In this week’s episode, we (Gary Gensler and Simon Johnson) discuss the possible future path of the US-Iran conflict.
Beginning six months ago with the US-Israeli February 28th attacks, the impact has been felt both across the Middle East — in local destruction, thousands of casualties, and heightened insecurity — as well as globally in energy markets, food prices, supply chains, strained alliances, and much more.
While all wars end, eventually, what are the odds that the fighting (and substantial closure of the Strait of Hormuz) will be over in the foreseeable future?
As the conflict was just getting started in March, we discussed the Iran war in our Episode Three: Economic Impacts of the Iran Conflict. At that time we expressed concern that both sides might dig in, literally and metaphorically. Since then, while the most violent part of the conflict seems to have receded, the US has failed to achieve its stated strategic goals — Iran still has its enhanced uranium stockpiles, the Strait Hormuz is still largely closed, and missiles and drones are still real threats with strikes exchanged yet again yesterday. Further, the entire Gulf region has been dragged into the conflict.
On both sides, political leaders may feel that time is on their side. Although there’s been tremendous destruction, death, and economic hardship in Iran, the US has failed to extract firm commitments from the new leadership there. In the US, gasoline and diesel prices remain high as midterm elections approach. Will Treasury Secretary Scott Bessent’s declaration of an “Economic D-Day” make much difference? Or as Marc Lynch writes in his recent Foreign Affairs article, will the current Iran conflict be ‘The End of the American Middle East’?
Simon and Amir Kermani wrote about how to resolve the US-Iran conflict in May, “Is A Lasting US-Iran Deal Now Possible? Overcoming Time Inconsistency and Political Debt Overhang,” CEPR Policy Insight 150.
In our third episode, Gary mentioned “The Arrogance of Power,” an important speech delivered on May 5, 1966, by Senator J. William Fulbright, Chair of the Senate Foreign Relations Committee, 1959-1975. Links available: original documents, or a complete printed version as reported by U.S. News and World Report.
Gary also continues to recommend Philip Gordon’s book, Losing the Long Game: The False Promise of Regime Change in the Middle East, published October 2020. Or take a look at Philip’s essay in Foreign Affairs, October 7, 2020: “The False Promise of Regime Change: Why Washington Keeps Failing in the Middle East.”
Join us next week when we will discuss, “Does the Fed have inflation under control?”
