Tuesday, July 2, 2019

Where Does Trump Go From Here With Iran? — Tom LUONGO

Donald Trump has boxed himself into a corner. His maximum pressure campaign on Russia, China, Iran and the Palestinians isn’t working. Time is ticking by and we are now, officially, into campaign season for 2020, when these operations were supposed to have been resolved by now.
While Trump still draws nearly unfathomable crowds for his rallies he is staring at an abyss of bad decisions in front of him which will see him either reverse course on all of his signature wins with his base over the past year – getting tough on Iran and China, going after evil socialists in Venezuela – or face a global economic meltdown which his daily Surreality Show is fomenting.
Trump refuses to take responsibility for anything that is happening. Everything is someone else’s fault.
Trade balance? China. Europe. Mexico. Canada.
Unrest in the Middle East? Iran. ISIS. Hezbollah. Russia.
Collapse and conflict in Ukraine? Russia.
Border Security? The Democrats.
Interest Rates? The Fed.
His inability to see how his moves affect events in the context of the global arena is his greatest weakness. It should have been a strength, his lack of shame. But it isn’t. Because now he’s gotten himself so far over-extended on Iran he’s been exposed as all bark and no bite.
He’s pushed Iran into a corner and from that corner they decided to finally strike back by downing a Global Hawk drone flying in full stealth mode over Iranian airspace if the Iranian side of the story is to be believed.
And regardless of the specifics of the situation, since we will never know the truth of the matter, the outcome and the way the narratives were handled it’s clear that Iran was sending a very strong message to the US.
Not one more inch.
Because while the US is more than capable of wiping Iran off the map for all intents and purposes, the truth is that for all of that capability, the after-effects of using it would be devastating for the world.
In common parlance the term is ‘blowback.’
The Western financial system is very much a paper tiger. And I do believe someone finally whispered in Trump’s ear after the drone was shot down that if he strikes Iran the consequences would be devastating for everyone.
Remember, Iran has nothing left to lose financially. The US has tried to take it all away. If the sanctions are working they are only doing so to accelerate the timetable which brought us to this point.
And a man who has nothing left to lose is a man who could easily lose it and take everyone with him. Pepe Escobar wrote about this at length recently. And while I agree with his overall thesis I think he’s out over his skis about the numbers themselves.
Suffice it to say that with nearly $13 trillion in negative-yielding debt, Deutsche Bank functionally insolvent and oil supplies vulnerable to supply shock that the aftermath of a series of attacks on infrastructure around the region, that over-leveraged capital markets trading at nose-bleed prices could collapse quickly triggering cascading defaults around the globe.
Regardless of the specifics, chaos would be the order of the day and markets hate chaos.
So Iran shot down that drone knowing full well that any US response would be disproportionate, to use Trump’s words. It took a level of character I didn’t think he or anyone else thought he had in calling off the airstrikes.
So I’ll give him credit for that. He needs to do more of it. And his signaling to Iran that he’s willing to talk with no pre-conditions is proof that he’s got negotiations on his mind. But Iran can no more come to the table with Trump than Trump can back down on his bluster and sabre-rattling with Iran.
Iran is right to say they won’t negotiate at gunpoint. This is especially true when it has been revealed that the guns themselves can’t actually be fired. Their leadership would collapse overnight if they began talks with Trump. That drone is now a rallying point for Iranians to support their government on in the short-term.
They gain nothing by coming to the table. Foreign Minister Javad Zarif went on a charm tour earlier this year to make Iran’s case and was roundly ignored by the US The opportunity was there then and the message from Iran was ignored.
What’s changed now that Trump wants to talk?
The sanctions are working? Please, don’t make me laugh. Russia’s National Security Advisor Nikolai Patrushev made it clear in his remarks that Russia stands behind Iran and that it will not tolerate any more aggression by the USI’m sure John Bolton’s mustache didn’t want to hear that.
“In the context of the statements made by our partners with regard to a major regional power, namely Iran, I would like to say the following: Iran has always been and remains our ally and partner, with which we are consistently developing relations both on bilateral basis and within multilateral formats,” Patrushev said after the trilateral meeting.
“This is why we believe that it is inadmissible to describe Iran as a major threat to regional security and, moreover, to put it on par with the Islamic State or any other terrorist organization,” Patrushev stated.
Russia’s National Security Advisor calling Iran an ally was significant. And I have to think that given some of the circumstances surrounding the drone that part of Iran’s message was 1) we have better weapons than you think we had and 2) the Russians gave them to us while denying it.
So, if you are coming after us it will have to be at a level that will make everyone outside of K-Street very uncomfortable. Trump will literally have to ‘go big or go home.’ Given the circumstances that seems unlikely.
It is in Russia’s long-term best interest to keep Iran stable and relatively prosperous. They cannot afford a failed state and chaos in Iran. Note the timing of violent uprisings in Georgia. Don’t think these things are related? Think again.
Keeping the Russians busy with multiple hotspots is the plan here. But Russia isn’t confused about this strategy. Expect in the coming weeks to see more direct support from Russia to Iran. I wouldn’t be surprised if the Goods-for-Oil program hasn’t already been expanded and that Iran is one of those countries the Bank of Russia mentioned wanting access to Russia’s version of SWIFT, SPFS, to clear transactions sanctioned by the US
It’s not like it would matter one bit to most Russian banks since they are already sanctioned by the US in the first place.
Once that happens and it’s clear the US will not stop Iranian tankers from sailing, all that remains is for the proper financial intermediaries to be put in place to keep the US off balance and Iran’s oil will flow.
The sanctions will be in effect, Iran will be starved of dollars and the medium-term pain will be acute. But it will be another move away from the dollar settling the trade of oil.
So back to my original question, where does Trump go from here? Iran won’t allow him to save face. I don’t have a good answer for that but Iran is betting that re-election will stay his hand for another year. He can and should start with firing the architects of this failed ‘maximum pressure’ policy and send everyone a clear signal that he’s ready to climb off the mountain they’ve built for him.
As long as the US, Israel and Saudi Arabia look the other way while Iran ‘smuggles’ its oil everything will calm down. If they don’t then things will get ugly from here for all involved.