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The seemingly endless morass of the Iran war with its rinse-and-repeat cycle of peace talks, collapsing negotiations, and modest escalations of violence is likely to continue at least through the congressional midterms in November and potentially beyond, geopolitical and energy analysts said.<\/p>\n
Why? Iranian officials\u2014divided between public-facing politicians and the increasingly powerful Islamic Revolutionary Guard Corps (IRGC)\u2014want to maximize their leverage and political harm to President Donald Trump in the election cycle. With the U.S. and Iran far apart in peace talks and more oil flowing through the Strait of Hormuz under U.S. escort of late, Iran is increasingly losing, leaving them with the option of maintaining the status quo or intensifying their attacks.<\/p>\n
\u201cIt feels like \u2018Groundhog Day,\u2019\u201d said Matt Reed, president of geopolitical and energy consultancy Foreign Reports, citing the classic Bill Murray film about repeating the same day ad nauseum.<\/p>\n
\u201cThat also might mean we\u2019re being lulled into a false sense of\u00a0security, and the situation could still deteriorate. I think this is a very dangerous moment,\u201d Reed told Fortune. \u201cClearly, Iran is losing leverage, its economy is tanking, and its oil exports have collapsed. At the same time, more oil is getting out through the Strait of Hormuz than at any time since start of the war.<\/p>\n
\u201cCombine that with the U.S. election calendar and, over the next few weeks, the Iranians might be tempted to lash out again,\u201d he said. \u201cIf Trump is not willing to give the Iranians what they want, then their goal will be to humiliate him.\u201d<\/p>\n
The U.S.\u2014and much of the world\u2014is facing seasonal record highs for gasoline prices and all-time highs for diesel costs, but any major military uptick would exacerbate prices further. With any truce or potential peace deal seemingly outside of reach for now, the Trump administration would prefer to maintain the status quo until after Nov. 3\u2014the best choice between bad options. \u201cI think Iran is more inclined to lash out or escalate before the election.\u00a0And Trump would be more tempted to push off escalation until after,\u201d Reed said.<\/p>\n
The benefit for the Trump administration maintaining the status quo until after the elections is that it would theoretically take away some of Iran\u2019s leverage, said oil forecaster Dan Pickering, founder of the Pickering Energy Partners consulting and research firm.<\/p>\n
\u201cI think the midterms are a line of demarcation. It\u2019s just not clear to me that anything is going to happen before or after them,\u201d Pickering said.<\/p>\n
Iran may believe Democrats winning Congress could force Trump to offer more amenable peace terms. But the United States standing pat until November could put more military options back on the table, Pickering said.<\/p>\n
\u201cWhy? This isn\u2019t a politically popular conflict [for Trump]. Escalating the kinetic side of it post-midterms is probably more palatable,\u201d he added.<\/p>\n
\u00a0Thierry Wizman, a top economic strategist for the Macquarie Group, said in analyst note that energy markets are preparing for exceedingly different outcomes in November.<\/p>\n
\u201cImplied volatilities are starting to price in divergent two-way outcomes after Nov. 3, when events can shift wildly one way or the other,\u201d Wizman stated. And more conflict means more inflation, costlier fuel prices, greater government spending, and higher bond yields.<\/p>\n
The long slog<\/p>\n
To borrow another film reference, the growing fear is the war\u2014entering its eighth month\u2014could evolve from \u201cGroundhog Day\u201d into \u201cThe NeverEnding Story.\u201d<\/p>\n
Iran continues to demand control of the vital Strait of Hormuz\u2014and the ability to charge tolls or fees\u2014while the U.S. refuses to cave and is insisting on up-front nuclear concessions.<\/p>\n
\u201cI\u2019m not sure if there\u2019s a peace deal\u2014not just by the midterms\u2014but in the next six months,\u201d said Marshall Adkins, head of energy for Raymond James. \u201cGetting to some kind of agreement that you can hold the IRGC to is going to be extremely difficult. They\u2019re being patient. Are we going to be there for the next five\u00a0years? Maybe, but that seems like a stretch.\u201d<\/p>\n
Through much effort with military escorts and at a high financial cost, the U.S. is helping more oil flow out of the Middle East than almost at any time since the war began at the end of February. Export volumes are up to almost 13 million barrels of crude oil per day\u2014while blockading Iranian shipments\u2014but still down from 19 million barrels daily in February.<\/p>\n
Despite the increased flows, they are largely offset by China increasing its oil imports again\u2014after dramatically cutting its imports during the summer\u2014and the U.S. slowing to a trickle its releases from the Strategic Petroleum Reserve (SPR), which is already down to 44-year lows. However, the Trump administration signed off Sept. 29 on another 40 million barrels being drained from the SPR\u2014the culmination of which would bring the SPR down to emergency levels.<\/p>\n
\u201cI don\u2019t see a peace deal in the near future,\u201d Reed said. \u201cWhat I see is a lot of posturing and negotiating by force. We are not at the point yet where either side is willing to concede.\u201d<\/p>\n
Gulf states are paying much more money for tankers and maritime insurance premiums just to move their oil volumes. A daily oil tanker charter has skyrocketed from roughly $50,000 to $1 million. And the U.S. is paying exorbitantly to fund its naval escorts.<\/p>\n
\u201cWe\u2019re getting oil out of the strait by running these convoys, but how long are we going to do that?\u201d Adkins asked.<\/p>\n
\u201cIran still has the ability to blow up a lot of stuff coming through there,\u201d he said. \u201cLet\u2019s not forget, Iran could shut all this stuff down tomorrow.\u201d<\/p>\n
#Groundhog #Day #Iran #war #midtermsand #escalate<\/p>\n","protected":false},"excerpt":{"rendered":"
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