The Australian press has gloried in the failure of American (or at least Trumpian) policy in the Middle East. But markets and economic logic tell a different story. The world may be losing its collective mind, but the United States has clearly won the war with Iran.
The most obvious indicators of this victory are the stock markets. Year-to-date, the S&P 500 is up 4.5%, and the NASDAQ is up 6.9%. The Nikkei is up 15.2%, the FTSE is up 4.3%, and even the ASX has made up recent losses.
These are not the statistics of a global economy in crisis. Yes, stock markets initially dipped when the crisis broke out. But as economic reality set in, they recovered and even rebounded.
It’s true that sometimes markets can seem divorced from reality, but pundits and journalists are even more susceptible to hype and groupthink.
So turn to the facts. Iran’s military infrastructure has been largely destroyed, Israel’s security has been enhanced, and China has been dissuaded from providing material support to Iran—all major American objectives.
Iran has retaliated by closing the Strait of Hormuz. This does indeed pose major problems for Australia, to say nothing of Europe and Asia. It does not pose much of a problem for the United States.
The United States is the world’s largest oil producer and a net exporter of petroleum products. Domestic gasoline prices have spiked since the beginning of March, but they are still below Biden administration highs.
Moreover, the biggest hikes have occurred in California and on the West Coast, not because of a shortage of oil from the Persian Gulf, but because of a lack of local refining capacity—a problem that Australians will surely recognise.
Even these spikes are likely to be transitory as Venezuelan supplies come online. Not for nothing did the Trump administration flip Venezuela before tackling Iran.
The selective lifting of sanctions on Venezuela has prompted an export boom, and American companies are now working to restore deteriorated Venezuelan oil infrastructure.
Moreover, Venezuelan oil is now being directed away from Cuba—and directly into American Gulf Coast refineries. That means that further increases in U.S. exports of refined petroleum products are just over the horizon.
Iran is indeed punishing Gulf Arab countries and their European, Asian, and Australian customers by closing the Strait of Hormuz. But it has only secondary spillover effects on the United States.
American motorists may be paying more for gasoline, but only because American oil companies are making a fortune diverting the gasoline to world markets.
Were Donald Trump to play the nuclear option—not a literal nuclear bomb, but a ban on American exports of refined petroleum products—U.S. oil prices would quickly return to pre-war lows.
When Trump asked friends and allies (and China) to send ships to open the Strait of Hormuz in mid-March, it wasn’t to help the United States. It was to secure their own energy supplies.
Many of the world’s leaders gloated over what they perceived to be American weakness in asking for help. In reality they were gloating over their own self-destruction. Iran isn’t blockading America’s oil. Iran is blockading their oil.
Part of the magic of the free market is that economies adjust to supply disruptions like the current oil shock by changing behaviour and making substitutions.
Higher oil prices will bring online additional U.S. production and refining capacity. To a lesser extent, less flexible producers in Canada, Mexico, and Brazil will respond as well.
As a result, the global economy will muddle through the current oil supply shock. But as it does, the United States will continue to expand its economic lead over the rest of the world. The crisis will also benefit the broader Americas over oil-dependent Eurasia.
Many people loathe Donald Trump, at home and abroad. But international loathing for Trump won’t thwart America’s growing economic dominance under his leadership, nor will it harm his political appeal to a large segment of the population in the United States.
It does, however, cloud the judgement of otherwise highly intelligent economists and international affairs analysts. It may even spur international politicians toward self-defeating policies.
But if Australia wants to flourish in the future, it will look to its own energy security—and recognise that American economic dominance is here to stay.
