Early Monday morning, financial markets soared as President Trump claimed there had been productive talks with Iran about ending the war. He therefore went back on his promise to bomb Iranian power plants if the Strait of Hormuz was not reopened by monday afternoon. Iran denies that such talks took place.
This is a rare moment when reasonable people can doubt which government is more credible.
Still, markets were buoyed by hopes that this could be another wad moment – Trump always cows – and the belief that he was looking for a way out.
I have no idea if this partial pause will last, if Iran will grab Trump's lifeline, or if the markets will remain optimistic. And neither does anyone else. But whichever way things go in the coming days and weeks, we've already (re)learned some useful lessons.
For starters, overall success depends on more than just military success. Critics and supporters of the war have been talking among themselves since it began because it has been extremely impressive from a military point of view. But politically, geostrategically and economically it has been much murkier.
This is because Iran has an asymmetric advantage. It can disrupt the Strait of Hormuz, through which about 20% of the world's oil and many other vital resources pass, including fertilizers and natural gas. are sent. It may also affect your neighbors' oil and gas facilities.
It's as if Iran is a defeated weakling holding a vial of nitroglycerin in the engine room of the global economy. You can remove it, but only at great risk.
As the economist recently said put it“Although President Donald Trump says he has 'destroyed 100% of Iran's military capability,' the 0% that remains are wreaking havoc on the global economy.”
Economic vulnerability is almost synonymous with political vulnerability and political vulnerability is strategic vulnerability. It's great that the Iranians haven't blocked the strait with thousands of mines as military textbooks predicted, but if it is impassable because ships are uninsurable, the results are largely the same.
That is why I sympathize with the administration's effort to face the economic challenge for which you were not adequately prepared.
That effort includes releasing oil from the Strategic Petroleum Reserve, waiving Jones Act rules requiring U.S.-built and flagged ships to carry oil for U.S. markets, and lifting some sanctions on Russian oil (a boon for President Vladimir Putin).
And, most notably, Treasury Secretary Scott Bessent. announced a temporary suspension of Iranian oil sanctions for ships already loaded with oil parked in the strait.
This is extremely unusual. Normally, in times of war, economic blockades against enemies are intensified. But that doesn't mean it's necessarily a bad idea if it helps lower prices. (Though the fact that this could potentially give Iran 10 times more money than President Obama when he allegedly sent them pallets of cash to secure the Joint Comprehensive Plan of Action is pretty crazy.)
I'm skeptical that Trump's effort to single-handedly manage the price of oil will work. Whatever momentary relief it provides to markets, it also shows that Iran has leverage.
But this is what I find fascinating. The Trump administration has been obsessed with maximizing the president's war powers to justify its agenda on things like industrial policy, immigrationinternal deployment of National guard and, what is most obvious, trade. But now, when we are really at war, they are investing their economic philosophy in the service of Trump's decision-making.
Trump’s trade policies are exactly what the great 19th century economist Henry George had in mind when he warned: “What protectionism teaches us is to do to ourselves in times of peace what our enemies seek to do to us in times of war.”
What's so strange is that Trump is turning George upside down by easing economic pressure on our wartime enemy. But it is also reversing its own prejudices by freeing our internal economy.
Of course, sanctions are more coercive than tariffs, but economically they operate according to the same logic: sanctions restrict exchange, reduce supply and increase costs. In fact, the administration is admitting that supply restrictions (i.e., tariffs) increase prices and that relaxing them reduces them. He typically flouts that market logic when advocating for tariffs or restrictions on domestic shipping.
The Jones Act, an atrocious economic albatross Conceived in the wake of World War I and which makes all types of goods more expensive in peacetime, it is being waived in times of war, although the goal of the Jones Act is to leave us better prepared to fight wars.
I wish I could believe that the Trump administration was actually learning some of these lessons and that they might last after this war is finally over. But at this point, that lesson is beyond his ability to learn. Trump believes that he is not only the master of his destiny, but also that of everyone else.
UNKNOWN: @JonahDispatch
