Two weeks ago, I wrote an article about the fine line between legal prohibition and the moral justification for attacking an independent country, citing the greater good to save people. If one day is long in politics, two weeks tend to feel like an eternity, especially in international politics, because rapid developments can dramatically change the trajectory of events.
As things evolve, the conflict is likely to topple a regime, which in turn could further signal global economic disruption. I have no sympathy with the regime’s modus operandi, and it is indeed a ruthless regime. However, these potential global and regional instabilities were visible from the outset, suggesting that early signs can predict wider impacts. Iran occupies a strategically significant geographic position due to its proximity to key neighbours and control over the Strait of Hormuz. Because of this, any military action against Iran would have likely escalated into a broader regional conflict. Surely, recent developments have shown Iran engaging in hostilities with several neighbouring states and threatening retaliation in more distant countries, potentially through covert means.
Since the Strait of Hormuz is critical for global commerce, instability – already in question when the Houthis in Yemen targeted merchant vessels a few years back – directly impacts energy suppliers and indirectly financial markets due to the war sentiment. The prospect of a regional conflict, along with threats to close the Strait, is generating considerable concern among these markets. Surely, this concern prompted action, and the G7 sought authorisation to release 400 million barrels of oil reserves to ease pressure on prices. Additionally, the United States has taken measures to alleviate supply constraints resulting from sanctions on Russia. The Strait of Hormuz is quite important for the shipping of oil, LPG, LNG, and fertilisers needed to grow crops for several countries. Russia and Belarus hold a good market share of the latter. With the West at loggerheads with Russia, Belarus and Iran, it shows how vulnerable the world is in cooperating with each other.
In my view, there is going to be a trade-shifting pattern, exactly or perhaps the equivalent of what happened when the EU weaned or tried to wean itself off Russia, LNG and other commodities from its export market. If the Strait of Hormuz stays closed, irrespective of what the Iranians are saying, that it is closed only for the USA and Israel, it is going to send the world into another global energy shock. The Strait of Hormuz is unstable, and paramilitary or militias can continue to attack merchant vessels without Iran being directly involved. Such proxies are visible in the region. We already witnessed this with the Houthis in Yemen. Only the presence of a Western military can ensure the Strait of Hormuz’s safety, which is why the Trump administration is calling on NATO allies to aid and provide military assets.
Indeed, insurance risk premia rose, with some insurers not even insuring commercial commodities, which is detrimental to their shipment. The increase in prices is compounded by rising energy prices, squeezing consumers. Iran knows that further economic instability exerts pressure on Western economies due to oil price hikes. The double pinch of inflation is going to be bad, after two preceding supply chain and energy shocks as a result of the COVID19 pandemic and the invasion of Ukraine. Sincerely, the prolongation of this war will wreak havoc on many Western economies. The impact is imminent, not distant, because prolonged conflict disrupts supply chains and market confidence.
This situation mirrors 2022, when Russia invaded Ukraine. In my view, the start of this war was a little mishandled. Flawed military calculations led to decisions that had far-reaching economic consequences. This military miscalculation is the equivalent of that economic miscalculation under the Biden administration, which assumed only limited inflation would result from involvement in Ukraine. History demonstrated otherwise and the conflict caused a massive global energy shock and astronomical inflation in Europe, with lasting effects – particularly in housing and property markets – that are still being felt. Higher raw material and energy costs, as a direct result of shifting trade patterns, created feedback loops across markets, especially the property market. The shocks were amplified, and the impact affected several first-time and single buyers.
Besides, many actors are at play in this war. We have the USA and Israel attacking Iran. Israel is attacking Lebanon to eliminate Hezbollah. Iran is attacking all its surrounding neighbours, including Bahrain, the UAE, Oman, Saudi Arabia and Kuwait, thereby disrupting their economies. Besides, Iran is threatening to push for further instability, while the EU is completely absent. I understand the EU’s worries about not getting involved in the regional war. However, it’s going to cost the EU further in the coming months, not because they didn’t involve themselves, but because the European economy is economically exposed. Besides, the EU is highly dependent on NATO for its security. The security architecture of the EU is highly dependent on the transatlantic relations. And President Trump is already sending strong messages to those who are not supporting him in this war.
Certainly, the EU must continue to maintain its diplomatic position with Iran, as its credibility makes it well-placed to help resolve the crisis. Disappointingly, the EU has not even positioned itself as a diplomatic actor in this conflict, which limits options for de-escalation. They kept themselves distant. To make matters worse, recently, the President of the European Commission stated that we cannot rely on the global rules-based order any longer. Well, such statements weaken the foundation of democracy and undermine the purpose of a treaty-based order. When leaders express scepticism during turbulent times, it encourages instability rather than providing reassurance. In summary, von der Leyen’s endorsement of instability during chaos does not bode well for the EU or its democracies. Definitely, I understand her Chef de Cabinet’s script, because ultimately, he studied at the Fletcher School of Law and Diplomacy at Tufts University in the USA. However, the script for such media appearances must not fall into the hands of Bjorn Seibert. Au contraire, her Chef de Cabinet must stay a little removed, both as a penholder of her scripts or narrative, and as a decision-maker at this point in time. And the EU must talk to the Trump Administration to de-escalate.
Alas, current developments indicate that the conflict is expanding beyond a regional scope. The EU’s active engagement as a global diplomatic actor would contribute significantly to de-escalation and stability. It would be beneficial for leaders such as Ursula von der Leyen and HRVP Kaja Kallas to collaborate in formulating a unified and effective response. Hitherto, their efforts have not met expectations, and the European Council has been reduced to a spectator rather than a diplomatic leader.
