Hamas v Israel: Who Should Take Iran Seriously?
Iran's Efforts To Widen The Conflict Are Not Having The Anticipated Consequences
As I discussed yesterday, Iran’s likely efforts to widen the war between Israel and Hamas to take in the larger Middle East has been slowly succeeding—although in a way Iran likely did not anticipate.
Iran wanted a wider war in the Middle East. With suicide bombers clearly now willing and able to venture inside Iran proper, Iran may very well have gotten what it wants, but not at all in the way it wanted. An emboldened and resurgent ISIS attacking Iran is hardly an escalation that benefits Iran.
This much is certain: Iran’s capacity to be the regional hegemon is being put to the test. Time will tell if Iran has the political will and the military insights to play that role effectively.
However, while there are signs throughout the Middle East of a conflict slowly metastasizing, one crucial sign is still missing: higher oil prices.
Another crucial sign—higher shipping prices—is showing up, but not across the board.
If Iran hoped to land a blow against the “rules based international system”1, so far they have not succeeded. They might even be doing noticeable harm to two of their biggest presumptive allies—Russia and China.
While there is an element of speculation in assessing that the incremental expansion of the Israeli-Hamas conflict is the result of Iranian machinations, we should remember that Iran’s connections to many of the principal players—Hamas, Hezbollah, and the Houthis in particular—makes that assumption eminently reasonable.
Indeed, in the weeks immediately following Hamas’ October 7th attack on Israel, there was ample evidence that Iran was actively encouraging its terror proxies to widen the conflict.
However, roughly a month after Hamas’ original attack, a significantly wider conflict had not emerged. Iran’s efforts—if events were indeed attributable to Iran—had apparently failed.
Even the Houthi missile attacks on Red Sea shipping failed to move oil prices much—and oil prices are the obvious commodity bellwether for the state of conflict in the Middle East.
Applying a Great Power lens to the Middle East, it is not irrational to presume Iran has a hand in events currently unfolding. However, as already stated, looking at the price of oil, if Iran is attempting to manipulate the price of oil through an expansion of the Israeli-Hamas war, Iran is clearly not having much luck. Even if Iran is not directly focused on oil prices, falling crude prices still imply that Iran is not seen as having any success expanding the Israeli-Hamas war.
Yet the conflict has been widening, and the Houthi missile attacks in the Red Sea have begun to have some success at persuading shippers to avoid the area.
Many major ocean carriers have halted their ships from entering the Red Sea following the lead of Marsk and Hapag Lloyd in suspending operation after the projectile attacks from the Yemen-based Houthi militia.
After BP announced a suspension of oil shipments through the Suez Canal and the Red Sea, oil prices moved up briefly in mid-December.
BP has become the latest firm to pause travel through the Suez Canal following a series of attacks on vessels by Houthi militants from Yemen.
In a statement Monday, the oil major said the safety of its workers was its priority.
“In light of the deteriorating security situation for shipping in the Red Sea, bp has decided to temporarily pause all transits through the Red Sea,” it said. “We will keep this precautionary pause under ongoing review, subject to circumstances as they evolve in the region.”
However, the rise in oil prices was brief, and as of this writing global benchmark prices for Brent Crude and West Texas Intermediate had fallen to just above where they were at when the shipping traffic began to be diverted in earnest.
If Iran’s objective in pursuing a wider war in the Middle East was to disrupt Israel’s Western allies, oil prices alone show their efforts to largely have been in vain.
Perversely, the country whose oil revenues may be the most negatively affected by the Israeli-Hamas war and its incremental expansions is Iran’s ally Russia. After peaking at $80.94/bbl, the price of Urals Blend has fallen by approximately $20/bbl.
The one thing that is absolutely certain about Russia’s economy is that Russia needs all the oil revenue it can generate in order to fund the war in Ukraine. A falling price for the Urals Blend is by definition a reduction in revenue—Russia’s production cuts preclude Russia from increasing oil revenue on the basis of falling oil price due to increased output.
If Iran is indeed the invisible hand behind Hamas’ October 7th attack on Israel, and the Houthi missile mischief in the Red Sea, the Islamic Republic has almost certainly dealt Russia an evil turn.
Perversely, the same cannot be said of Europe. The Baltic Dry Index—a global shipping rate index—has returned to about the same level as before October 7th.
