Corporate Debt Review

Trump Tactics Unnerve My European Meetings

A Series of Unfortunate Events

Over the years, I have brokered deals, advised market and policy makers, and upon occasion ended up on the pointed end of operations in the Persian Gulf region. But, frankly, I have never witnessed my in-region contacts as befuddled (or frustrated) as they are currently.

Tomorrow (June 25) I leave for a week of meetings in London and on the Continent. The first objective involves setting risk parameters for initial energy project investments meant for newly reacquired territory in Iraq around Mosul and Kirkuk (previously controlled by ISIS). The second is plotting likely market forays with broader regional energy sector contacts. Given who is at this second conclave, it needs to be at a location outside the ambit of Washington, London, or Brussels (and the European Union).

Both have been thrown into an uncertain game of chicken by the line coming out of the White House. This is rapidly becoming a very dangerous time.

Throughout much of the early period in the latest US-Iranian standoff analysts effectively discounted the residual impact on oil prices and energy markets. The recent attacks on tankers in the Gulf of Oman and on a main inland Saudi pipeline were regarded as “one-off” events. They would spike prices in the immediate aftermath but have little lasting knock on effect, or so the argument ran.

Two developments have changed that dynamic. First, the Iranian shootdown of a US reconnaissance drone last week marked the first occasion an asset of either side was the target (the tankers were property of third countries). Second, the confusing US response did more harm than good.

And it is the curious actions (or lack thereof) coming from the Oval Office that are creating the major angst as we move into a pivotal week. They have also thrown the agenda of my upcoming meetings out the proverbial window.

War Games

After having authorized the move of another 1,000 troops into the region, Trump appears indecisive in what he intends to do next. For starters, his “explanation” for why he decided not to strike back at appropriate Iranian land-based military targets following the drone shootdown is simply wrong.

The president said he decided to pull back from reprisal strikes at the last minute after learning they could result in collateral deaths. He put the number at 150.

I have some personal experience in how such matters are run, providing intelligence input to decisions involving military counterstrikes. My own experience in such matters is supported by a contact of mine (a three-star) currently involved in providing military input in such matters.

In both cases (mine and his), the positives and negatives – including an estimate of likely civilian casualties – is provided up front. It is never given at the last minute to a policy maker. Especially, as Trump has suggested, after attack elements were already in play.

The real problem in this example of presidential wavering comes from the suspect “chain of command” apparently being used. According to my contact, who was in the room at the time the strike was considered, the decisive authorization briefing was never given to the erstwhile commander-in-chief. It was given to, and received a signal to proceed from, National Security Advisor John Bolton… by telephone! Bolton is in Israel and there is no in-place Secretary of Defense to filter the process.

Trump does not want to be responsible for the next US war, especially since he has recast himself as an opponent of the Iraq War and Obama’s policy both there and in Afghanistan. But he also is now widely perceived elsewhere as having no strategy beyond threats. He most recently emerged over the weekend when he proclaimed that Iran would face “obliteration like you’ve never seen before” if they attacked American personnel.

Teheran is careful and calculated. Iranian leaders certainly do not want to precipitate a military conflict with the US. Their economy has been adversely impacted by the ongoing sanctions from Washington.

However, not a single Iranian contact of mine (nor anybody else in the region in my network and/or with whom I will be meeting this week in London and Europe) believe such heavy threats from Trump. As one put it succinctly to me on Saturday, “Trump likes to start a blaze, thereupon playing fire brigade to put it out, and claim credit for saving the day in the aftermath.”

Since Friday, I have heard similar comments from others to the effect that the US seems to be pushing everything to the brink simply to pull back for some short-term domestic political gain.

What results, of course, is a widespread concern over who is running the store in Washington, and whether- when it comes to policy-there is genuinely any “there there” (with apologies to Gertrude Stein).

This has increased the fear that miscalculation, mistake, or misunderstanding may have little impediment to steamrolling affairs toward war. Barbara Tuchman’s masterful 1962 work The Guns of August chronicled how similar dynamics brought about World War I.

Yet, it is the overarching Trump rationale in picking a fight with Iran that has my network at a loss. The US pulled out of the JCPOA (Joint Comprehensive Plan of Action) in May of last year with sanctions against Iran set to renew first in November and then (once six-month exemptions had expired), ultimately coming into force last month. JCPOA is the nuclear agreement between Iran on the one hand and the US, the UK, France, Germany, the EU, China, and Russia on the other.

All of the other signatories, along with the Vienna-based International Atomic Energy Agency, attest that Iran has abided by that agreement. In the aftermath of the resumption in US sanctions, Teheran has threatened to renew uranium enrichment. Iran has given the other JCPOA parties, who have pledged continued support to the agreement, a limited time to provide adequate safeguards against the sanctions. But there is rising pessimism in my network that this will be possible.

A Simple Plan

The real rub is the justification Trump gave for the US pulling out of the treaty. He believes he can coerce Iran into a better deal.

Absolutely nobody I speak with believes this is either a legitimate negotiation strategy or makes sense, given the rationale for JCPOA. “It is simply a fairy tale spun by a TV personality having no facility with the real world,” is the way one Persian Gulf colleague put it. Most other comments cannot be repeated publicly.

Basing forward negotiations on a strategy that requires the other side to yell “mea culpa” and come hat in hand for reprieve is never workable unless backed up by an overwhelmingly superior military presence.

Which leaves one last possibility as the only alternative still standing. As many have surmised, the Trump-Bolton- (US Secretary of State Mike) Pompeo approach seeks regime change in Teheran.

Unfortunately for the White House, the overwhelming opinion among regional contacts is that this has just about zero chance of success.

What is left is a rising tide of uncertainty for which there are no clearly articulated boundaries. And that makes my job in meetings over the next week, a task in which counterparties expect me to lay out operational risk parameters, that much more difficult.

That Trump has pledged to announce additional Iranian sanctions as early as later today won’t help any either.

About the Author

KentMoors

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk management, emerging market economic development, and market risk assessment.

He serves as an advisor to the highest levels of 27 countries, including the U.S., Russian, Kazakh, Chinese, Iraqi, and Kurdish governments, to the governors of several U.S. states, and to the premiers of two Canadian provinces. He’s served as a consultant to private companies, financial institutions and law firms in 29 countries, and has appeared more than 2,300 times as a featured radio-and-television commentator. He appears regularly on ABC, BBC, Bloomberg TV, CBS, CNBC, CNN, NBC, Russian RTV, and the Fox Business Network.

A prolific writer and lecturer, his six books, more than 2,700 professional and market publications, and over 650 private/public sector presentations and workshops have appeared in 47 countries.