Purim War- Part 3, The End Game*

The end game in the Iran War has begun. By attacking Israel’s Dimona nuclear facility and the Temple Mount, the home of Islam’s Dome of the Rock holy site, Iran has demonstrated it has become desperate. To add an exclamation point to it, Iran fired off an intermediate range ballistics missile (IRBM) at the Diego Garcia airbase 4,000 kilometers away to prove it had a missile capable of reaching western Europe. Instead of scaring off Europe, it will bring NATO around to giving full support to our efforts to reopen the Persian Gulf to navigation.

 

The existence of the Iranian intermediate range missile represents a proof text of the existence of the imminence of the Iranian threat.  Simply put, Iran’s strategy is now to take down everything around it as the price of its regime collapsing. Make no mistake, Iran is being run by a death cult thereby making it less likely that the Mullahs would seek an offramp.

 

In response President Trump has threatened to destroy Iran’s electricity infrastructure if it fails to reopen the Strait of Hormuz by early tomorrow evening. The first round would likely be done with an electro-magnetic pulse weapon used in Venezuela that would not permanently destroy the facility. That along with the Saudi move to kick out the Iranian embassy indicates that by early next week the entire gulf will be ablaze with tit -for- tat Saudi/Iran attacks on each other. In this environment the Persian Gulf will be closed to all.

 

Needless to say, the oil and stock markets will reflect this turn of events with oil prices moving sharply higher and stocks sharply lower.  

 

·       See: Shulmaven: The Purim War and Shulmaven: The Purim War: Part 2 )

Venezuela: Too Early to Tell

Much has been written about the rendition of Venezuelan President Nicolas Maduro to the United States to stand trial on drug trafficking and arms smuggling charges. We have had predictable reactions from the Right hailing it as successful operation to remove an anti-American  dictator and from the Left attacking it as a throwback to the Yanqui Imperialism of the early 20^th Century that will lead to a quagmire.

 

To me, it is far early to tell how it will turn out. What we do know is that Maduro was an evil dictator who tortured and murdered his people with abandon and the country has a heavy presence of Russian, Chinese, Iranian, and Cuban forces. Thus, Venezuela represented a threat to U.S. security. Whether the threat is imminent or not is an open question. We also know that Venezuela possesses the largest oil reserves in the world, but much of it consists of tar sands which is costly to produce and that the oil fields are operating in a dilapidated condition causing oil production to drop from three million barrels a day to just under a million barrels a day over the past 20 years.

 

We are far from being reassured by Trump talking about oil and not talking about a return to democracy. Indeed, the entire security apparatus of the Maduro state remains intact. We do not know to what degree Vice President and now President Delcy Rodriguez will cooperate with Trump. She has given off very mixed signals, and we don’t know where the army will end up. We can surmise that given the intelligence that was available to the U.S military, it is likely that someone on the inside is working for us. Who that person or persons are, and their future role will be critical in the days ahead.

 

Trump is opting for stability over democracy. That may work in the short run, but if there aren’t any plans for elections after six months this whole adventure could go south very quickly. It is obvious that the Democratic Opposition would win an election; they did so under Maduro’s control. The question is whether or not the Maduro security apparatus will allow an election to take place and if it does take place will they allow the winner to be seated. Before rushing to judgement let’s give it some time for events to play out.

 

Outside of Venezuela both China and Russia are looking on. They too can make similar moves in the Taiwan straits or the Baltic States, respectively.

My Amazon Review of William Walker's "War Ups the Ante"

Europe Goes to War

 

To paraphrase Leon Trotsky, the western democracies were not interested in war, but war was interested in them. This is the fifth in a series of Paul Muller books written by William Walker. (See: Shulmaven: My Amazon Review of William Walker's "If War Should Come:....."  )  Yet again, Walker does not disappoint. Muller is a banker/diplomat/spy working for the Swiss government immediately preceding and at the start of World War II. As usual Muller is up to his eyeballs in the diplomatic intrigue of that era.

