Worse than COVID
A new economic crisis is here, and it will be very bad for the Empire
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Six years ago this week the world shut down, and the global economy collapsed. Now, markets and the people who rely upon them stand before a new crisis, one whose scale and impact may rival COVID’s, or it may dwarf it.
At long last, one of the primary countries excluded from this system has decided to strike back following yet another act of imperialist aggression. Signs point now to a long struggle with early conditions in their favor. How this ends will shape the lives of generations to come in ways even a global pandemic never could.
Our present moment parallels not so much March 2020, as perhaps January or February of that year -- events are stirring in Asia and nerve-wracking signs are accumulating here at home. Informed observers prepare for an inevitable plague. We waste any time we spend trying to time crises, but unprecedented pain is at most weeks away. The die is cast.
We can feel certain about the seriousness of this crisis, even if we can’t predict its exact shape. Every even mildly informed adult knows about the 1970s oil shocks. The 1973 Arab Oil Embargo -- a strategic offensive of Nationalist resistance to the Zionist state -- and the shock caused by the Islamic Revolution in Iran in 1978 and 1979 so distorted the global economy that both the postwar liberal consensus and Third World movement perished in their wake. Today’s crisis materially outranks them both.
During the 1978/1979 shock -- the larger of the two -- about 9% of global oil supply went offline over a period of 2-4 months. At the moment, it appears about 20% of global oil supply is offline in the Persian Gulf, a supply catastrophe for not a single important oil producing country, but for the world’s most vital oil producing region as a whole.
The only hope for avoiding an epochal shock to the world’s oil markets would be for the conflict to end quickly, a move the bored coward Donald Trump has tried in vain. But this crisis will end when Iran’s revolutionary government, now firmly under the control of the Iranian Revolutionary Guard Corps (IRGC), decides it will end, and they have shown no equivocation: there will be no more ceasefires, only a permanent end to this conflict.
In other words, it will end when the Empire capitulates, or when they kill every last Persian to finally get their way.
Gaza bears witness to the fact it will take not months, but years to try and return to a normal that will never again exist. Early COVID journalism -- including ours -- was full of “the world will change forever” takes that turned out to be largely wrong. Systems adjusted quickly, and while 24 hour restaurants and a lot of commercial real estate took a lasting hit, life looks remarkably similar before and after the crisis for those of us inside the Empire. That will not be the case for the crisis to come.
Like COVID, the real crises will show up in fragile, complex supply chains with known pinch points now fully activated. Most critical are fertilizers. About 40% of global urea exports are now trapped, and urea prices have rivaled oil’s surge, increasing 11% this month and up more than 50% year over year.
Look again at a calendar and remember what the Northern Hemisphere does during the month of March, and how much fertilizer they will need. The consequences for global food prices are likely to be dire, and if the Arab Spring political crisis after food riots in 2010 is any indicator, the political costs are likely to be extraordinary as well. These shocks could tower over those in the years before 2010 -- there’s no reason to believe they will be any smaller.
Much newer obsessions of global capital than the quaint markets of food and energy also face a reckoning in the Persian Gulf. Sulfuric acid is a critical input for copper refining. The world’s industrial sulfur largely comes from Persian Gulf oil refining. As long as the Straits of Hormuz are closed the world goes without sulfur, which means copper gets throttled which means the AI build out -- both the data centers and the new utility infrastructure the centers demand -- will soon be expensive in ways no investor accounted for.
Remember that AI bubble propping up 90% of US GDP growth last year? It should be doomed, and the desperate policies Trump’s favored economists might try to save it will make this a crisis at least as large as COVID, and almost certainly many times worse.
And in a very familiar COVID reprise, Taiwan’s chip industry relies upon helium as a critical input. Helium comes -- you guessed it -- as a byproduct of Persian Gulf natural gas production. Recall the chaos in markets such as autos and consumer appliances in 2020 and 2021 as chips backlogged following a short disruption in production. Memory chips have already soared in price this year, thanks to the AI buildout. These industries are staring at months of uncertainty in pricing and supply for one of their most critical supplies. For want of this, factories around the world will go quiet.
It is hard to avoid hyperbole when describing exactly what we’re witnessing. For eight decades now the world’s entire economy, predominantly an Asian affair, has built every industry on a foundation of oil from the Arab states and their neighbors. Now those states are both barred from shipping their products and under missile assaults from Iran, who says they won’t stop until the United States and Israel leave. Forever.
If you think it will take them longer than the next couple of weeks to settle this score, you are betting on a crisis that will make history books for centuries to come.
All of which spells absolute doom for Donald Trump. The MAGA anti-war voter is very real. Every soldier and Marine who served in combat in Iraq and Afghanistan know to the marrow of their bones that they were bullshit exercises foisted upon them by venal dipshits like George W. Bush and Barack Obama, literal nightmares that murdered some of their closest friends. Their contempt for foreign engagements is very authentic, one paired with their fascist desire to bring the war home to immigrants, the homeless, minorities, and other enemies on these shores.
Remember: Donald Trump has given Iran total power to decide whether the United States is at war or not, and they have said we will be at war until Israel surrenders to Iran. These voters will hate Trump the way a spouse hates the partner they caught in bed with another lover. How his party does not take grotesque losses in the coming elections seems impossible to imagine, though they are helped by the fact they get to run against the Democrats.
It is nigh upon impossible for a state to prevail in a long war without political unity at home. Beware how political operators -- most notably “progressives” -- subtly position the conflict in a way to nudge an outraged public towards a risible consensus. Any position besides demanding an immediate surrender on the part of the U.S. and Zionist aggressors is a pro-war position, period.
At Contention we always sought to predict the future less and sought instead to identify the questions that will define the future. What we know for certain is that the Straits of Hormuz are closed, and Iran says they will not reopen until a regional war is concluded. “Reopening the Straits” is to the present conflict what “restoring the 38th Parallel” was to Korea. That’s the war they will be fighting, and it will take much, much longer than the politicians say it will -- how long has the Korean War now lasted?
Each of the subordinate historical decisions along the way are each so remote, that trying to connect them all into a longer-term prediction of specific conditions is like predicting a combination lock. Nobody had GameStop almost causing a global financial crisis for a moment in 2021 on their bingo card. You have no idea what’s about to happen, but we know it will be a decisive rupture with history before this time… unless Iran gives up.
We are not betting on it here at Contention. Until then, we will keep our hearts with the targets of this Empire, in Asia and here at home.
Disclaimer
Our only investment advice: Read Bikrum.
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