The War in Iran: A Giant Leap Towards Collapse
Epic Fury for me, Epic Fubar for thee...
Things have escalated rather quickly. Who could’ve thought? Well, what many astute commentators have been warning about for years, now has become a terrible reality. In response to the full-scale US-Israeli war of choice on Iran, launched on February 28, Iran has started to lob missiles and drones at US allied states in the region. Beyond causing damage to US military infrastructure, radars and personnel, these strikes are intended to harm energy, economic, tourism and travel infrastructure of allied states—depleting air defense missile inventories rapidly all across West Asia. We are talking about a no small war here, but a theater almost as large as the contiguous United States itself—ranging from Akrotiri, Cyprus to Dubai in the United Arab Emirates—involving states like Israel, Lebanon, Iraq, Kuwait, Turkiye, Azerbaijan, Saudi Arabia, Bahrain, Qatar and Oman1. Oh, and let’s not forget Pakistan and Afghanistan, who are also at war with each other, with the former signaling that their pact with the Saudis could draw them as well into the conflict… And if that weren’t enough, the Strait of Hormuz has been choked off, too, as promised. With the ignition of this massive regional war the term ‘fubar’ has definitely got a new high water mark. And what does this has to do with the acceleration of our ongoing civilizational decline? Well, much more than what meets the casual observer’s eye. Read on to find out more.
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Energy and minerals
Let’s start with the most obvious ramifications. The Strait of Hormuz is a narrow waterway at the northernmost tip of the United Arab Emirates, where twenty million barrels (or as much as 20% of all global) crude oil and petroleum products flow through every day. Or, at least, where it used to do so until March... Although still not officially admitted by the US, the strait is in effect completely blocked by Iranian drones, damaging any ship trying to pass it. Tanker traffic through the strait, as a result, has crashed from 40 vessels per day transiting in January, to a single tanker making the trip on March 3, according to Vortexa data.
No wonder: insurance companies are unwilling to underwrite the risk of losing a hundred million (plus) in cargo and the vessel itself. So, the ships stay put, which means 55 fully loaded VLCC tankers anchored in the Gulf already according to Kpler. And as the world waits for conditions to improve, freight rates have silently shoot through the roof, with a Gulf-to-China voyage now costing $89 per metric tonne, up 560% since early January. Needless to say, the situation has made the general shortage of tankers worldwide (due to seizures of Venezuelan and Russian vessels) even worse, raising rates everywhere.
In order to put this event into proper context, though, we must understand that on average half of the barrels get consumed in the country / region where it was produced, putting the ratio of now blocked exportable (seaborne) oil to 40% of all oil related international trade movements. Let me repeat: almost half of world oil trade is now shut off, affecting importing nations disproportionately. This brings the oil import curse—originally scheduled to arrive in decades, with the slow depletion of oil fields worldwide—into sharp focus. Europe and China imports 10-11 million barrels a day, each. India and East Asia (Japan and South Korea) buys another 4.6 and 5.6 million barrels from abroad every day. All in all, these territories soak up 75% of all exportable oil in the world and now they have to share 60%—presuming the rest of the world gets nothing. When their buffers will start to run low (around three months time in case of China and about a month or less for the rest), things can be expected to get really-really “interesting.” As a sign of things to come China has already stopped diesel and gasoline exports, with similar measures in place in Japan, India and other Asian refineries.
Besides the obvious problems this blockade and refinery shut downs will create at the pump, there is a more immediate issue for the global economy to deal with. Namely, the lack of diesel and jet fuel—powering all those trucks, mining machinery, ships, trains, planes, military hardware, and agricultural equipment worldwide—building, feeding and now destroying the world. You see, medium heavy oil from the now closed Persian Gulf was ideal to make these kinds of fuels from; fracked US shale oil and all those natural gas liquids are less so—if at all. This makes gasoil (diesel) the hardest product to source alternative supply for quickly, according to Kpler. On top of that, the gulf monarchies also have major refineries, with a significant portion of the world’s refined diesel fuel exports coming from the region, further tightening supply.
Diesel fuel price hikes are the real killers of the economy, not oil price increases in general—if you take a look at the chart above, you can easily see this for yourself. We just barely left behind another diesel fuel crisis, which emerged at the end of last year and which was then eased by the (temporary) return of Russian fuel exports, and we now have this; exactly when the agricultural season would begin on the Northern Hemisphere, kicking demand into a higher gear. In case you wondered, this is why diesel/heating oil prices jumped almost 42% in just a few days, far outpacing increases in crude oil prices. Depending on how long the crisis lasts, we can expect anything from food inflation to outright shortages of all kinds of stuff delivered on a truck or a ship—that is just about anything and everything. Even more “interesting” times ahead!
