Steven Horowitz
Steven Horowitz

Saber-Rattling Between Oil Giants

It has become obvious that the status quo in the Middle East cannot stand. Iranian advancements in Syria and Iraq are untenable to both Saudi Arabia and Israel. But if the Trump administration has “green-lighted” a policy of regional escalation in Lebanon or the Persian Gulf, then the global price of oil is certain to rise and therefore tank the world’s stock markets.

For the past nine years the US central bank, the Federal Reserve, has adopted a most unconventional strategy of monetary expansion called quantitative easing. US interest rates have been lowered to zero and even into negative territory. Due to the last crash of the stock market (2008-2009) banks have been hesitant to loan at even these unprecedented rates. The banks waited until their balance sheets of bad loans — acquired during the run up to the last crash — had cleared somewhat. This has led to nine years of tepid economic growth in the US and the election of a crass outsider claiming to “make America great again”.

Quantitative easing has meant a very unusual one-way street for stocks and bonds. With the economy in a shallow hole, the Federal Reserve signaled that interest rates were not going to go upward. This has led to near free money for corporate stock buybacks and the inevitable bubbling of the vast US stock and bond markets. Bond prices rise with lower and lower interest rates. This action was great for Wall St. and the extremely large investment banks. But for the great majority of Americans, the last nine years have seen wages stagnate as small business profits declined precipitously. Donald J. Trump was elected president in 2016 promising to correct the imbalance between Wall St. and Main St. USA.

Over time, quantitative easing has lowered unemployment, and within the last year economic growth has risen somewhat. Meanwhile the stock and bond markets have sky-rocketed into an enormous bubble. President Trump has claimed that this vast market bubble has solely been due to his leadership and reflects an ever-growing economy — a dubious claim. But an ever-growing economy must sooner or later adjust to rising prices. And this is Trump’s dilemma — inflation will always necessitate the raising of interest rates to slow down an over-heating economy. This monetary action is best done gradually and within an environment free of stock and bond market bubbles. But Trump — due to his political bravado — now “owns” the very precarious stock market bubble. This, in fact, allows him little room to maneuver. The last thing Trump would want is a sharp price acceleration absorbed within an asset inflation as strong as the current situation on the US stock and bond markets.

The price of oil would be the most pressing of any price acceleration. Any dramatic rise of oil futures or actual oil prices would send Wall St. into the greatest panic in its history. This is where the Middle East comes into the picture. If Trump’s policy to the region is based on using military force to roll back the current untenable status quo — i.e. Iranian regional advancement — the risk of sharper oil prices could easily cause a stock market crash and economic depression. But this is exactly where Trump is headed with his “green-lighted” encouragement of Saudi Arabia’s new policy toward Iran and Hezbollah.

Within the last week, Riyadh has seen the Lebanese prime minister resign on Saudi territory. The minister resigned claiming that his personal safety was in danger and that Iran and Hezbollah are in actual control of his country. Riyadh has also witnessed an Iranian-made missile shot from Yemen by Hezbollah technicians. This missile was aimed at the Riyadh international airport, but fortunately was shot down by an anti-missile defensive system. Saudi Arabia’s foreign minister then declared that his country was now “at war” with Hezbollah. Meanwhile within a very close time proximity, the Saudi king had spoken by telephone to the American president. This conversation left the impression that President Trump expressed solidarity with Riyadh over a more aggressive policy toward both Iran and Hezbollah.

Any actions that would involve Hezbollah in Lebanon would most certainly lead to an Israeli involvement. Iran might use such involvement to escalate the war into a direct Saudi-Iranian clash. Any military action — on or near the oil fields of the Persian Gulf — could easily become a disaster for the fragile American (and therefore world) economy. Such a scenario might escalate to involve American (offensive) and Russian (defensive) air and anti-air assets situated within the region of the Persian Gulf.

The same is true for Israel and Russia. Because once an Israeli strike over Lebanon begins, it would be very hard to stop. Israel might not be deterred by Russian anti-air defensive military action. This has happened before. It could also mean that the Russian position in Syria would be put at risk as Hezbollah casualties in Lebanon mount into the hundreds. As the current untenable Middle East status quo unravels, this scenario could then further escalate, leading to a direct Israeli-Russian confrontation over the skies of Lebanon. This air war might expand into Syria as well. The prospect of a US-Russia superpower nuclear high-alert — like during the Yom Kippur War of 1973 — is certainly not out of the realm of possibility.

What is needed — RIGHT NOW — is a US-Russia diplomatic initiative on the future of the region of the Middle East. This must include: The future all militias, the eventual replacement structure for the Iran nuclear deal (the JCPOA), the end of all foreign penetration within the region and, of course, the idea of a regional Zone of Peace to be supervised by the UN Security Council. This diplomatic initiative can only be accomplished through a deep understanding of the necessity for greater cooperation between the US and Russia all across the globe. This is now true not only in the Middle East but also — because of the egregious conventional imbalance between NATO and Russia — in Europe.

Yes, the status quo in the Middle East is untenable. Sooner or later (maybe even now or very soon) the unraveling of the status quo will lead to an expanded war. Such an escalation — involving a theater on the Persian Gulf — will certainly mean a stock market panic. This will be followed by the dire prospect of a global economic depression. Also — as the escalation and prospective battle heats up — the prospect of an Israeli-Russian confrontation is not out of the question. This could then lead to a superpower confrontation with the future of humanity in the balance. NOW is the time for all responsible world leaders to move toward a completely new reality — PEACE.

The expansion of NATO eastward in Europe has created the conditions for a superpower loss of control in what is fast becoming an expanded Middle East proxy war. On the centenary of WWI, hasn’t the world yet learned the lesson of Serbia 1914? The problems of very small countries (like Serbia and now Lebanon and Syria) can also mask much larger global problems — like the military imbalance across the regions of both Europe and the Middle East. Massive world wars can begin from very humble beginnings. As Jews, we have always believed, that peace, too, can come from humble beginnings. Let us pray to G-d that everyone will soon come to their senses.

About the Author
Steven Horowitz has been a farmer, journalist and teacher spanning the last 45 years. He resides in Milwaukee, Wisconsin, USA. During the 1970's, he lived on kibbutz in Israel, where he worked as a shepherd and construction worker. In 1985, he was the winner of the Christian Science Monitor's Peace 2010 international essay contest. He was a contributing author to the book "How Peace came to the World" (MIT Press).