What, exactly, is this going to cost us?
On 13 April, Iran broke its long-standing MO of lurking in the shadows to take a direct swing at Israel in retaliation for its strike on a consular building in Damascus that was serving as a logistics hub funneling Iranian kit into Lebanon so that Hezbollah could take shots at Israel from the north. As Middle East geopolitics go, that is clear enough.
It was a bold move, as Iran has not taken a direct swat at anyone - save 2019 drone strikes at an oil refinery in Saudi Arabia – since they wound up at eight-year world win the war with Iraq in 1988. Since then the Islamic Republic has followed policy of what it calls “strategic patience” through a sophisticated network that operates like one of those whizz-bag chronographs with the dials ticking every which way at once. It’s not until you step away that you see that the whole contraption is moving, more or less, in the same direction. Iran is very good at this – Lord knows they’ve had enough practice. Yet it looks like Iran’s finely tuned gears are getting away from them.
One advantage of not engaging an enemy directly is that whatever reputation you’ve created for yourself never suffers contact with reality. Like the once vaunted Russian army of January of 2022, Iran’s weapon systems had a reputation for brutal accuracy. Tehran’s slow-moving barrage was clearly meant as a domestic face-saver rather than an escalation of hostilities – a signal of the Islamic Republic’s resolve. It signaled something else as well: US intelligence estimates is that some 50% of the drones and missiles engaged either failed at launch or blew up somewhere short of the target.
Israel’s return strike was equally symbolic, but much more precise. Let’s hope so they were using US kit. It was an altogether different signal; the base struck was near a nuclear research facility and uranium processing plant, but not the country’s nuclear facilities.
The most telling part came after the strike. Neither side so much claimed victory as declared satisfaction - like duelists who need to draw blood to satisfy honor, but don’t want the hassle of actually killing the other guy.
Of course, nothing in the Middle East is really settled with a hand-shake. Iraqi Shi’a militants then took a swing at the US bases in Iraq and Syria, something they haven’t done since February. Israel, probably eager to do something to salve frayed tension with its security partner, (allegedly) struck the base of the Popular Mobilization Front (PMF) base in Iraq. All chatter at this point, as Israel hasn’t claimed responsibility and the PMF swears up and down it didn’t happen. They don’t know why the building blew up but rest assured, they are looking into it.
The QED here is that Israel v. Iran is back to its old normal, something so expected that June delivery of both Brent and West Texas Intermediate were down this week. Which might be comforting were the old normal not so needlessly flammable in the same sandbox where half the world’s hydrocarbons come from.
So... how much is all this going to cost?
For the moment, not much. Fuel prices are likely to stay elevated, but that has more to do with falling inventory going into the summer. Iran fusses about the Hormuz maneuver, but that would alienate China, so it’s a no-go. The only likely knock-on for the current tar-baby is greater policing of US sanctions on Iran, which will take some crude off the market, but less than New World production is adding to it.
Russia has vowed to cut production further – but that’s because India, their second largest buyer of oil, is joining US sanctions on Moscow. As for the rest of OPEC+, there is plenty of spare capacity and most members are likely to walk back their production cuts in June. Currently, crude is hovering around $90, and the Saudi’s have learned by experience that $90 crude means fat profits, but tip past $100 and demand falls off a cliff.
So for the time being the prices will be tedious, but not shocking.