The Iran war became much more complicated for President Donald Trump this week. Because while he could trumpet the enormous damage that was being inflicted on Iran’s naval, guided and missile forces, he also found himself facing a new, much more complicated type of adversary.
It is not a drone factory to be rocketed, nor a warship to be torpedoed, nor a bunker to be destroyed.
Instead, he faces a stubborn economic reality, a reality that had frustrated him long before the war and that he spent much of his first year in office trying to redefine along “America First” rules, imposing protectionist tariffs on America’s trading partners.
Why do we write this?
The Iran war shows that despite President Trump’s rejection of globalization in favor of US-dominated mercantilism and tariff pressure, the world economy still depends on a complex set of international linkages that can affect everyone, including the United States.
It is globalization: the intricate series of connections through which countries have for decades organized a growing trade in resources, raw materials, manufacturing components, basic goods and consumer products that keep the world economy running.
This week’s jump in oil and gas prices highlighted the continuing importance of these global connections and how war, by endangering them, is taking a deep-pocket toll on countries around the world.
Also in the United States: Gasoline prices have risen sharply and American farmers face the prospect of a similar rise in fertilizer costs.
The challenge for President Trump is that the longer the trade disruption lasts, the more difficult it will be to mitigate economic shock waves, with potential political implications in the run-up to November’s midterm elections.
Perhaps that is why he has been threatening fearsome retaliation if Iran continues to impose a closure of the crucial Strait of Hormuz oil shipping route, while hinting that he could call for an early end to the war.
In another sign that Trump is keenly aware of the economic effects of war, the United States joined other major member states of the International Energy Agency on Wednesday to agree to the largest-ever release of global oil reserves: 400 million barrels in total.
The objective is to avoid new price increases. But even the record size of the IEA intervention will not offset the reduction in global supply if the war drags on much longer. Before the war, a fifth of the world’s oil passed through the Strait of Hormuz, the chokepoint at the lower end of the Gulf.
Rising oil and gas prices have implications beyond the gas pump: fossil fuels remain essential to almost all national economies. A sustained rise in prices risks harming both producers and consumers, increasing inflation, raising interest rates and potentially slowing growth.
That’s an especially pressing concern for energy-importing Asian countries that get most of their oil and liquefied natural gas from the Gulf. Europe also relies heavily on liquefied natural gas from the Gulf state of Qatar.
And while one of Trump’s policy priorities has been to expand domestic oil and gas production, even that cannot insulate American consumers from the kind of international price increases seen since the start of the war.
The world price of oil is a function of overall global supply and demand. The elimination of a considerable part of the supply means that the price for everyone, everywhere, has gone up.
The tremors in global trade go beyond oil and gas, however.
Gulf Arab nations, targeted by Iran in a bid to expand the war and pressure Trump to end it, also produce other raw materials, including aluminum and nitrogen.
And three Gulf countries – Saudi Arabia, Qatar and Iran itself – provide more than 10% of the world’s fertilizers.
All of these exports usually pass through the Strait of Hormuz and their prices on the world market have skyrocketed.
Iran this week repeated its threats to fire on any ship attempting to enter the Strait of Hormuz. On Tuesday, the United States destroyed 16 Iranian vessels to prevent attempts to mine the waterway. However, hours later, Iranian projectiles hit three cargo ships attempting to cross the strait. Overnight on Thursday, attacks on two oil tankers led two neighboring states, Iraq and Oman, to close oil terminals.
The war has also impacted global trade in another way: not only on water, but also in the air.
In recent years, the United Arab Emirates has become a major global air cargo hub, handling everything from specialized industrial components to computer chips and smartphones. Its Dubai airport has become the second busiest in the world.
Both the United Arab Emirates and other Gulf Arab states had to close their airspace at the beginning of the war. Although they have mostly reopened, they remain vulnerable to Iranian attacks.
Meanwhile, some cargo carriers have been diverting flights to a narrow corridor through Central Asia – between the conflict zones around Ukraine and Iran – although that adds to transportation costs, as the price of jet fuel has also risen due to the war.
That tough business decision highlights the dilemma Trump faces as he weighs when and how to end it.
Yes, US forces, along with Israeli airstrikes, have destroyed much of Iran’s military infrastructure.
But as the new air cargo route reflects, they have not yet been able to completely dismantle Iran’s military capabilities and prevent the Iranians from continuing to launch targeted missile or drone attacks against maritime and oil facilities in the Gulf.
Trump could decide – as he said at a rally in Kentucky on Wednesday – to try to “finish the job” militarily.
But it will know that until that happens, its other adversary – economic dislocation and war damage – will not be easily defeated.