Another front in this global energy war to watch is LNG. Iranian drone strikes forced QatarEnergy to halt production at the world’s largest producer on March 2, taking one-fifth of global LNG export capacity offline in an instant. This comes on top of the Israeli Energy Ministry ordering the temporary shutdown of the country’s offshore gas platforms, including the Leviathan field that supplies 40% of the country’s gas needs, prompting a switch to alternative fuels. These are grave news for Egypt, potentially triggering an existential crisis in a country wholly dependent on Israeli and Gulf Arab energy imports. By the way, the same is true to Gulf states themselves but in a different way: situated in bone dry deserts, they need to import as much as 80% of their food. And since oil tankers cannot get out, vessels carrying grain cannot get in either… Food for thought.
The Iran crisis puts Europe also in a dire economic situation, as EU gas storage is already at a 5-year low, with France and Germany hitting record lows at the time of this writing. With regulations aimed at completely choking off all hydrocarbon imports from Russia, the continent’s energy future now looks bleaker than ever. Even as Europe buys “just” 17% of its oil and less than 4% of its natural gas from the Middle Eastern states affected, these commodities are “priced at the margin”—meaning the price is determined by the cost of acquiring the last (marginal) unit needed to meet demand, rather than the average cost of all units. Hence the vertical take off in the European TTF and Asian LNG markets. India, as a result, has already slashed gas supply to industrial users, as it is unable to pay more for LNG. And before you shrug it off with ‘then they will switch to coal’: natural gas is not just for heating and electricity generation. It’s a vital input to fertilizer manufacturing, a whole range of chemicals, as well as for making glass, cement and much more.
Last but not least, there is the mineral aspect, also affected by the closure of the Strait of Hormuz. Iran shared the second rank globally in the production of direct reduced iron and strontium in 2022. It was also a top-ten producer of barite, feldspar, and molybdenum—all key industrial inputs. With war raging in the region, and the strait remaining closed, we can expect disruptions in these markets as well. Silver and copper stocks—two key metals in electrification—have suffered sudden sell-offs, on the other hand, causing their prices to fall briefly. No wonder, with the world economy expected to “slow” (i.e. going into a full blown recession) and severe energy shortages on the horizon, there won’t be much demand for industrial products—not unlike greenbacks used to buy whatever oil is left available on the market. Again, don’t let the complacency of oil markets fool you: price shocks will come in the form of fuel and electricity price hikes as the world grapples with what shapes up to be the greatest geopolitical shock in living memory.
Of course, everything depends on how long the Strait of Hormuz will remain closed. If it’s a few weeks only, then we might get away with a prolonged recession and renewed inflation. If it lasts more than a month or two—as indicated by war planners—well, then all bets are off. (And if you thought that sending a few battle ships there will solve the situation created by drones launched from commercial looking trucks hidden behind coastal mountains, you are seriously deluding yourself.) This civilization is made possible by coal, oil and gas—read Craig Tindale’s excellent post to see how deep this rabbit hole goes and what to expect. In a nutshell: shortages of all kinds of stuff are all but baked in, with a systemic breakdown clearly in the cards.
“The ultimate conclusion is grim : the terminal danger in this model is not one shortage, nor one recession, nor even one war-risk premium.
It is the transition from a globally integrated commercial order into a world system governed by scarcity, coercion, and administrative triage.
In such a world, hunger, hyperinflation, sovereign failure, technological stagnation, and geopolitical militarization are not separate crises.
They are the normal operating features of a civilization that has discovered, too late, that its efficiency was built on concentrated fragility. The closure of Hormuz, under this analysis, is the event through which the modern world recognizes that its supply chains were never only economic structures, but the hidden constitution of social peace itself.”
Who wants what?
This takes us to the next important question to ask: Cui bono? Who benefits? Well, it doesn’t take much to figure out: if oil and gas prices were to rise significantly, oil majors are sure to reap extra profits… Just as it happened in 2022, following Russia’s invasion of Ukraine and the subsequent sanctions war, causing oil—and most importantly: diesel and LNG—prices to skyrocket. It’s really no wonder then how the net income in publicly listed oil and gas companies alone reached US$916 billion in 2022, with the United States becoming the biggest beneficiary claiming US$301 billion.2 And as the authors of the study (linked above) found:
“In a network of U.S. shareholdings with 252,433 nodes including privately held U.S. companies, 50 % of profits went to the wealthiest 1 % of individuals, predominantly through direct shareholdings and private company ownership. In contrast the bottom 50 % only received 1 %. The incremental U.S. fossil-fuel profits in 2022 relative to 2021 were enough to increase the disposable income of the wealthiest Americans by several percent and compensate a substantial part of their purchasing power loss from inflation that year, thereby exacerbating inflation inequality.”
