Who Survives The Iran Counter-Offensive?

Authored by Tom Luongo,

Iran has had enough. I think it’s fair to say that after 60+ years of U.S. aggression towards Iran that the decision to shoot down a U.S. drone represents an inflection point in world politics.

In the first few hours after the incident the fog of war was thick. But a day later much of it has cleared thanks to Iran’s purposeful poke at U.S. leadership by coming clean with their intentions.

Iran chose to shoot down this drone versus hitting the manned P-8 aircraft and then chose not to lie about it in public, but rather come forward removing any deniability they could have had.

They did this after President Trump’s comments yesterday during a news conference with Canadian Prime Minister Justin Trudeau where Trump described the attack as “a big mistake” and “not intentional.”

But it was intentional.

And the reason for this was that despite Trump’s assurances yesterday there is considerable debate as to where the drone actually was. According to a report from the NY Times (and buried deep in a very long article):

Still, there remained doubt inside the United States government over whether the drone, or another American surveillance aircraft, this one flown by a military aircrew, did violate Iranian airspace at some point, according to a senior administration official. The official said the doubt was one of the reasons Mr. Trump called off the strike — which could under international norms be viewed as an act of war.

The delay by United States Central Command in publicly releasing GPS coordinates of the drone when it was shot down — hours after Iran did — and errors in the labeling of the drone’s flight path when the imagery was released, contributed to that doubt, officials said.

A lack of provable “hard evidence” about the location of the drone when it was hit, a defense official said, put the administration in an isolated position at what could easily end up being the start of yet another war with a Middle East adversary — this one with a proven ability to strike back.

This means a couple of things. First, it is likely that Trump was not properly briefed on the issue by his National Security Council, who were pushing him to strike back hard and who are itching to get the U.S. into an armed conflict with Iran.

Framing the attack as a mistake Trump was handing Iran the opportunity to de-escalate things. To me, this signaled that Trump was told through back channels this was an operation designed by us to put Iran in a no-win situation — either allow encroachment of their airspace or shoot down a drone that would land in international waters.

Moreover, doubts as to the drone’s position, remember, with a plane carrying actual ordnance on its wing, put Trump in a real bind.

And he knew it at the presser. That’s the way Trump tried to frame this the way he did. Because the implications here are that he is being boxed in on all sides by his administration and his allies — the Saudis, Israelis and the UAE — and frogmarched to a war he doesn’t want.

He wants Iran to heel but he doesn’t know how to go about it.

That Iran then chose the next day to openly declare that they were not confused or misled and knew exactly what they were doing puts Trump in an even worse position.

Because an unmanned drone, as he said in his futile tweetstorm, is not worth going to war over, especially one whose position in in dispute.

And everyone knows it. Europe wouldn’t condemn Iran here. No one did. Only the U.S. And that silence is deafening as Pompeo, Bolton and Haspel again over-extend themselves.

Trump is right that he can afford to be patient and now re-frame this as him being the magnanimous God-Emperor but what he’s really doing is talking capital markets off a cliff.

Because that’s where the U.S. is the most vulnerable and where Iran’s greatest leverage lies. This incident should have sent oil prices far higher than they did if the threat of war was real.

Why? Because the markets discounted the U.S.’s stories immediately. There have been so many incidents like this that should have started a war in the past three years which turn out to be bogus that the market reaction was muted, at best.

It also tells you just how quickly the global economy is slowing down if a major military incident between Iran and the U.S. near the Strait of Hormuz only pushed the price of Brent Crude up to fill the gap on the weekly chart and confirm the recent low.

It did push gold through its massive resistance zone between $1360 and $1375 an ounce and it looks like a close above that for the week is likely.

That said, given this was just a drone and that Trump wasn’t likely to respond with starting a wider war….

Iran shooting down a U.S. drone shouldn’t have caused gold to pop through $1,375 and stay above it…

… It was {FOMC Chair Jerome} Powell’s dovish statement that provided the fuel for this move. Iran simply lit the match.

Now Trump has to respond to this. One could ask why our drone was flying in airspace we knew Iran would respond to.

Martin Armstrong is reporting that a lot of the buying came from the Middle Eastand that now that we’re above $1375 hedges are lifting and short-covering is what took gold to $1415.

But it also means that something bigger is brewing in the capital markets that both Iran and Trump understand. And maybe that muted response from oil has more to do with that.

As Pepe Escobar lays out convincingly in his latest article, Iran’s threats against global oil shipping aren’t aimed at disrupting the global economy per se. There’s plenty of oil stored in Strategic Reserves around the world to keep things operating during any U.S. military operation to destroy Iran’s navy (which wouldn’t take very long) and open the strait to oil traffic.

It is that a disruption in the price of oil will force the unwinding of trillions in interest rate swap derivatives already at risk because of the tenuous hold on reality Deutsche Bank has, since DB clears a super-majority of all such derivative contracts for the whole of Europe.

No one wants to see $300 per barrel oil. That Goldman Sachs is posting potential targets of $1000 per barrel tells you where they are positioning themselves, as if they know something? Goldman? Have insider knowledge?

Please! It is to laugh.

What we are looking at here is the ultimate game of brinkmanship. Trump is saying his maximum pressure campaign will break Iran in the end and if they go one step further (which they won’t directly) he will eliminate them.

Iran, on the other hand, is stating categorically that if Trump doesn’t allow Iran to trade than no one will. And that threat is a real one, given their regional influence. Incalculable financial and political damage can be done by Iran and its proxies around the region through attacks on oil and gas infrastructure.

Governments will fall, markets will collapse. And no one gets out without scars.

It’s the kind of stand-off that needs to end with everyone walking away and regrouping but is unlikely to do so because of entrenched interests on both sides and the historical grudges of the men involved.

What’s important is to know that the rules of the game have changed. Iran has taken all the punches to the nose it will take from Trump without retaliating. When you corner someone and give them no way out you invite the worst kind of counter-attack.

Last week I asked whether Trump’s “B-Team” overplayed their hand in the Gulf of Oman, staging a potential false flag over some oil tankers to stop peace breaking out and arrest the slide in oil prices.

Today everyone wants to think Iran overplayed its hand by attacking this drone. But given the amount mendacity and the motivations of the people involved, I’d say that it was yet another attempt by the enemies of peace to push us to the brink of a world war in which nothing good comes of it.

I give Trump a lot of credit here for not falling into the trap set for him. He now has to begin removing those responsible for this quagmire and I’m sure that will be on the docket when he meets with Vladimir Putin and Xi Jinping next week at the G-20.

It starts with John Bolton and it ends with Mike Pompeo.

And if he doesn’t replace them in the next six to eight weeks then we know Trump isn’t serious about keeping us out of war. He’s just interested in doing so until he gets re-elected.

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