Climbing the Escalation Ladder
Long War, Rationing, Strikes, & Ground Operations against the GCC.
Commercial topics: Who can bail out Britain or the EU? Inflation, energy shortages, and the political impact of stagflation. Shipping in the Red Sea, and escalation of ground operations. Transport strikes and unrest. Under which scenarios does Egypt join the war?
Our baseline assumption is that this war is going to be long, easily lasting beyond the 2026 mid-terms, and that it will expand into a ground operation that slowly grows in scale and ambition.
Our reasoning is simple: the Iranian regime will not fall through an air campaign. And a limited ground operation will likely lead to more Russian and Chinese support to draw the Americans in further, in the hope of depleting America’s ability to contest Ukraine and Taiwan. Iran will focus on convincing the Americans that remaining in the region is more costly than leaving. The consequences of the US abandoning its campaign right now, however, would be for Iran to turn the Strait of Hormuz into a toll booth, gaining the ability to blackmail all Gulf states and taxing their energy exports. This would make Iran the dominant player in global energy markets, alongside Russia. Furthermore, if the US backs down now, Iran would also be able to constrain Israel’s freedom of action against Hezbollah, and perhaps even Hamas and the Palestinian Authority. With the Houthi entering the war, this would also mean that the Houthi can charge fees for passage through the Red Sea. America’s role as guarantor of global trade and policeman of the seas would be over.
