The Times They Are A-Changin’: Oh! What a Lovely War 

 

 

“We don’t need to escalate

You see, war is not the answer..”

 

In considering the impact on the UK of the US/Israeli illegal war on Iran, I first wish to clarify my position. 

 

Like many people, I readily agree that the Iranian regime isn’t a good regime. That, however, doesn’t give anyone the right to assassinate its leadership and seek to bomb it into surrender. There are perhaps many who don’t like the current US regime, but they equally don’t have the right to dispose of it. 

The action of the US/Israel are on par with Russia’s invasion of Ukraine. The main difference is that the former might be described as good baddies, whilst the latter are bad baddies, a subject I explored 4-years ago in “Bad Baddies and Good Baddies.”    

Aside from the illegality of the war, what is the objective? Destroying Iran’s nuclear capability? Wasn’t that achieved last year? Is it regime change? Or, as Rubio said, was the US hand forced by Israels decision to attack? 

I suspect that the Israeli’s have played Trump for a fool! 

The US do, however have form in this part of the world, this is their third Gulf war and, arguably, the most dangerous, consequential and confused. Many US presidents have declared they are ending US interference in the region, only to be lured back in. 

 

‘Aside from the illegality of the war, what is the objective?’

 

Previous attempts to oust a government has left both the country, and the US, worse off as there always appear to be unexpected consequences. 

Britain have been enthusiastic participants in the previous disasters. It is reported the disasters in Iraq, Afghanistan and Libya wasted C£47bn in today’s money. Money that could have been put to far better use. 

The legacy of the first Gulf war was the Kurds and Shia Muslims learning the risk of being used by a US president. Having been encouraged to rise up against Saddam and “take matters into their own hands”, Bush then stood aside as they were crushed. 

In the second Gulf war, known as the Iraq war, from 2003-11, John Sawers, the former head of MI6 and the UK special representative in Baghdad in 2003, described the aftermath of the invasion as “total chaos”. With the assumption, “that once American forces had toppled Saddam then the Iraqi exiles would come in, take over and everything would be hunky-dory. Well, it turned out to be completely different from that”. 

This was the invasion that we joined with much enthusiasm and debatable morals, as the then PM, Tony Blair insisted that Saddam Hussein posed an imminent threat due to Weapons of Mass Destruction, which were never found. Of more overriding importance was his belief in the need to maintain a strong alliance with the United States post-9/11. 

The subsequent Chilcot Inquiry, that the invasion was not a “last resort,” the threat was exaggerated, and the legal basis was “far from satisfactory“. 

Unfortunately, this third-time around, whilst we have controlled our enthusiasm for what is an illegal war, we are, and will continue to be, caught-up in the fallout.  

The PMs immediate response to the Israeli/US attack was both sensible and correct. The US premise that they were at risk of an imminent attack was untrue, and, subsequently, no coherent reason for going to war has been forthcoming. 

Whether or not you support the PM’s stance seems predicated on how you view the UK/US special relationship, and international law. 

 

‘this is their third Gulf war and, arguably, the most dangerous, consequential and confused’

 

Former PM Blair of Iraq, is a member of the executive board of Trump’s “board of peace” – viewed as the US president’s alternative to the United Nations – said: “If they are your ally and they are an indispensable cornerstone for your security … you had better show up when they want you to.” 

Blair’s view is somewhat tainted; in 2003 he showed scant regard for an a valid reason to invade Iraq, and there is naked self-interest in his dealings with Trump. 

The two-parties on the right are still clearly besotted with the US. 

The Reform leader, Nigel Farage continues to say we should be joining Trump’s war, as does the Tory leader Kemi Badenoch. Her position is somewhat compromised by the fact that 14-yrs of Tory misgovernment have left us with little to fight one with. 

Both are out-of-date, and their blinkered post-Brexit attitude towards Europe, means they have little option but to cast their eyes across the Atlantic.  

Their stance puts them at odd with the electorate, with a YouGov poll showing that 49% oppose the US-Israel attacks with only 28%, in favour. 46% believe the UK military position should be purely defensive. 

The war isn’t proving any more popular stateside, with only 25% approval. This is hardly surprising as Trump had campaigned on ending US involvement in overseas conflicts, it is hardly surprising,  

Two of Trump’s usual cheerleaders disapprove of his actions; Tucker Carlson has accused him of being in Benjamin Netanyahu’s pocket, and the far right influencer, Nick Fuentes declared “something has gone horribly wrong.” 

