It appears Washington is desperately trying to lock down the Ukraine situation before Israel kicks off the next round of its war against Iran. But whether it can or not, the costs of the next round could prove crippling to numerous parties:
The IMF’s October outlook reads like a casualty report. Kuwait’s economy is forecast to shrink 16.7 percent this year. Qatar’s will shrink 15.6 percent, and Bahrain’s 11.3 percent. The UAE, long sold as the region’s safe haven, is now expected to contract 3.9 percent, a seven-point swing from the IMF’s April forecast. Saudi Arabia is forecast to shrink 3.3 percent. The only Gulf economy still growing is Oman, and that is because its ports sit outside the Strait of Hormuz.
These are not paper losses. Qatar lost two LNG trains at Ras Laffan in March, about 17 percent of its export capacity. QatarEnergy says the repairs will take three to five years and will cost it roughly $20 billion a year in revenue. Saudi Arabia’s escape route around Hormuz, the East-West Pipeline to Yanbu, is crippled. My sources tell me four of its 11 pumping stations are severely damaged and out of service. Riyadh now projects a deficit of 4.9 percent of GDP, is borrowing to cover it, and has frozen non-essential spending.
Miller explains why this is worse than the headline oil price suggests. A damaged plant produces nothing to sell, but the payroll, the debt payments and the repair bills keep coming. A plant that is still standing but cannot get parts in or cargo out is in almost the same position. A $108 barrel of oil is worth nothing if you cannot ship it. And the cash the Gulf states used to invest at home and abroad is vanishing fast. If a government takes in 100 and must spend 70, it has 30 left over. Cut income to 80 and that cushion drops to 10. A 20 percent hit to revenue wipes out two-thirds of the money for everything else.
The Gulf states bought American protection to safeguard exactly this wealth. Instead, as Miller puts it, they have ended up paying for the costs of American strategy. That is a bargain they will not keep making forever.
Iran isn’t going to collapse. To the contrary, Iran is more confident, has more allies, and more weaponry than ever before. And this is precisely how aggressor nations end up defeated. Their leaders keep thinking that one more determined push will somehow miraculously cause the other side to collapse, even as they exhaust their own resources, instead of quitting while they’re still strong. The US military has lost the use of 18 bases already. What does it expect to do if it loses access to bases in Jordan and Israel while the price of oil skyrockets and unrest grows across the West?
