Traders Weigh Iran's Internal Politics to Figure Out Which Bets to Place
Oil and gas traders, as well as ship charterers, are faced with an open question as the impact of the crisis in the Gulf region deepens.
If the crisis ends quickly, those with short positions in futures will make a fortune, as the recent sharp rise in prices collapses. For those who are long, with delivery dates next month and beyond, prices are likely to rise further if the crisis is prolonged, particularly when stocks held afloat are brought ashore.
VLCC and product tanker charterers face the same dilemma. When will frozen capacity come back on the market and cut back the huge recent rises in spot rates? Later, when will there be a further surge in demand as producers rush to fill stock deficits in consumer nations?
Hence Iranian politics, hitherto a specialist area for very few outside Iran, has become a primary concern for a community which previously had only a passing interest in the subject.
Where will the impetus come from to end the war - and when?
From the perspective of Israel and the United States, the dominant influence appears to be the determination of the Israeli government to permanently end the threat posed by Iran in all its manifestations – nuclear, ballistic missiles and drones, regional subversion. Having been frustrated at not being able to finish the job started in last year’s 12 Day War, there is a determination in Israel to do so this time.
This determination looks likely to trump American uncertainty as to what exactly its war aims are, and also the desire of Gulf nations to bring the conflict to a close as rapidly as possible. Some Gulf nations are likely to covertly share the Israeli determination to see the job done, with both Saudi Arabia and Qatar sufficiently upset by Iranian attacks to have launched counter-attacks themselves.
On balance therefore, the anti-Iranian campaign will continue - as far as Israel and America is concerned - until there is a change of regime in Iran. Prime Minister Benjamin Netanyahu has opined that the Israeli campaign will take “several weeks” to achieve this.
From the Iranian perspective, when might the Iranians seek to bring the war to an end?
Currently, political authority in Iran has been decentralized and the Supreme Leader any many other senior political figures are dead, meaning that there is no mechanism within the regime with sufficient authority to pitch a proposal to the other side - presumably through Omani mediators.
Iranians are currently in the early stages of selecting a new Supreme Leader. This may be a fraught process if Israel continues to target meetings of the Assembly of Religious Expert, whose task it is to make the selection. The building housing the Assembly in Qom was attacked by Israel on March 3, possibly a reflection of an assessment that none of the potential candidates for the Supreme Leadership would be anything other than a continuity candidate of the same character as the late Ali Khamenei.
A recent assessment by Iranian expert Akhtar Makoii named four likely front-runners. Alireza Arafi would be a figurehead for Ali and Sadeq Larajani, the previous Supreme Leader’s closest advisors and advocates for pursuing a negotiating position which would leave the strategy of the previous leader intact. Sadeq Larajani could be a viable candidate in his own right. Mohammad Mehdi Mirbagheri is a cleric described as an advocate for “suicidal escalation,” no matter if Iran is destroyed if it brings the nation closer to God. Mojtaba Khamenei, the second son of the late Supreme Leader, would in effect be the figurehead for a military coup conducted by the IRGC.
At this juncture, none of these candidates presents any prospect for the sort of change sought by the Israel and the United States. Other candidates are likely to emerge, but the character of those currently in the running is reflective of the fact that as yet there is no softening of the Iranian regime’s strategic positioning.
From both the US/Israeli side and the Iranians, there is therefore not yet any dynamic for broaching the question of a ceasefire, either temporary, such as a short opening of the Straits of Hormuz, or permanent. Further damage will need to be inflicted before either side feels inclined to consider a halt to hostilities.
It is difficult to see what leverage the international community can bring to bear on the two warring parties, sufficient to soften their positions and prompt consideration of a ceasefire. The Chinese will begin to be badly affected in about two weeks, but they would have to behave in assertive ways they have not tried before if they were to have effective influence. That leaves the international community suffering the effects of economic disruption, which will only get worse if the Straits of Hormuz remains restricted - though those suffering will quickly develop alternative logistics strategies.
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For traders looking for indicators that the current impasse might be about to move, a good sign might be the launching of a political initiative by the Omanis, who have a more acute understanding of Iranian internal politics dynamics than anyone else. Political rumblings in the United States may also be an indicator, though to what degree concerns in America would influence the very determined Israelis at this juncture is debatable. It would be surprising, but any signs that separatists amongst Iran’s Azeri, Kurdish, Arab and Baluch ethnic minorities are seizing power locally would be telling, and also any sign of defections or rebellion within Iran’s regular military.
War being a continuation of politics by other means, it seems likely that there will be more of it before politics and diplomacy return to center stage in the Gulf region.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.