Jul.24

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The Middle East: The Houthis Enter the Conversation

How many different ways can we write an item that boils down to "Donald Trump is screwing up the Iran War, badly?" Quite a few, it would seem. Today, our approach will be to run down five different bad signs, each of them presenting themselves in the last (roughly) 24 hours:

1. The Houthis: The Houthis are an Iranian-backed Shia militia based mostly in Yemen. And, presumably at the instigation of the Iranian government, they just fired upon two Saudi tankers in the Red Sea, while threatening to close that waterway to all shipping traffic. Here is a map of the Middle East:
   
   
   
   As you can see, threats against the Red Sea would create two chokepoints for oil, one on either side of the Arabian peninsula, making it somewhat more difficult to get oil out of Saudi Arabia and through the Suez Canal, and making it nearly impossible to get oil out of Iraq, Kuwait, Bahrain, Qatar, etc.
   
   And now, take a look at the average price of a barrel of Brent crude over the last month:
   
   The trendline is consistently upward, which probably suggests that oil buyers have lost any optimism that this war will end soon. Meanwhile, after the Houthis lashed out, the price spiked to almost $110/barrel before closing at a little over $100/barrel yesterday. This probably suggests that, with two key shipping lanes threatened, and with Russian oil supplies under attack by Ukraine, the oil buyers are really freaking out. The only other time when oil has been over $100/barrel in the last decade is during the pandemic.
   
   Naturally, if the price stays that high, it will reverberate throughout the U.S. and global economies. For example, the 10-year U.S. Treasury yield rose to 4.71% yesterday; it had been right at 4% before the Iran War. This, of course, means that it's getting much more expensive for the federal government to borrow money, which means either bigger deficits (and higher inflation) or cuts to government programs (and unhappy voters).
   
   Trump isn't exactly Amartya Sen when it comes to macroeconomics, but he certainly knows enough to know these are bad things for him and for his in-power political party. And so, the President responded angrily to the Houthis' maneuvering. First, he got on his paper-tigery social media platform to announce how very disappointed he is in the Houthis. Undoubtedly, they are devastated. Then, he followed with this threat:

   Please let this statement serve to represent, until further notice, that from this point forth, any and all damages done to Ships, Cargo, or anything related thereto, will be paid for by Iranian Money that the United States has in its possession, and controls. These damages may be very substantial but, nevertheless, this is the fair and equitable thing to do. Thank you for your attention to this matter! President DONALD J. TRUMP

   Here, Trump is doing what he so often does—like, say, with the money gained from seizing Venezuelan assets—and spending it in several different places at the same time. Recall that this is the same money that Trump's negotiators are trying to use to bring an end to the Iran War, by returning it to the Iranians.
   
   
2. Funding: Meanwhile, for nearly 2 weeks straight, since the not-really-a-ceasefire failed completely, the U.S. has resumed trying to bomb the Iranians into submission. Here is where the American stockpile of missiles stood before the newest wave of attacks:
   
   

   Missile Type	Cost Per Unit	Pre-War Supply	Used on Iran	Time for New Deliveries (months)
   Tomahawk	$2.6M	3,100	1,000+	47
   JASSM	$2.6M	4,400	1,100+	48
   PrSM	$1.6M	90	40-70	46
   SM-3	$28.7M	410	130-250	64
   SM-6	$5.3M	1,160	190-370	53
   THAAD	$15.5M	360	190-290	53
   Patriot	$3.9M	2,330	1,060-1,430	42

   
   In other words, even before the latest wave of bombing, the U.S. had burned through an enormous chunk of its inventory of fancy missiles. It's going to cost a lot of money and take a long time to replenish the stockpile. In some cases, like say with the THAAD missiles, the stockpile is getting close to being exhausted. That means that not only will that option not be available for use against Iran, it also won't be available to give/sell to allies, like Ukraine.
   