If shipments from Europe that previously had transited the Red Sea are now being redirected around Africa, we would expect to see the Baltic Dry Index rising significantly. We are not seeing that. After a brief surge in December, freight rates per the Baltic Dry Index are only marginally higher than on October 6th.
The conflict in the Middle East has not impacted European exporters significantly (at least, not yet).
Where freight rates are moving substantially higher is in the Shanghai Containerized Freight Index, which tracks shipping rates outbound from ports in China—another presumptive Iranian ally.
If we drill into the index, we see that the increase is largely due to increased shipping rates to Europe, with US West Coast shipping showing a much smaller increase.
Problematic passage through the Red Sea and the Suez Canal due to Houthi activity is the obvious explanation for the different trends in shipping rates. With much of the Asia shipping traffic to the US East Coast having been rerouted through the Suez Canal instead of the Panama Canal in 2023 due to a drought in Central America, even shipping to the US East Coast has risen dramatically since the beginning of December.
In a further twist, most shipping rates for imports into China have been falling in recent weeks, based on trends in the China Import Dry Bulk Freight Index.
The countries whose export traffic is being most effected by the Houthi aggressions in the Red Sea are none other than Iran’s two most significant allies—Russia and China. Israel’s allies, on the other hand, are seeing substantially smaller impacts on export shipping.
If the Houthi aggressions in the Red Sea in fact have been instigated by Iran (remember, the assumption that Iran has been directing Houthi efforts in that direction is still mainly a well-informed speculation), Iran may have committed a major geostrategic blunder by putting Russia and China in an economically disadvantaged position.
Not only has Russia seen a major drop in the price of Urals Crude, but India, one of the most significant buyers of Russian oil, has been curtailing its purchases of Russian oil due to the diminution of the once-substantial discounts to benchmark Brent Crude prices for Urals Crude.
While India’s imports from Russia rose 6.2% on month to 1.68 million barrels a day in November, those from Iraq grew by 21.4% crossing the 1 million mark for the first time since February, according to data intelligence provider Kpler.
Shipments from Russia to India fell to 1.48 million barrels a day in December, according to Kpler, as six tankers carrying the Sokol grade oil from the country’s Far East could not deliver due to tightening sanctions
At the same time, Iran has chosen the past couple of months to push China for higher oil prices—resulting in China curtailing some of its oil imports from Iran.
China's oil trade with Iran has stalled as Tehran withholds shipments and demands higher prices from its top client, tightening cheap supply for the world's biggest crude importer, refinery and trade sources said.
The cutback in Iranian oil, which makes up some 10% of China's crude imports and hit a record in October, could support global prices and squeeze profits at Chinese refiners.
Iran may even be choosing to play hardball with Chinese refineries over previously agreed-upon discounts.
Early last month Iranian sellers told Chinese buyers they were narrowing discounts for December and January deliveries of Iranian Light crude to between $5 and $6 a barrel below dated Brent, five traders who handle the oil or are familiar with the transactions told Reuters.
Those deals had been struck in November at discounts around $10 a barrel, the traders said.
"This is considered as an extensive default and the order to hike prices apparently came from the headquarters in Tehran, as they're holding back supplies also to the intermediaries," a China-based trading executive said.
An executive at a Chinese middleman that procures direct from Iran said the OPEC producer was "holding back some shipments", leading to a "stalemate" between Chinese buyers and Iranian suppliers.
"It's not clear how things would end," this executive said. "Let's wait a bit and see if refineries are willing to accept the new price."
China has saved billions of dollars buying often deeply discounted oil from sanctioned producers Iran, Venezuela and, more recently, Russia - countries that supply almost 30% of China's crude imports.
With some 90% of Iran’s total oil export volume going to China, any reduction by China in their purchase of Iranian oil by volume is going to have significant impacts on Iran’s oil sector, as well as their overall economy.
With China’s ongoing economic woes and Russia’s seemingly endlessly stalemated war In Ukraine, this could not be a worse time for either country to have their energy exports curtailed.
If Iran had hoped to use a Middle East crisis to extract higher oil prices from its principle customers, that strategy has run into another obstacle: Saudi Arabia. In response to ongoing lackluster global demand concerns, the Saudis on Tuesday trimmed their quoted oil prices by as much as $2/bbl for Asian and North American customers.
Saudi Arabia has reduced the price of its crude oil for February delivery for all buyers rather than just Asian ones as it has done before.
The cut for Asian importers was the deepest, however, at $2 per barrel for all grades that Saudi Arabia exports, Energy Intelligence’s Amena Bakr said in an X post.