 

The book opens with Muller in Finland where his acclaimed for helping to fight off the Russian invasion. This notoriety does not sit well with neutral Switzerland, so he is farmed off to the League of Nations where he is instrumental in getting the Soviet Union kicked out because of its invasion of Finland. There he meets his Hungarian “spy” girlfriend.

 

Muller soon gets involved in a British plot to block iron ore shipments from neutral Sweden through a planned attack on the Norwegian port city of Narvik. As Alan Furst noted in his “Blood of Victory” novel the British and French plotted to block Danube oil traffic from the Ploesti oil fields in Romania and seriously planned to bomb the Russian oil fields in Baku which were feeding Hitler’s war machine. Walker notes that the “phony war” between October 1939 and April 1940 wasn’t so phony after all. So afraid were Britain and France in confronting Germany on the western front, they planned these peripheral actions. Needless to say, they did not succeed, and they would soon meet the full weight of the German blitzkrieg in May 1940.

 

As in his prior novels Walker gives us a window into the diplomacy of the era. He is especially acute in discussing the role of William Bullitt, the U.S. ambassador to France. It makes for an enjoyable read.

For the full Amazon URL see: Europe goes to War (amazon.com)

Shulmaven Scoops Financial Times on Ukraine Deterrence

 Yesterday we posted "Ukraine's Developing Deterrence" (Shulmaven: Ukraine's Developing Strategic Deterrence). Today the Financial Times published:

"Military briefing: Ukraine drone strikes show Russia it has ‘no safe zones’"

"Kyiv has for months urged its western allies to supply long-range missiles so it can hit Russian military bases far behind the front lines and puncture what Ukrainian military chief General Valeriy Zaluzhnyi has called the “sense of impunity that [Russia’s] physical remoteness provides”. This week Kyiv showed it could conduct long-range strikes without western equipment after it launched locally made drones that hit three military bases deep inside Russia — one only 160km from Moscow."

Military briefing: Ukraine drone strikes show Russia it has ‘no safe zones’ | Financial Times (ft.com) (paywall)

The article provided new information on the abilty of Ukraine to increase the previously noted 1000 kilometer range of its drones to cover parts of Siberia. This means the critical Russian oil fields of Western Siberia are now in range making them vulnerable to incendiary attacks. The FT also noted the the Ukrainian drones are guided by older inertial navigation systems, though not as accurate as GPS, they are impervious to jamming. Moreover, RANE reported yesterday that Putin ordered the beefing up of air defenses for Russia's energy infrastructure.

Military briefing: Ukraine drone strikes show Russia it has ‘no safe zones’

"The Sum of All Fears," UCLA Anderson Forecast March 2020 Interim Forecast

As we noted in our quarterly March report, the forecast represented an “attempt to distill incomplete and rapidly evolving information into a framework about the future course of the economy.” We now have new information that has confirmed the coronavirus is spreading rapidly, the travel and recreation sectors of the economy are shutting down, oil prices continued to plunge in response to the Russian war on the American fracking industry, credit spreads have widened dramatically thereby tightening financial conditions and stocks remain volatile with a downward bias.

As a result we have changed our forecast. Simply put we believe that when the business cycle dating committee of the National Bureau of Economic Research meets they will note that the 2020 recession began this month. Significant increases in Federal spending to support individuals and industries damaged by the coronavirus and a new program of quantitative easing by the Fed will limit, but not avert the decline in economic activity that we foresee. In summary our new forecast is as follows:

·        Real GDP declines by 6.5% and 1.9% in 2Q and 3Q, respectively. Growth rebounds in the 4Q a 4% clip.  (Figure 1)

·        Social distancing causes real consumption to fall by 7.8% in 2Q. (Figure 2)

·        Real Business Fixed Investment declines throughout the year. (Figure 3)

·        Two million jobs are lost between 1Q20 to 1Q21. (Figure 4) 

·        The unemployment rate rises from 3.6% to 5.0%. (Figure 5)

·        The Fed responds with a zero interest rate policy and QE. (Figure 6)

·        Inflation remains muted. (Figure 7)

Note: No Figures in this post.