In Europe, Pedro Sánchez, Spain’s PM, said: “It is naive to believe that democracies or respect between nations can spring from ruins. Or to think that practising blind and servile obedience is a form of leadership … We will not be complicit in something that is bad for the world and that is also contrary to our values ​​and interests, simply out of fear of reprisals from someone.” 

Italy’s defence minister, Guido Crosetto, told the lower house of parliament that the decision to launch the strikes against Iran “of course fell outside, needless to say, the rules of international law. It is a war that was started without anyone in the world knowing. One in which we, like the rest of the world, find ourselves having to manage [the consequences].” 

PM Starmer, summed the situation-up correctly, saying: “that the longer this goes on, the more likely the potential for an impact on our economy, impact into the lives and households of everybody and every business”. 

 

“that the longer this goes on, the more likely the potential for an impact on our economy, impact into the lives and households of everybody and every business”

 

Most economies are still fragile post-Covid and Ukraine, and the expected inflation triggered by the attack on Iran could wreck whatever nascent global economic growth that could otherwise have been expected.  

Iran’s decision to block the strait of Hormuz has caused oil and gas prices to rise, with central bankers and economists warning that a prolonged conflict could increase retail prices around the world and negatively impact their growth forecasts. 

Kristalina Georgieva of the IMF, said a 10% increase in energy prices that persists for a year would increase  global inflation by 0.40% and slow global growth by 0.1-0.2%. 

Domestically, Oxford Economics predicts that year-end inflation in the UK and eurozone would be roughly 0.5-0.6% higher than previously expected. UK inflation was 3% in January. 

There are also fears that this inflation could prove to be a sideshow if the bombing of Iran further destabilises financial markets already worrying over ballooning AI stocks and the impact of US tariffs. 

Lord Jim O’Neill, the ex-chief economist of Goldman Sachs Asset Management and former government adviser, summed-up the situation thus: “It’s not like this war has started with the world in a settled place.”   

Blockades, such as those on the strait of Hormuz, impact  Britain far more than other countries because we import so much of what we need. We are, in effect, reliant on the rest of the world to maintain what passes for the standard of living in the UK. 

This dependency on imports means that we end up borrowing from everyone and selling off assets to try to cover the difference. 

We are, as Mark Carney, the former Bank of England governor turned Canadian PM, said, reliant on the “kindness of strangers”; we can carry on running this imbalance for as long as the rest of the world is prepared to finance it. 

This cost of this imbalance is extraordinarily large debts, which, according to BoE equal C.550% of GDP.  

Two of the most vulnerable sectors are gas and food. 

We import C.50% of the natural gas we use for electricity and for heating, and C.40% of the food we consume, a percentage that is steadily rising. 

Aside from the fact that 20% of seaborne crude oil and gas in transported via the strait of Hormuz, there is also the impact on the global fertiliser supply chain. 

Between 25-30% of the global trade in ammonia and nitrogen, two of the raw materials for fertiliser, use this route. 

In the UK C.60% of the necessary nitrogen fertiliser we require is imported. Any disruption in supply will leave farmers will have less fertiliser for their crops, resulting in lower yields, and increasing food prices.

 

In the UK C.60% of the necessary nitrogen fertiliser we require is imported. Any disruption in supply will leave farmers will have less fertiliser for their crops, resulting in lower yields, and increasing food prices. 

Post Russia’s invasion of Ukraine, the prices of food and non-alcoholic drinks soared by 16.5% in the year to November 2022, according to the Office for National Statistics. 

Grocery price inflation rose unexpectedly last month, climbing 4.3% in the four weeks to 22 February, according to Worldpanel by Numerator, a market research company. 

“We are seeing immediate price volatility but at this stage, it is too early to say how the UK may be impacted in the medium term,” said Tom Bradshaw, president of the National Farmers’ Union. 

Adding to the shortages of fertiliser for crops, is the fact that C.15% of the world’s grain trade moves through the Bab el-Mandeb strait (between Yemen and Eritrea), which, along with the recent poor harvests in the Mediterranean, could also increase our food prices. 

Turning to growth, the National Institute of Economic and Social Research, estimates growth in the UK and euro area could drop by 0.2% this year if the impact of the conflict persists. In the UK, that means GDP falling from the 1.1% estimated by the Office for Budget Responsibility to 0.9%. 

Stalled growth allied with rising inflation leads to the spectre of stagflation. 

Consumers could be further hit by inflation reducing the BoE’s ability to further cut interest rates. 

Michael Saunders, senior economic adviser at Oxford Economics, now expects UK interest rates to remain at 3.75% for the remainder of this year if the conflict continues. Previously, financial markets were pricing-in at least two quarter-point cuts, to 3.25% this year. 

