Will this Regional War become a World War?

and lead to both an economic and ecological reckoning?

Trump launches Operation Epic Fury from the basement of Mar-a-Lago while accidentally revealing classified information on the map behind him

The big question the world faces is this: given existing global economic imbalances and the unstable state of the world economy and ecosystem - will this rapidly expanding regional war become a world war? Will Iran’s allies in Russia (a nation on a ‘total war’ footing) North Korea and China (heavily dependent on Iran for oil) be drawn into this conflagration? Or will China use the opportunity to make good on a pledge to reunite the island of Taiwan with the mainland by invading Taiwan - thus triggering unrest in Asia? Will the United States succeed in its efforts to draw all European allies into this war? Germany has promised Trump support; Spain has demurred, but the UK, while reluctant to get involved has already deployed an advanced warship and helicopters to the region.

Defense Secretary Pete Hegseth assured the world that the war would be brief. Addressing his enemies, he called for a stop to the screaming of ‘endless wars’.

This is not Iraq. This is not endless,” he said. “Our generation knows better and so does this president.”

The assault on Iran is intended to last “four to five weeks,” Trump told The New York Times Sunday.

When the First World War started, everyone thought it would be over in a month.

Given the destruction wrought on a string of economies largely responsible for capitalism’s most important inputs: the world’s supplies of fertiliser, gas and oil, will ‘Operation Epic Fury’ cause a global financial crisis - and an ecological reckoning?

My presumption is to shed all illusions and be prepared for all three of the worst outcomes and their consequences: a world war, a global financial crisis and an ecological reckoning. In the event all three scenarios are avoided, we would consider ourselves fortunate.

Markets can’t fix this

Thanks to economic ideology the global economy is largely governed by deregulated markets in money, goods and services. These in turn are frequently destabilised by imbalances built up within and between markets - imbalances that are not corrected or managed by regulatory public policy.

One of the worst imbalances, wealth inequality, fuels trade, financial and ecological imbalances - ‘trade wars are class wars’ - but also political tensions, manifest currently as a political ‘affordability’ crisis. Into this cauldron of instability and precarity Israel and the United States have chosen to lob ‘Operation Epic Fury’ intended to rain terror down on the Middle East - a major source of capitalism’s fossil energy supplies and home to about 250 million people, of whom 93 million are Iranian.

The implications for the global economy are “seismic” as Ed Conway of Sky News argues.

Renewing cost-of-living crises

‘Operation Epic Fury’ was launched in the middle of the night at Trump’s Mar-A-Lago weekend retreat with no clear political or economic purpose, strategy or outcome. As everyone now understands the war will impact globalised markets in oil and gas and will fuel inflation, thereby exacerbating the ongoing and worldwide cost-of-living crisis - and the political reaction to that crisis.

There is currently no shortage of oil supplies, while demand globally remains weak. Middle Eastern mayhem and the closure of the Strait of Hormuz are not, at this stage, expected to cause a prolonged rise in oil prices.

The same is not true of the global price for liquefied natural gas (LNG), on which Britain and Europe are heavily dependent. Reuters notes that

Most Qatari ⁠LNG flows to Asia, but some also flows to Europe, which is entirely dependent on imports for its oil and gas needs. Europe is expected to scramble to replenish stocks, depleted by a cold winter, and will need to rely even more on U.S. gas, after shunning Russian gas after its 2022 invasion of Ukraine.

Some predict the gas supply hit is likely to be worse than occurred in 2022. And we’re not just talking gas. As Ed Conway explains:

We’re talking about fertilisers (derived from natural gas). We’re talking about plastics (from the many petrochemicals produced from gas and oil). We’re talking about the composite materials used to make the fuselages in the latest passenger jets and Formula One cars. All begin as oil and gas pumped out from under the ground. And there is no greater store of those hydrocarbons anywhere else on the planet than here.

That is point number one. Point number two is that the majority of those hydrocarbons have to exit the Gulf through a single, narrow maritime corridor known as the Strait of Hormuz. And since this strait is bordered on the north by Iran, that raises significant questions about how easily we can procure these essential ingredients for human civilisation in future.

Add to those points the disruption caused by ‘Operation Epic Fury’ to the giant airport hubs and hospitality markets of the Middle East - and we’re talking major capitalist losses and upheavals.

Because the United States is more or less self-sufficient in both oil and gas -disruptions in global markets has, so far, had no real impact on what Lloyd Blankfein (ex chief of Goldman Sachs) calls “complacent” US stock markets.

At American pumps however, gasoline prices have already jumped above $3 per gallon, soon after Trump boasted of bringing prices down to $2 - with political implications for the November midterm elections.

The threat of another GFC

I have long argued that because there was no ‘Plan B’ after the Global Financial Crisis, financiers in the Wall Street-driven system - surprised at not being punished or jailed for reckless misdemeanours - quickly consolidated the system. (For more on the details of Wall Street’s Houdini-like escape read David Sirota here.) Both the shadow banking system and Wall Street banks are now far-too-big-to-fail, and more powerful and complacent than before the GFC. The ex-chief of the Wall Street bank Goldman Sachs agrees. In an interview with the FT this week he said

the lack of a major “shakeout” since 2008 means people “aren’t as scared” and had got more complacent.

He, like me and many others, believes there is going to be a reckoning. At the heart of that reckoning (as I explain in the new book, The Global Casino) will be the subjective valuation of assets (e.g. property) vs the real value realised in markets (known as ‘marking to markets’) and relative to the debt leveraged against those assets. As Blankfein explains:

The longer it takes between reckonings, there is a potential for a more severe reckoning…..I’m not saying it’s going to happen tomorrow or what direction it comes from. But when something goes off you’re going to find all the assets that have been carried at prices that can’t be realised in the market.

An ecological reckoning?

Will that reckoning be both an economic and an ecological reckoning? For while Ed Conway might consider hydrocarbons as “essential ingredients for human civilisation in future” - fossil fuels simultaneously threaten the survival of what is left of ‘human civilisation’.

An ecological reckoning may be a consequence, and perhaps even a desirable consequence of this ugly conflagration. It may force us to look elsewhere for the clean energy we need to sustain economies.

In the absence of sound world leadership, we have to hope the economic crisis now engulfing the global economy coupled with MAGA/Vance opposition to another ‘forever war’, will force President Trump to “chicken out’ and rein in Israel.

Hope - however hard we may cling to it - is not a strategy. In the absence of global leadership and a co-ordinated strategy for stabilising both the global economy and geopolitical unrest, this crisis may well prove to be transformative.

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