The 21-mile flaw in US' war plans

Editor's note: Radhika Desai, a special commentator for CGTN, is a professor of political studies at the University of Manitoba in Canada. The article reflects the author's opinions and not necessarily the views of CGTN.

Perhaps the most important part of Iran's new Supreme Leader, Mojtaba Khamenei's March 12 statement, was the commitment to keeping the Strait of Hormuz closed. The closing had already sent oil prices spiking. Its continuation can only mean havoc for an already weak world economy, for the US economy, for the prospect of the current US government in this critical mid-term election year, and for the US dollar's global role.

It does not take Nostradamus to predict that a war with Iran could close the Strait of Hormuz and send oil prices shooting up. The Trump administration's war has realized both possibilities in less than two weeks. Oil prices had started mounting from about February 25, in tandem with the US' mounting threats against Iran. They could only rise further with the US-Israeli war on February 28 and the official closure of the Strait of Hormuz on March 2.

Having initially ignored the oil price spike in the delusional expectation of securing some sort of victory within days – in the form of a popular uprising following the assassination of the Supreme Leader – Trump had to do something on Monday, March 9. In a presser, amid his usual bombast, he claimed that the war would be over soon. The oil price dropped. However, to actually end the war, the Trump administration needs a face-saving off-ramp. None is in sight. The Iranian side fought on, and oil prices spiked again. The International Energy Agency's announcement of the release of 400 million barrels of oil made no difference. They are now expected to continue going up.

After Mojtaba Khamenei expressed his determination to keep the Strait closed, members of the Trump administration and even some US business leaders revived talk of the US forcibly keeping the Strait open. 

However, it is not at all clear that the US administration has the capacity, or even the will, to actually do this, as opposed to just threatening it. However, in that it represents the US' refusal to end the war and cut its losses, it keeps a very volatile situation on the burner and this contains many dangers – of escalation and of unforeseen catastrophic military developments.

Even if these dangers do not materialize, the great economic damage will. While the world is not as dependent on oil as it was in the 1970s oil crisis, and while the oil price shock is, as yet at any rate, not as great, a world recession is still on the cards. It may not be a direct result of rising oil prices. However, rising oil prices are already giving a fillip to inflation, and if inflation continues, and the central banks of the major economies apply their usual remedy, a hike in interest rates, that may cause a recession. Even if a recession is entirely avoided, an already weak world economy will weaken further, given the importance of oil for energy and the production of critical inputs, such as fertilizer, and could still be dragged down by higher inflation and interest rates.

The current US administration may not care about the world economy. The president may even take solace in the higher profits; his oil-sector corporate cronies will enjoy as they raise prices in line with world prices without experiencing cost increases. However, not only is the US economy not immune to the shocks that higher oil prices, along with the higher inflation and interest rates they will bring, the ordinary US citizen, and voter, will feel the pain, at the pump, in the prices of other commodities reliant on oil and in higher interest and mortgage rates. It is ironic that, having started the Iran war, like the assault on Venezuela, to shore up his seriously declining approval ratings and MAGA base, it will only undermine both further with these economic effects.

Finally, if rising oil prices and inflation continue, the dangers to the dollar's world role cannot be overestimated. True, the US dollar is no longer a "petro-dollar," buoyed by pricier dollar-denominated oil. In recent decades, it has become, shall we say, a speculation dollar, reliant on the purely financial demand for the dollar prompted by the US nurturing successive asset price bubbles, including today's "everything bubble." They rely on low interest rates. Recent higher rates have already taken some victims, like Silicon Valley Bank or the commercial real estate market. The even higher interest rates necessary to fight war-induced inflation may just prick the everything bubble. When it does, the dollar system itself is likely to come crashing down.

A prudent strategy for the administration would be to secure a viable off-ramp sooner rather than later. However, there is little evidence that the administration would take this path. Had it been, the US would have seen the 21-mile flaw in its war plans long ago and never launched this war.

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