This post is opinion only. See full disclaimer below
I have written extensively in earlier posts about the fact that Trump risks the Socrates’s carpenter trap. When Socrates went around Athens all those years ago he found that the carpenters unlike the rhetoricians and many others actually had some real knowledge and skill. The problem however was that while they knew carpentry they then assumed everything in the world and every problem could be solved with the logic of carpentry. Whatever they were asked about they would reply: That’s a lot like carpentry….
Now I’ve suggested that with the Iran War one of Trump’s key failings has been in thinking like the carpenter too much in terms of economic deals and not enough in terms of real-politique. I’ve suggested that some of his policies overall in his administration have indeed been effective real-politique including the selective use of sanctions to increase U. S. investments, but that also he has also fallen into this carpentry mistake in thinking that economic power and deal making can solve every problem.
Obviously so far the “lets make a deal approach” of potential carrots and lots of harsh war time sticks has not worked fully in the Iran War. I’ve explained that any serious real-politique approach would have told him to take the Strait of Hormuz a hundred times more seriously from the beginning and to understand that a revolutionary religious regime is not going to be swayed by Western cost-benefit economic analysis and endured a long and brutal Iran-Iraq War in an earlier period.
Now with Bessent’s “economic D-day” plans against Iran announced on Monday we are entering a very problematic market period indeed. Essentially the U.S. is combining now the art of the deal with real-politique in a new hybrid actual wartime form.. The most extreme economic power is supposedly going to be deployed against the Iranian regime and any country maintaining economic relations with that regime in an effort to crash the Iranian economy and get them to give in, admit defeat, reopen the Strait of Hormuz, and give up their nuclear program. Otherwise Bessent has suggested if that fails to convince them to make a deal the goal is for that economic warfare to create regime change.
Could this work? Perhaps. But the most obvious problem is that two of the biggest allies of Iran, Russia and China are hardly likely to play ball on such economic sanctions which means that there are limits to economic costs. But let us assume for the sake of argument that Bessent’s “D day” is indeed effective. The question still remains can economic pressure defeat a regime that does not calculate mainly in terms of economic logic but instead theocratic beliefs and that does not rule principally through economic means. This attempt is uncharted territory. Did such extreme economic pushback work against Russia after the Ukraine war started? No, but Russia is a nuclear global superpower so perhaps in this case things are somehow different both more potentially extreme and effective. Still, it’s very hard for sanctions to change a regime—usually historically it requires ground troops unless the regime’s leadership lacks resolve to continue fighting, and that doesn’t seem to be the case in this instance.
All of this points to the uniqueness of the present strategy and why honestly whether it will prove successful is a complete unknown. Let me explain it this way. Historically two approaches have vied for power in the field of international affairs—the international organization and the real-politique approaches. The international organization approach believes in using things like sanctions, soft power, collaborations of democratic nations, diplomacy, etc to defeat enemies or reign them in. Real-politique is the alternative pure power approach —it believes the international system is essentially a lawless jungle and raw power is the model that is in play. After the Cold War the international organization approach ruled the day for decades. Trump of course deployed the international organization soft power approach in a much more severe way already with his tariff policy but that was still a peace-time approach only. Here though with these new Iran war time economic sanctions we have potentially a new situation where what is usually economic soft power is being used as real-politique and as a hard power in the most extreme ways. Is this a mistake in category that cannot work in warfare or a new approach entirely? Is it a carpentry “everything is economics” compounded mistake on a mistake or a new recalibration of the art of the deal in a unique real politique war form that might work? Is Trump simply stalling and using the economic sanction narrative as a way to temporarily deescalate while he gets restocked armaments before going totally to real-politique kinetic warfare? Only time will tell.
The other factor which makes this situation unknowable is that the actors involved are not your typical actors. Usually within this kind of economic sanction policy it’s a conservative apparatchiki approach and a very risk averse gradualist policy. Here’s the problem: Trump himself and many of the people around him are billionaires. Now as a rule you can get a few million dollars or even a good deal more in a very predictable conservative way. But almost no one becomes a billionaire without being willing to take on an incredible amount of risk. As such the people involved in this policy have zero problem pushing it to a level that is unheard of and so since this is an entirely new category in some ways it’s very hard to figure out whether it will work or not. It is as they say a situation where the future is in many ways unwritten.
And this is the case for a third reason. The Iranian regime so to speak also gets a vote here. They have already indicated they may respond in a major way to this economic extreme sanctions warfare approach. They have also had a good deal of time here to regroup, manufacture more missiles and drones, and get their strategy in place with their regional proxies. In response to this new extreme wartime sanctions approach will there be attacks on oil fields across the Middle East? Will kinetic attacks in the Hormuz Strait and Red Sea ramp up a lot? Now there are some media accounts of many more ships getting through the Oman-US defended route and of the Strait being de-mined, but the overall throughput of oil is still significantly below what it was and an oil cliff analysts are still saying is coming. Like I said in a much earlier post a slow train is potentially coming in regard to an oil cliff. What happens if oil spikes significantly or more importantly diesel and fuel oil which is, if the analysts are to be believed, in an even more precarious situation?
The point of these reflections is not to give you some fixed illusory account of outcomes which even the actors themselves at this point do not know for sure, but what markets should be aware of conceptually. These are indeed very volatile times and uncharted territory and taken for grantedness about markets and complacency are probably a very bad idea.
Disclaimer:
The content on this blog is provided for informational, educational, and entertainment purposes only. It represents the author’s personal opinions and should not be construed as financial, legal, investment, trading, or tax advice.
By using this blog you agree that:
–You assume full responsibility for any outcomes resulting from the use of this content.
–You are solely responsible for all investment decisions and any gains or losses you incur.
–Past performance is not indicative of future results.
—Under no circumstances shall the author assume any liability for financial losses, capital allocation damages, or adverse market outcomes resulting from positions taken by readers, who execute any investments or trades entirely at their own risk and sole discretion.
Any discussion of specific securities, sectors, or strategies is offered strictly for educational purposes and does not constitute a recommendation to buy, sell, or hold any investment. You should always:
Consult a qualified professional before making any financial decisions.
Consider multiple viewpoints and counterarguments.
Conduct your own research
I do not collect analytics or advertising data; any such information is gathered and processed by WordPress (including Jetpack) and Blaze Advertising under their own policies.