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Global energy markets will resist the US-Iran escalation. The global world order might not.

Global energy markets will resist the US-Iran escalation. The global world order might not.

Yana Popkostova*


The easiest route into lunacy is to speculate for doomsday scenarios and prepare for averting them. But some are worth anticipating, like disruption of global commodity and trade markets as Iran doles retaliation following the slain of the cult-like figure of commander Qassem Soleimani. Or as a secondary thought, the reversal of the global world order.

Despite the recent escalation of violence between the US and Iran, and the hasty warnings of further reprisals, this has not and will not have as destabilising effect on global oil markers as some might be complacent to indicate. A period of price volatility has already been unleashed [and a quick peak at the markets of the past several days demonstrates this], except looking into past incidents shows that markets seem to be more agile and resilient to geopolitical stresses today than historically has been the case. While the oil rally is expected, and will extend well into the year, prices will not inflate significantly.

Caprice and impulsiveness do not dwell in the Islamic Republic. Standing in truculent opposition to the international liberal order spearheaded by its archenemy it has; foisting its ideology across the region - certainly; but engaging in reckless and uncalculated action – never.

Uncertainty as to what comes next [and where, how and when] bodes badly for energy markets. Nevertheless, caprice and impulsiveness do not dwell in the Islamic Republic. Standing in truculent opposition to the international liberal order spearheaded by its archenemy it has; foisting its ideology across the region - certainly; but engaging in reckless and uncalculated action – never. The attacks will be carefully planned and well-executed, just enough to retaliate but falling short of prompting escalation that can doom its ailing economy and the survival of the regime. The firing of missiles against US military bases in Iraq was a showcase of this strategy. Big blast, no significant damage [or casualties!]. Iran’s history shows that it neither forgets, nor forgives. Given the country’s mediocre conventional military force, goading of the enemy in the months to come will take other forms and shapes and might well be succoured by the likes of Russia and China. Kinetic attacks, sophisticated cyber warfare, social media targeting à la russe are to be expected. Attack on vessels and/or oil infrastructure and facilities in the Gulf and in the Strait of Hormuz against US and regional allies is unlikely. The same is valid for potential attacks on power grids or industrial plants. Blockage of the Strait of Hormuz is nonsensical. As to unexpected tit-for-tat spasms on the US side, in all honesty, despite its newly found energy dominance, the US is not without its Achilles weakness – it will continue to need the Middle Eastern heavy oil that it does not produce, hence will not like to compromise regional inventories too much. So uncertainty - there is, but within the plausibly expected.

What matters goes well beyond energy markets. The escalation of jitters between the US and Iran belies a new status quo, the end of the world as we know it. The geopolitical telethon, Trump has amused us with for the past few years has taken a new turn, surprisingly revelatory one as well, where the familiar American exceptionalism in launching wars and conducting extrajudicial killings just start to be emulated by others, crumbling the foundations of international ethics and law. What a Hobbesian mayhem can emerge in this judicial vacuum! The EU response, despite hefty promises of increased global and geopolitical role just weeks ago, has effectively been nil. Russia and China have been silently observing so far [potentially jubilating on their imminent influence gains]. The UN caves into irrelevance. This all increases the climate of anxiety, disrupts an already fragile global order scathed by geopolitical, systemic and governance volatility and prompts tectonic shifts to global power dynamics.

The geopolitical telethon, Trump has amused us with for the past few years has taken a new turn, surprisingly revelatory one as well, where the familiar American exceptionalism in launching wars and conducting extrajudicial killings just start to be emulated by others, crumbling the foundations of international ethics and law. What a Hobbesian mayhem can emerge in this judicial vacuum!

In a world inflamed by the temptations of populism and brawny politics, new political reflexes are entering into fashion, potentially deprived of multilateralism instincts and outside of the rule of law and global governance regime that has been a cornerstone of stability for the past 70 years. Iran’s influence across Iraq, Syria, Yemen, Lebanon will likely increase, so Trump’s whim might achieve what is against his first instinct. The killing of the leader of the Iraqi Popular Mobilisation Forces and the potential departure of US troops from Iraq might unbridle ISIS resurgence. The country seems to be doomed to decades of warring fractions, erratic services, and instability. Blighted by impotence, the EU will seclude to the familiar world of summitry and issuance of common statements, delusional that it still wields any real power. Who and how will fill the global governance vacuum? What will replace the international legal approximation that somehow underscored political and state sanity for years past?


This is what is uncertain. The halcyon days of the end-of-history merriment are long gone. At the start of the new decade, alas, diplomacy is out of reach. The aura of invincibility the liberal democratic order has cultivated is fractured.  And this is definitely something worth preparing for.




* Yana Popkostova is the Founding director of the European Centre for Energy and Geopolitical Analysis in Paris, France.
 
The commentary is produced by the European Centre for Energy and Geopolitical Analysis (ECEGA), a private, tax-exempt institution focusing on Geopolitics of Energy and Europe’s evolving place in the world. Its research is nonpartisan and nonproprietary. ECEGA does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
 
© 2019 by the European Centre for Energy and Geopolitical Analysis. All rights reserved.





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