In case you wondered, this is why you get more war (and never less)—no matter who you vote for. War is simply way too profitable for the rich to be left to real diplomats to settle… And we haven’t even talked about arms manufacturers and their payed lobbyists yet. War is a racket, as Brigadier General Smedley D. Butler wrote in 1937 already. This is why we get sham negotiations led by real estate guys and son-in-laws, which predictably end in assassination attempts, and in the case of Iran: the successful killing of the leadership class. What’s left out of the calculus is that Iran perfectly knew what’s coming, and prepared accordingly. In fact, the murder of their religious leader, Ayatollah Khomeini, along with the minister of defense, the head of the IRGC and an untold number of civilians in schools, hospitals, cafe’s, restaurants, police stations etc. has galvanized the Iranian public to unite around defending their country. The fight has become existential to Iran—don’t expect them to give up early. Now what?
The US leadership class wanted to have regime change and made no secret about it. They planned for a short (few weeks long) war and took a huge risk. They wanted a compliant regime in Iran, which turns on/off the taps as requested, allows Western oil majors to extract whatever hydrocarbons to be found, and which trades with (or boycotts) whomever the US wants. Think: China. (Why? “If they can restrict rare earth mineral exports, we can restrict their oil flows”—or so the thinking goes.) Now, that the original plan seems to be failing, turning Iran into another Libya or Syria has become the next “best” option—i.e. bombing the country into a failed state, peppered with constant infighting between religious and ethnic factions. Hence the news of involving the Kurds (and potentially the Azeris) in a land operation in the North, led by the US coalition, and potentially supported by special ops. and CIA agents on the ground (a’la Afghanistan).
Problem is, Iran is a much bigger, more complex, more formidable foe than any of those mentioned above: it has the missile stocks—as well as the economic, technological and manufacturing capacity to resupply—not to mention the quiet support of China and Russia to continue the war as long as it takes. And if things continue as they do, the US might easily end up depleting its critical military supplies (potentially taking resources away from the Pacific)—without the manufacturing capacity paired with a rare earth mineral processing capability required to replace missiles.3 What this means for the military bases under attack in the region is not particularly hard to guess… Unlike the ramifications of potentially having to retreat from the most oil rich region of the world.
Civilizational level
As we have seen above, all these actions accelerate civilizational decline—and not only in the West, but globally. The damage to oil production and refinery capacity is already significant, potentially taking years to recover from, if that’s even possible amidst the economic chaos about to be unleashed by the crisis. This global high-tech civilization was wholly unsustainable from the get go, but in its current, weakened, end-of-growth stage every setback casts a longer and longer shadow. Just think of the long recovery from the pandemic: a few months of lock-downs set back oil production by years.
These crises, from COVID-19 to the Ukraine war does not leave without a trace. They build on each other’s momentum, making the next crisis deeper and longer lasting than the previous one. This is especially true for “advanced” economies (the US, EU and China in particular) where high private debt levels are already at a crisis-inducing level, and where the cost of living crisis has become an everyday reality. Another major energy and supply shock (even if it were to last just a month) could definitely tip these economies into a severe recession, with powerful ripple effects on financial markets, threatening with a rapid sell-off of assets. In this scenario Europe/UK would most likely be the first to fall, with the US and China following in lockstep. (The former due to it’s deep financial ties to the old continent, and the latter due to a massive loss of exports.) The collapse into a much simplified, fractured state—brought at least a decade forward by this war—will be global.
All this must be put in an even greater, historical context, though. Without admitting that the United States struggles with its own accelerating imperial decline it is hard to really understand what motivates its leaders. Yes, they are fully aware that they losing the global hegemony they inherited from former colonial empires: the Brits, the French and the Dutch. Going with the definition, put together by Alexander J. Motyl, associate professor of political science at Rutgers University, Newark, in his book Imperial Ends, empire is:
“…a hierarchically organized political system with a hublike structure—a rimless wheel—within which a core elite and state dominate peripheral elites and societies by serving as intermediaries for their significant interactions and by channeling resource flows from the periphery to the core and back to the periphery.”
