Backloaded

For some reason, the actual text of the “memorandum of understanding” due to be signed by the US and Iran tomorrow has not been released.

There could be residual negotiations going on over the detailed wording of the agreement. It could be that the US is trying to manage expectations about what this agreement entails. Iran could be holding off because of continued Israeli strikes in southern Lebanon – a matter Tehran considers a precondition.

Should nothing hinder this agreement, US and Iranian diplomats are scheduled to sign the document in Europe Friday. Most likely, the signing ceremony will be held in Geneva, across the lake from Evian in France where leaders of the G-7 are now gathered for a summit meeting.

Anticipating an agreement that will hold despite Israeli attempts to torpedo peace, the global market began pricing oil downwards. Unhindered navigation of the Persian Gulf will enable hundreds of ships to move out with their precious cargo. Oil and irreplaceable by-products should begin moving more freely to the consuming countries, primarily those in Asia.

The economies of East Asia have been most seriously hit by the blockage of the Strait of Hormuz. About 20 percent of global oil needs pass through this narrow channel. By-products such as helium, LNG, petrochemicals and fertilizers have been bottled up as well – causing serious disruptions in East Asia’s manufacturing and exports.

Assuming Washington is able to rein in the warmongering Netanyahu, the stage is set for global recovery. Industrial nations will be able to refill their strategic petroleum reserves at a lower price point. There will be vastly less disruption in trade flows. The shaky international financial structure could be stabilized before any major market collapse happens.

Debates will continue to linger over whether the destructive US-Israeli attack on Iran was justified. The action certainly violated the norms of international law. A major portion of the costly American munitions stockpile was consumed and will require years to replenish. Tens of thousands of Iranian citizens were maimed and killed by the brutal airstrikes.

Those debates will linger on much later. At the moment, much of the attention will be focused on the upsides of peace (or at least some semblance of it) in the Middle East. Most of the gains are, however, backloaded.

Oil, for instance, is not going to snap back to its prewar price levels as soon as we might want it to. A number of oil processing facilities were damaged during the bombardment. Some, including Qatar’s LNG production, might require months if not years of repair.

It will take months to clear oil deliveries after a hundred days of the Gulf’s closure. The industrial countries will need time to refill their strategic reserves. In the meantime, doing so will exert demands pressure on oil prices.

The ease with which Iran was able to shut down the Strait of Hormuz provides neighboring countries a strategic lesson. To avoid recurrence, Saudi Arabia is expanding its pipeline to ports along the Red Sea. The UAE is building a pipeline that will go through Oman and bypass Hormuz. A new pipeline from Kuwait to Turkish ports, and from there to the Mediterranean, is in the planning stage. Plans for pipelines going through Central Asia are being drawn up.

Eventually, all these pipelines, when they are built, will diminish the strategic importance of the Strait of Hormuz. But over the next few years, we should expect Iran to play this strategic card to the hilt. The narrow waterway has been declared territorial waters jointly administered by Iran and Oman. That claim will have to be respected.

Alternatives to the Strait of Hormuz will make the powerhouse East Asian economies less vulnerable to the volatile geopolitics of the Middle East. The East Asian economies are greatly dependent on oil deliveries passing through Hormuz. Although renewable (and indigenous) energy sources are being quickly developed across East Asia, dependence on Middle Eastern oil will continue long into the future.

The Philippines was one of the worst-hit economies. We paid the highest pump prices for fuel. Our currency depreciated rapidly. Our capital markets froze. Food prices rocketed.

Entirely dependent on imported oil, the recent crisis also exposed the fact that we had no strategic reserves to speak of. Natural vulnerabilities were magnified by incompetent governance. We need to put some more thinking about our vulnerabilities and how we might minimize them.

An effective end to the savage attacks launched by the US and Israel on Iran will not return the world to the status quo ante. The war had sparked serious realignment among the regional powers in the Middle East. Turkey attempted to play up its regional influence. In response to the emerging Turkey-Pakistan axis, India has sent weapons to the Greeks and the Cypriots. Serious efforts are underway to bring together a new Arab coalition that is less dependent on US military cover.

All the realignment going on in the Middle East will continue even after an agreement has been reached between Washington and Tehran. The US will have less of the influence it had over this volatile region before they started bombing Iran.

Most significantly, the petrodollar now appears on its way out. The future does not bode well for US financial supremacy as much as for US military hegemony.

Trump, beyond his bluster, lost this war.