   This said, it's not the dwindling missile supply that's the big story of the last 24 hours (or so), it's the money needed to replace them (and to pay for the other aspects of the war). Secretary of Defense Pete Hegseth, following his boss's lead, told Congress back in April that the war was won, and that was that. Yesterday, he asked for $67 billion in additional funding, so that the U.S. can win the war that was supposedly already won.
   
   
3. Congress: With the war, and the costs of fighting, expanding by the day, the Iran War has "quagmire" (or, if you prefer, "sinkhole") written all over it. That said, Republicans in Congress love the military, and so they might be open to writing the check that the administration wants written. However, things have gotten complicated, in part due to Trump's unwillingness to accept reality.
   
   To start, the war is unpopular with Americans, and with some/many members of Congress. Yesterday, the House voted on yet another (basically symbolic) resolution to end hostilities in Iran. It passed that chamber, with the Democrats and a handful of Republicans voting in favor. Then, the Senate rejected the measure 47-49, with Sen. Susan Collins (R-ME) crossing the aisle in one direction, Sen. John Fetterman (D-PA) crossing the aisle in the other, and Sens. Lisa Murkowski (R-AK) and Rand Paul (R-KY), who previously supported such resolutions, voting "present."
   
   Shortly thereafter, the House passed a $95 billion reconciliation bill that would give the Department of Defense the money Hegseth wants. That means that at least some House Republicans voted "yes" on an anti-war resolution, where their vote will have no meaningful impact (since the resolution won't be signed into law by Trump), but then also voted "yes" to fund the war, where their vote certainly could have a meaningful impact (since Trump WILL sign a funding bill). This is rather inconsistent, and certainly suggests that voting "yes" on the anti-war resolution was just so they'd have something to point to for the benefit of anti-war folks back home.
   
   After the House passed the reconciliation bill, Speaker Mike Johnson (R-LA) sent his members home for an extended break. Part of the point of this is to put pressure on the Senate—effectively, "take it or leave it." The political problem here is that, taking marching orders from Trump, the House's bill also contains the SAVE Act. That is not going to survive a Byrd Bath, and Senate Majority Leader John Thune (R-SD) has made clear that he will not ignore Senate Parliamentarian Elizabeth MacDonough.
   
   Leading House Republicans, most vocally House Majority Leader Steve Scalise (R-LA), aided by Trump, spent yesterday afternoon trying to put the screws to Thune. The President, for example, said that he's "trying to be nice" with Thune, but that his patience is "running out." The first problem here is that neither Scalise nor Trump have any particular power over Thune. The second problem is that when Thune says he doesn't have the votes, he means it. He's not being entirely explicit about this, for obvious reasons, but "I won't fire the Parliamentarian" isn't ONLY about maintaining a tool that is useful to the minority party, it's also about keeping some of his most vulnerable members (e.g., Collins) from taking a vote they do not want to take on the SAVE Act. It is also possible, though this is not entirely clear, that there aren't 50 Senate Republicans (or, 49 plus Fetterman) who are willing to dump another bunch of money on the DOD.
   
   
4. The Saudis: We wrote yesterday about the deal that the administration signed with Saudi Arabia, which would put that nation on the glide path toward developing nuclear weapons. The deal is clearly a product, at least in part, of all the money the Saudis have lavished on Trump and his family, particularly First Son-in-Law Jared Kushner. It's probably also an example of how geopolitics works in the mind of the President. If he recognizes that keeping Shia Iran from becoming nuclear is a lost cause, then allowing Sunni Saudi Arabia to become nuclear is a check on the Iranians, presumably.
   
   The problem here is that while Trump can afford to trust the Saudis (after all, even if they become a nuclear power, it won't be until after he's left office), other nations in the region cannot take that risk. That includes, most obviously, Israel. But it also includes Turkey, Egypt and Iraq, among others. If the Kingdom of Saud is indeed able to move toward being a nuclear power, it is guaranteed to start an arms race that probably doubles the number of nuclear-capable nations in the world, and that makes the Middle East, and the world, a less safe place.
   
