What’s Next After the Initial Fallout from US Strikes on Iran
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What’s next? The unprecedented US airstrikes on Iran have set traders and governments worldwide on edge, as the Islamic Republic warns of retaliation and Israel shows no sign of letting up in its assault. Asian currencies and stocks fell, European stock futures declined while oil advanced, then erased gains, after Washington struck Iran’s nuclear sites over the weekend. China and Pakistan were quick to condemn — even though China hasn’t yet offered substantial assistance to Tehran besides rhetorical support and Pakistan is at the same time taking steps to build stronger ties with the White House. The US State Department issued a “Worldwide Caution” alert for Americans.
More critically, President Donald Trump’s decision to deploy bunker-busting bombs — in Washington’s first direct military action against Iran after decades of hostility — has pushed the Middle East into uncharted territory. Did the end justify the means? While the US attacks have set back Iran’s nuclear ambitions and dealt its clerical regime a humiliating blow, the program hasn’t been completely destroyed. The move may ultimately lead Tehran to end international monitoring of its nuclear program and consider going ahead to develop a bomb. Supreme Leader Ayatollah Ali Khamenei hasn’t been seen in public in 11 days but remains in control. Even as diplomatic allies Russia and China have stayed on the sidelines and its network of armed proxies in the region remains weakened, Tehran still has ways to inflict pain on the US as it plans its retaliation.
Two supertankers, each capable of hauling about 2 million barrels of crude, U-turned in the Strait of Hormuz after the US airstrikes on Iran raised the risk of a response that would ensnare commercial shipping in the region, according to vessel tracking data compiled by Bloomberg. The two empty freighters then sailed south, away from the mouth of the Persian Gulf. The turning oil carriers offer the first signs of re-routing, something that oil traders will scrutinize. Any disruption to traffic through the strait, a major artery for global crude and natural gas, raises the specter of a spike in energy prices. That’s bad news for Asia, which buys more than four-fifths of all the crude produced in the Middle East, 90% of which goes through the Strait of Hormuz.