Interestingly, Aramco also cut the price for North American buyers by the same amount, while in previous price adjustments it has cut these prices more modestly.
Oil prices are also not getting much support from the rest of OPEC, which in December saw oil production increase—something the Saudis as well as Russia have been working to cut back since early 2023, and are now having difficulty in enforcing.
At their latest meeting, the Organization of Petroleum Exporting Countries and its partners, led by Russia, agreed to reduce their combined production of crude oil to some 2.2 million barrels daily. Saudi Arabia again agreed to the largest cuts. But production wind-downs are rarely instantaneous and require a bit of a wind-down period. December’s increase could indicate that the group will be unable to comply with its own rates set for January.
To monitor compliance, OPEC+ will hold a Joint Ministerial Monitoring Committee (JMMC) meeting in early February, media sources revealed earlier this week.
Iran’s own oil revenues have also taken a hit in recent weeks—after peaking just after Hamas’ October 7th attack, the price for Iranian crude has steadily trended down, and even the Houthi predations in the Red Sea succeeded in only temporarily reversing that trend.
If Iran’s objective in pursuing a wider Middle Eastern conflict included exerting pricing power over oil, Saudi Arabia, as well as the rest of Iran’s fellow OPEC members, are already succeeding in blocking Iran from achieving that goal.
Russia and China are not merely presumptive Iranian allies. They are also two of the leading international voices refusing to explicitly condemn Hamas or call for its removal from Gaza.
Russia in particular has used the Israeli-Hamas conflict to criticize the United States and perhaps drive a wedge between the US and various third world countries more receptive to the concerns of the Palestinian Arabs. The logic here is not hard to follow: The US and the EU have, by and large, moved to support Israel in the conflict, and so Putin is moving to counter the US wherever he can.
"Russia understands that the U.S. and the EU have fully supported Israel, but the U.S. and the EU are now the embodiment of evil and cannot be right in any way," Sergei Markov, a former Kremlin adviser, wrote in his blog, explaining Putin's need to differentiate himself.
"Therefore, Russia will not be in the same camp with the U.S. and the EU. Israel's main ally is the United States, Russia's main enemy right now. And Hamas' ally is Iran, an ally of Russia."
China, for its part, has attempted to remain outwardly neutral in the conflict, voicing only generic condemnation for “violence and attacks on civilians” without naming Hamas.
In the wake of the cross-border attacks on Saturday, China initially put out a bland statement, calling on “relevant parties to remain calm, exercise restraint and immediately end the hostilities to protect civilians and avoid further deterioration of the situation.” After a meeting with U.S. Senate Majority Leader Chuck Schumer in Beijing on Monday, Chinese President Xi Jinping strengthened the statement to condemn “all violence and attacks on civilians,” although it still did not specifically name Hamas.
On paper, at least, Russia and China would presumably be in favor of any Iranian strategy which could isolate Israel and diminish the United States.
However, based on the economic trends emerging around the Israeli-Hamas war, Russia and China are among the countries seeing their economic fortunes diminished the most as a result of the creeping expansion of that conflict. At the same time, Iran’s hoped-for leverage over China regarding oil prices—leverage that would surely follow from a major expansion of the conflict and global concern over disrupted oil flows out of the Middle East—has been problematic at best, and is failing by most extant evidence.
The major countries notionally on the “other side” of the Israeli-Hamas war are the ones that are, by the numbers, deriving the least benefit and suffering the greatest harms from the presumed efforts by Iran to widen that war and draw at least the United States into another protracted Middle Eastern conflict.
If Iran has been attempting to force an expansion of the conflict between Israel and Hamas, that attempt has backfired on Iran bigly. What may even prove worse for Iran is that the backsplash from that attempt is hurting its allies Russia and China more than it is hurting the US and the EU.
Iran might very well be persisting in efforts to widen the scope of the Israeli-Hamas war. If that is the case, Iran is quite likely doing more harm to itself and its few allies than to Israel and the United States.
Cimmino, J., and M. Kroenig. Strategic Context: The Rules-Based International System. 16 Dec. 2020, https://www.atlanticcouncil.org/content-series/atlantic-council-strategy-paper-series/strategic-context-the-rules-based-international-system/.
Maybe the Iranians have very wisely thought about these factors, and scaled back their once somewhat impressive 'options.'