 

‘Stalled growth allied with rising inflation leads to the spectre of stagflation’

 

There are some immediate conclusions that can be drawn as a result of this latest black swan event. 

The first being the need for the UK to end its dependence on fossil fuels. 

Recent research by the Grantham Research Institute (“GRI”) at the London School of Economics, showed that the last fossil fuel energy crisis, caused by the Russian invasion of Ukraine, cost the EU and the UK $1.8tn between 2022 and 2025, driving up bills and fuelling a devastating cost of living crisis. 

Bob Ward, of GRI, warned: “The UK is vulnerable to the volatility of international fossil fuel markets, and the only way to protect ourselves from these price increases is by speeding up the transition to domestic supplies of clean energy, namely renewables and nuclear power.” 

The Tories and Reform, no doubt inspired by Trumps love of drilling, continue to bang-on about the potential in the North Sea, which, whilst likely to continue playing an important role in our energy mix for decades to come, new exploration licences won’t reduce consumers bills, as it is expected that what is produced would exported. 

Another seemingly inevitable effect of the war is Britain being pushed closer to Europe. 

Whilst both the UK and Spain have disappointed Trump with their lack of commitment to his cause, there is an important difference between the two dissenters; Spain trades with the US as part of the European single market, meaning they are insulated from Trump’s spite, whereas, post-Brexit we are fully exposed to vindictive unilateral action. Whilst Tump’s tariffs may fall away in-light of the supreme court ruling, there are other areas of UK-US commerce, such as the multibillion-pound “tech prosperity deal” currently under negotiation, that could be subject to hostile actions. 

 

‘post-Brexit we are fully exposed to vindictive unilateral action’

 

Militarily, whilst all European Nato members have relied on US power to guarantee their security, our “special relationship” has led to interconnected systems, meaning that the technological infrastructure of our national defence is so wired to the Pentagon that we almost tied-in with them. 

France, is the polar opposite; their self-sufficiency in their defence capabilities enable President Macron to be an early advocate of “strategic autonomy” from Washington. Now, due to the war in Iran, Macron is, for the first time, proposing to extending France’s nuclear deterrent to other European countries. 

What cannot be overlooked is the dramatic imbalance in military might between the US and every other Nato member, a situation that remains the dominant material consideration in European security. However, the diplomatic and political calculus is changing rapidly, as a result our continued detachment from the European project looks increasingly misjudged and hazardous. 

 

 “Tell me how this ends?” 

 

The government clearly recognises this, and is pursuing a policy of closer European cooperation in defence and security policy, Negotiations are ponderous, not helped by the legacy issues created by Brexit and its fractious negotiations. Trump’s erratic temperament and volatile actions highlight the need to move faster, and provide both parties with a common cause 

Ultimately, due to the interconnectivity of the global economy we are involved in this war whether we want to be or not..  

Not only is this a war without a legal basis, there seems to be no point, or plan.  

The best conclusion I could think of came from Gen David Petraeus, the commander of the US forces in the 2003 invasion of Iraq,: “Tell me how this ends?”  

 

 

“Yes, and how many deaths will it take ’til he knows
That too many people have died?” 

 

 

Today we consider the impact on the UK of the US/Israeli attack on Iran.

It doesn’t take an expert to see that the Iranian regime is bad, equally it doesn’t require one to see that there is no legal basis for the attacks on them.

This is, unfortunately, one of the gifts that Trumpism bestows upon us: the right to do what you want, to whomever you want, when you want.

Perhaps this explains his inaction in dealing with Russia, which, as the aggressor toward Ukraine, equally had no legal basis for its invasion.

Listening to members of his administration trying to justify their actions led me to conclude that Trump, the master negotiator, had been played by Netanyahu. As a result, Israel is using US might to bolster its strategic ambitions.

I suspect that Israel has a clear end-game, whereas Trump appears not to. It feels like hostilities will cease when he gets bored.

For Iran, not losing is winning.

Domestically, there continues to be little support for a Trump-led USA.

Equally, at home, the war is yet another broken electoral pledge. The mid-terms will be interesting, assuming, of course, that Trump feels the need to have them

For the rest of us, we are all losers. There is the economic impact on growth and inflation. There is the likelihood of increased numbers of refugees, especially if the war is prolonged, and an increase in terrorism as more young people become radicalised.

As the saying goes: act in haste, repent at leisure.

Lyrically, we start with “What’s Going On” by Marvin Gaye, and end with “Blowin’ in the Wind” by Bob Dylan.

There is some enjoyment to be derived from members of the Trump administration press conferences, and the climatic sense of power.

 

@coldwarsteve

 

 

 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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