While denying that the West, led by the United States is an Empire (calling it an “irrelevant and quaint” critique of capitalism from the Left), Motyl inadvertently gave a concise and precise description what the US is actually doing ever since the announcement of the Monroe doctrine.4 And while previous presidents at least tried to hide the true nature of the system, citing ‘democracy export’ and a ‘rules based international order’ the recent crises and scandals exposed western ruling elites as nothing better than their Roman or medieval counterparts.5
With that said, don’t let the negative connotations attached to the word ‘empire’ mislead you: this term doesn’t refer to a political ideology, but a system of territorial and resource control.6 In this sense, present day Russia and China are empires too, even though they have a starkly different political setup from that of the US. What’s important to grasp here, is that the very structure of empires promotes decay—the weakening of the core’s rule of the periphery—as opposed to individual choices made by it’s leaders. That decay in turn facilitates the progressive loss of territory and the control over the periphery. And while most major empires have in fact declined in this manner, some, such as the Soviet Union, have collapsed suddenly and comprehensively. In fact, this is where I believe the United States is at the moment: teetering at the edge, trying desperately not to fall into ruin. America is in the process of rapidly losing its former economic, financial and military might, even as it struggles to increase control over its peripheries.
Starting a major regional war in West Asia, US ruling elites staked everything on one card in their desperate attempt to prevent losing their middle eastern peripheries to China. Subduing Iran could’ve made Israel (a loyal ally) into a regional hegemon, although achieving this goal would have required the neutralization of Turkey as well. With the operation increasingly going pear shaped, however, they risk losing it all in one fell swoop: turning a hitherto relatively slow imperial decline into a fast paced collapse with little to no chance of revival. And while you can love or hate the current crop of ruling elites, they are just trying their best to prevent the collapse of a US based world order from happening. Not that it could be done—decline is structural. Nor it would mean the end of the world: America and the rest of the globe still has ample resources to continue with a simplified version of this civilization. And that leaves one last, grave question open: the question of futility. That there’s a time when you should just give up, before things completely escalate out of control. This war only makes things far worse than they would otherwise be, and there is really no way it could be won by any of the parties involved. I can but hope that cooler heads eventually prevail—but with religious fanatics at the helm, this hope is but a faint one.
Until next time,
B
Thank you for reading The Honest Sorcerer. If you value this article or any others please share and consider a subscription, or perhaps buying a virtual coffee. At the same time allow me to express my eternal gratitude to those who already support my work — without you this site could not exist.
Iran denies that they performed the drone attack on Oman and Azerbaijan, which might be false flag incidents intended to draw in more allies on the US side.
In 2022 Saudi Arabia came in second, and Russia came in third. Since we are talking about an unfolding, major diesel fuel and LNG crisis, US exporters (by far the largest exporters of diesel fuel in the world) will likely come in first this time too. US profits on LNG exports are set to skyrocket, too, just as they did in 2022. With the strait closed, however, Saudi Arabia will be a clear looser, putting Russia firmly on the second place—providing it with even more funding for its war. Using this relative position of strength, and in response to the seizure of and attacks on its vessels, Russia decided to head off a further tightening in EU regulations and is about to stop exports to Europe unilaterally, well ahead of the scheduled 2027 deadline.
Ramping up rare earth mineral extraction and processing took decades even for China, even under the fastest economic growth regimes the world has ever seen. One company here, another there won’t suffice: in an era of chronic energy and mineral scarcity (just brought at least a decade closer by this war) increasing production capacity will be nigh on impossible. Instead, we can expect to see companies collecting a lot of cash for “investment” then quietly disappear with the money.
Core elite? Check. Think: billionaire donor class. Domination of peripheral elites? Check. Think: transatlantic “relations”, CIA black budgets, economic hitmen, color revolutions, rigged elections, kidnapping and assassinating presidents etc. Or how about channeling resource flows from the periphery to the core and back? Think: military spending by “allies”, weaponizing fossil fuel flows, reaping huge profits from wars abroad, facilitating disastrous mining practices, lopsided trading regulations, sanctions etc.
Motyl writes: “the core elite’s rule of the periphery can be formal, involving substantial meddling in the personnel and policies of the periphery, or informal, involving significantly less interference and control.” In this sense, US elites are rapidly moving towards a formal, direct form of rule, as opposed to the more informal approach of the past decades.
According to Motyl such polities can be tightly massed and territorially contiguous empires (such as China and Russia), or discontinuous empires, loosely arranged and often involve overseas territories (as in the case of the U.S.).
This is an amazingly well written description of the consequences of the Iran War on collapse dynamics.
Every single US president in my long life promised peace, but delivered war. Every day I see news reports declaring how horrible it is that we lost 6 members of our military while ignoring the growing numbers of innocent civilians. Will millions die because one pedophiles fears being held accountable?