An ashen dawn
The ceasefire agreed by the US and Iran constitutes an event of ominous geopolitical, and geoeconomic significance. In the long term it weakens the US centred world order and the US-EU alliance.
Amidst relief over the two-week ceasefire, we were waking up this morning to a different world. It looks like Donald Trump has found an off-ramp by declaring victory and retreating. The reality is that the world’s largest military and economic superpower lost a war against a mid-sized country. Iran could from now on charge for passage through the Strait of Hormuz and impose a global oil tax on the rest of the world. The Europeans are left reaffirmed in their opposition to this war, and to Trump, while Trump will blame his Nato allies for failing to help the US in the hour of need. The war leaves the West broken.
If there is any winners in this, it is Xi Jinping and Vladimir Putin. Another one is JD Vance who was the only person inside the administration to speak out against the war.
The ceasefire deal is for two weeks only but will carry these long-term implications regardless. There will be several potential obstacles for the ceasefire to last. First and foremost, there is the strait of Hormuz’s status. Trump described the ceasefire as being conditional on what he described as a complete, immediate, and safe opening.
At the same time, Iran’s own ten-point plan is, if not flatly contradictory to Trump’s condition, different in practice. The country still wants control over the strait, and has talked about charging tolls through it as a way to pay for damage caused during the war. Any formal acceptance of this from the US is unlikely, to say the least, but if the deal holds there might be some tactic tolerance of this.
As of this morning, we still don’t know how much traffic will be passing through the strait, or under what conditions. Figures from Lloyd’s List, a maritime media and intelligence specialist, put pre-war shipping traffic at around 100-135 ships per day. The busiest period across the strait since the war began was last weekend, when 21 ships transited in two days. That is still far below pre-war levels, obviously. Over the coming days, a key parameter will be the extent to which this figures gets back up to normal, and how quickly.
Another will be what happens with Lebanon. Initially, Pakistan, who brokered the deal, described Lebanon as within its scope. Israel has, however, since said that it doesn’t consider Lebanon inside of the agreement. This could again cause a breakdown and draw Iran back in, especially as its allies and proxies in other parts of the Middle East are still a key aspect of its own deterrence strategy. We will also have to see what happens with sanctions relief, another key Iranian demand, and the country’s nuclear programme.
Even if the deal holds, there will still be longer-term reverberations. Oil futures are down this morning, to just under $95 a barrel for Brent crude, but not nearly at pre-war levels yet. Partly this is a wait-and-see, and we can expect prices to come down more if there is a visible increase in traffic through the strait in the coming days.
But there will also be an inertia effect. Some oil production in the Persian Gulf has been shuttered because of the war, and the strait’s closure, and this will take time to restart. So will re-routing tankers, and repairing damage caused during strikes on oil and gas production infrastructure. This is a process that could end up taking weeks to months, although market prices will normalise more quickly. Some repairs may well end up taking even longer, like damage to Qatar’s Ras Laffan liquefied natural gas export facility.
In the longer term, we also expect this crisis to drive an existing bifurcation in global energy policy. The US, at least under the Trump administration, will have concluded that it will need to push its oil production even more, inasmuch as it can. For China, and many other countries especially in south and southeast Asia, it is a reminder of the risks of their dependence on oil imports. We would expect China in particular to redouble its efforts.
For Europe, the most lasting consequences will be the serious, and perhaps irreparable, rifts in the transatlantic alliance. Trump may not be able to end Nato formally, but he can make its security guarantees effectively void throughout his time in office. We have realised, or been shown, that the presence of the US carries a double-edged sword of being dragged into the conflicts it starts without our choosing, and that the US cannot fight two wars at the same time.