Trump’s Strategy Is A High Risk-High Reward Gamble

By Rabobank

The New Age Of Empires

The U.S. and Israel attacked Iran on Saturday morning, and not a ‘one-and-done’ strike aimed at more negotiations. Rather, it’s an operation to destroy Iran’s nuclear program remnants, its ballistic missile production and stockpiles, its navy, and to back *regime change*.

Both the U.S. and Israel are calling on the Iranian people to rise up as they physically remove the Iranian Revolutionary Guards Council (IRGC) and Basij religious police. That said, it’s up to the Iranians and them alone.

Iran has already been decapitated, politically: Supreme Leader Khamenei is dead, as is much of the government and IRGC leadership – though new leaders are already emerging. The Islamic Republic has been smashed militarily: Israel and the U.S. have near total control of its skies to strike targets at will. 

Nobody is stepping in to help Iran militarily now that the shooting has started. Once again, BRICS as an anti-US force is shown to have no mortars supporting it.

Needless to say, it is risk-off in markets this morning. The dollar is surging, high-beta currencies are offered, spot gold is up ~2%, bond yields are tumbling, US equity futures are pointing toward losses of 1% or more, and Brent crude has surged by ~9.2% to $79.60/bbl (and rising). ICE gasoil prices are up ~13% and fertilizer flows are likely to be disrupted both directly and through natural gas’s role as a feedstock in production. While yields are falling on risk-off sentiment this morning, all of the above is inflationary, just as it was when Russia invaded Ukraine.

As we have also warned – a fanatical regime fearing itself on the way out tries to burn everything down as it goes. Iranian drones have killed three US soldiers in Jordan and its missiles have hit Saudi Arabia and the Gulf States despite none having allowed the U.S. to use their territory to attack (even if it appears the Saudis were secretly lobbying for it). A number of Gulf states have now said that they reserve the right to act in self defence under Article 51 of the UN Charter, raising the prospect of reciprocal strikes. Iran’s actions are effectively locking the Gulf states tighter into the US alliance.

Europe has been an irrelevance in these events so far. Ursula von der Leyen was lampooned online after saying on Saturday that the EU will get around to holding a meeting about the war on Monday, while the British government – fresh off a devastating byelection defeat characterised by allegations of sectarian voting behaviour – initially barred the US from using its bases for strikes. Britain has since relented and joined with France and Germany to commit to “enabling necessary and proportionate defensive action to destroy Iran’s capability to fire missiles and drones at their source”. That means that the E3’s fortunes are now tied to the US, whether they like it or not.

The way in which these strikes were conducted also tell us something (again) about the state of the world order. In contrast to George W. Bush’s approach prior to the 2003 invasion of Iraq, no attempt was made to rally European allies, no attempt was made to secure the blessing of the United Nations, and no attempt was made to secure the agreement of the US Congress. 

That last point has incensed Democrats domestically who point out constitutional requirements that decisions to go to war be made by Congress. The administration will point to Truman in Korea, Reagan in Grenada, Clinton in Kosovo and Obama in Libya as examples where that rule was allowed to bend. Clearly, executive power continues to grow and the United Nations is also seen as a pesky irrelevance.

The critical Strait of Hormuz is currently absent normal oil and LNG cargoes as ships wait to see how much insurance premiums are adjusted upwards. Likewise, the Iranian-backed Houthis in Yemen have claimed they will try to close the Bab-el-Mandeb, another chokepoint for global energy. Iran has already targeted three tankers in the Strait, while the US is labouring to prevent obstructions. Prolonged interruption to flows through this region has huge implications for oil and LNG and every market everywhere if it occurs. Energy is an input to ALL production.

How this plays out will determine the stability of the greater Middle East. Pakistan and Afghanistan are at war, with the former accusing the latter of becoming a “colony of India” and dozens of Pakistanis killed while attempting to storm a US consulate in Karachi. Do two wars combine into rolling regional chaos? Or does U.S. hard power achieve what endless technocratic talk has failed to do for decades?

Moreover, it will decide if Trumpism is a historic success or failure. U.S. voters don’t like inflation or presidents who get into Forever Wars, especially after being elected to end them. They do like easy foreign policy wins that boost U.S. global power and prestige.

So, why did Trump do this now? Because there was a strike opportunity; reportedly, a U.S. fear of an Iranian missile launch; Iran was rearming – China was about to supply it with new advanced missiles; India’s Modi had just talked up an alliance with Israel; and above all as the attack on Iran is an essential part of his Grand Macro Strategy to retain 21st century hegemony vs a rising China.

We’ve previously explained that Chinese control of supply chains and rare earths is an U.S. Achilles’ heel. The logical response is to ensure the raw materials China relies on –where it cannot project hard power now and the U.S. can– are in U.S. or U.S.-allied hands. That allows it to exert counter pressure to give it space to reindustrialise. Energy is the obvious candidate, and food is another.

This concept predicted the coup de main in Venezuela. The logic for Iran is clearer given it supplies China with much more energy that Venezuela did. Indeed, this leaves Russia as the main cheap oil vendor to China –strengthening Moscow’s hand in that partnership – but cuts off the flow of Shahed drones and ammunition that Iran was providing for the war in Ukraine. Equally, this latest action likely increases U.S. pressure on Moscow, or encourages further tactical outreach in an effort to isolate China. Is it a coincidence that Zelenskyy now says Putin has accepted the terms of a U.S. security guarantee for Ukraine?

There are parallel parts of the Trump plan in play. If Iran is flipped, it opens up the India Middle East Europe Economic Corridor (IMEC) that ties India’s growing economy to the West’s via the Middle East’s energy – with no role for China and the Belt and Road initiative effectively subverted. This would be impossible to achieve if Iran continued to play spoiler. Still, the Trump strategy is a high risk-high reward gamble. There is no safety net if the US doesn’t manage to land this manoeuvre.

If we see quick regime change, even just via a changing of the revolutionary guard as in Caracas, Trumpism will be entrenched. Most U.S. voters will appreciate the win; oil prices will fall and stay low; and all Middle Power ‘strategic autonomy’ alternatives to US hard power will be revealed as an irrelevance. The Trump focus can then swing back to reindustrialisation and affordability as the midterm elections approach. 

The huge ‘what if?’ would be China immediately escalating in Asia vs a depleted U.S. military. Beijing has substantial oil reserves while the U.S. doesn’t yet have large rare earths equivalents – and its industrial capacity is still in no state to challenge China in a protracted confrontation. Beijing pursuing such a stratagem looks unlikely if US deterrence is maintained, but could the impending Trump-Xi summit fall through?

If we see a U.S. win but a chaotic Iranian collapse that opens the door to regional instability and/or a clash between U.S. allies Turkey and Israel as they jockey for power. This would be very bad for the US’s geostrategic ends. U.S. voters may not notice unless oil rises again, but IMEC will stumble and the U.S. won’t be able to walk away from the Middle East to focus on the Indo-Pacific. It also won’t be able to focus domestically as required. Anti-Trump Middle Powers would take no comfort from that backdrop.

If we see a U.S. and Israeli strategic defeat —Iran is aiming to drag this fight out until the U.S. and Israel are exhausted: as with Hamas, sheer survival is seen as victory— Trumpism will suffer both electorally and geopolitically: its grand macro strategy will unravel, to China’s advantage. That’s again not a world where rules-based actors do well; very far from it.

In short, how this plays out will determine not just the inflation direction short term but the stability of the greater Middle East and potentially further afield. Failure will ensure chaos both regionally and globally. Success will entrench the ascent of unilateral hard power over impotent multilateral gabfests.

Welcome to the new age of empires.