You know, if I were head of Israel, or advising the fake pres. Biden, here's what I would do, and it would solve a lot. Not that anyone would listen, but here goes:
a.) As head of Israel, or Blinken, whatever, I would go back to the Oslo Accords. Are they ideal? No. But let me know how the other plans are working out. But sides want to drive the other "into the sea." Good luck with that. Fact is, the Palestinians, which are a cover for a disparate group of peoples, include Christians as well.
b.) I would affirm that Jews ARE indeed God's chosen people, but they were meant to usher in the Messiah. I was just reading in Exodus the other day that God did indeed grant the greater area to the Jews, but on the condition of their obedience to Him. Right now, Israel isn't that much different from, say, corrupt California. God's promise is only for a nation that follows Him. Israel by and large is a secular, liberal state that mostly wants nothing to do with God, including abortion, homosexuality, etc. God's promise is thus null and void. Moreover, if God has granted the greater area to the Jews, He, not the military, will provide this. And it will NOT include the massacre of innocent women and children. As a matter of fact, if the Jews would show some intellectual honesty, along with the Muslims, they would consider the claims of Christ. Already small communities are doing that, and there is rapproachment between Messianic (Christian) Jews and MBB (Muslim background believers in Christ). The son of a Hamas leader is now a Christian and a great advocate for reconciliation. In fact, the whole New Testament has much on Jewish and Gentile rapproachment. "Tearing down the wall" between the two was how St. Paul put it.
c.) I would, as a Blinken, Netanyahu, etc. make one simple statement: Dear Palestinians: I want you rich. I want you to be the next Qutar or UAE with the gas fields off your coast, and turning it into what Lebanon used to be - a vacation paradise. The tradoff is that you need to accept permanent peace keepers with very strict and draconian rules to keep the peace. The UN is a bunch of Marxist idiots, so maybe get a couple countries, like Russian, Norway, Canada and maybe even China to do the policing that MUST be strict. I'll tell you what. If I were a Palestinian, and I had the choice between being rich and at peace, or what's going on now, I know what I would choose. Allow Gazans to have the gas fields off the coast, an bring in tourist escaping winter. When people are rich, they are a lot less interested in war, for the most part.
d.) The supposed Ben Gurion canal, to take the load off of the Suez. If it goes thru part of Gaza, fine. Let them make some money off it. Again, the msg to the Palestinians is that you can be rich and at peace, or broke with half the population displaced or killed. Dunno about you, but despite no PhD in math, even I can do that kind of calculation. Yes, this is contingent upon hammering out a police force in Gaza that has teeth, and brooks no Muslim radicalism. But, as we see with Dubai, UAE, Qutar, etc., their radicalism (and make no mistake. The Qu'ran, which I own and have read twice, is FULL of violence. We can't go in assuming there will not be a subset of Muslim radicals, who must be rooted out as the stick, and wealth for all Gazans as the carrot. Israel should make hard plans to quickly ramp up a Ben Gurion canal that would bypass Gaza should they not play pool
e.) I am aware that the Jewish state has usurped some Palestinian land; this must stop. Similarly, we need policing in Gaza with teeth from an international force. Those pushing violence on Jews should be dealt with harshly. I am also aware that this Palestininian attack came with the foreknowledge of the Israeli upper command... all probably done - like the Israeli bombing of the USS Liberty in I think it was 1967, to try to get the US to join the war. Something similar is being done now. But again, I would appeal to the Iranian population directy, with the same bargain: We, Israel, want you rich and at peace, but those imams that want war? Well, you again can have wealth and peace, or some nukes. We, Israel, not only do not WANT your land, we couldn't occupy it anyway. Heck, we, Israel, got our butts handed to us by Hezbollah a few years back anyway. My broadcast to the Iranians would be that not only do we NOT have designs on your land, but even if we did, there's no way we could even think of occupying it anyway. This is not dissimilar to Russia not wanting western Ukraine, as there is no way to occupy and police it. Beside, the underground Christian church is growing by leaps and bounds in Iran. Christians there just want peace as well .
To be sure, there's a lot of loose ends in the proposals above, but the main tenet - we want you Palestianians rich and peaceful, with the "peace" part backed up with a strong military (think the Green Line in Cyprus) so that never again would it even be possible to launch an attack. And the Israeli Deep State should be investigated for them allowing the October attacks, which they clearly knew about, but allowed to help draw in the US to try to invoke a greater war, ultimately with Iran, or at least its proxies.
Could this broad framework actually work? It's better than what is being done now.