eight women protestors who were going to be executed tonight in Iran will no longer be killed. Four will be released immediately, and four will be sentenced to one month in prison. I very much appreciate that Iran, and its leaders, respected my request, as President of the United States, and terminated the planned execution. Thank you for your attention to this matter! President DONALD J. TRUMP

More than likely, the Iranians did nothing in response to Trump's request. Trump's post does not account for the woman already sentenced to death; we will have to wait for confirmation from the Iranians about what will happen with her. But, most importantly, this demonstrates Trump's willingness to spin the least of Iranian actions into something for which he can take credit. Iranian negotiators must be encouraged by the thought that they can repackage the JCPOA, tell Trump that it was agreed to by their biggest, toughest, guy who signed it with tears in his eyes, and Trump will act like it is the Treaty of Versailles. That will probably be the best outcome at this point.