   It is possible that someone, maybe Israeli PM Benjamin Netanyahu, got in Trump's ear and made him aware of this. In any event, the President tossed a giant wrench into the situation yesterday when he announced that the deal with the Saudis is off unless they join the Abraham Accords and formally recognize the nation of Israel. The White House claimed that this was always part of the deal, and that Secretary of Energy Chris Wright should have known that, and should not have made any announcements until the Saudis granted that concession. This is either very dishonest (if it's a lie), or it's a sign of gross incompetence and mismanagement (if it's true).
   
   To the extent that the U.S. has an ally in this Iran conflict (besides Israel), it's Saudi Arabia. The Saudis have allowed their nation to be used as a base of operations, and they have gotten involved in the bombing of Iran. However, if their ships are being attacked, and if they cannot trust the Trump administration to honor its commitments, then that is certainly not going to make the Saudis a more supportive ally. It could make them less so, however.
   
   
5. No Endgame: Finally, the fact that Trump has no real concept of what's going on here, and no real sense of an endgame, has been clear for much, much more than 24 hours. However, a speech he gave in Georgia yesterday affords some insight into how off-base his thinking is. He actually said a bunch of nutty stuff, but the most instructive part, we think, was this:

   You combine us and Venezuela. We have about 62% of the world's oil market. So we don't need straits. We don't need anything. We don't need the Hormoon Street. But we do it because we have to do it, because we cannot let Iran have a nuclear weapon.

   As we have written many times, the oil market is global. If he is telling himself that U.S. oil plus captured Venezuelan oil (which most U.S. refineries cannot process) effectively insulates the United States from the effects of the Iran mess, allowing the U.S. to just keep pounding away without concern for how much time has passed, he is absolutely delusional.
   
   And it's not just Trump's speech that served as a reminder that the administration really has no clear vision for this war. After Hegseth asked the Senate for a boatload of money, several Republican Senators told reporters that nobody in the administration seems to have a clear sense of what the "off ramp" is here—how the U.S. will achieve what it's trying to achieve, and how the U.S. will know when it's time to exit the war.

So, another day's worth of setbacks for the White House. That said, yesterday was unusually bad, even by the standards of this disaster of a war. The conclusion remains the same as it has for months: It's time for the U.S. to cut its losses. However, as the staff at The Bulwark pointed out yesterday, the only thing more politically unpopular than starting a war is losing a war. Trump now has the Iranian tiger by the ears: He wishes he didn't have it, but he doesn't dare let it go.

In truth, though, maybe the first part of that last sentence is not true. If you believe that a big part of the goal here was to create profit opportunities for the president, or else that he serendipitously discovered those opportunities once the war was underway, then maybe he's actually pretty happy to have the tiger by the ears. One indication that he's quite OK with what's happening right now is this: Despite being stuck in a war that has no obvious endgame, the administration is currently kicking around the idea of starting ANOTHER war, this time in the African nation of Mali.

The ostensible reason for a possible attack on Mali is to undermine the al-Qaeda affiliate JNIM. However, one cannot help but notice that Mali is a far easier target than Iran, and that "success" there might obscure some of the failures taking place in the Middle East. It would be quite a thing if the administration commenced a war to deflect attention from the war that was commenced, in part, to deflect attention from the Epstein files. That's like Wag the Dog squared. We also have no doubt, at this point, that either Trump or his inner circle would find a way to make some money from a war in Mali. It's a leading producer of gold, so hoarding gold would seem to be an obvious choice. (Z)

P.S.: Yesterday, we wrote that Trump might well have bought Westinghouse stock before announcing the plan to help Saudi Arabia become a nuclear power. It turns out that the Westinghouse that makes nuclear reactors is not the one that's publicly traded. Our error. That said, this does not change the fact that if a president is willing to exploit opportunities to profit from their office, as this president clearly is, then there are almost unlimited opportunties for them to do so.

Oh, and it's not impossible that some traders made the same error we did, and bid the stock up, thinking they were buying the correct Westinghouse. This COULD be a story of both corruption AND incompetence.