Trump struggles to find an off-ramp as an oil crisis meets a munitions crisis

It is not just the increasingly erratic changes of message by Donald Trump that gives the conflict in the Middle East a surreal tone.

There seems so far to have been little real understanding of how hard the sudden shock of loss of global oil supply is likely to hit the economy, or of the equally global implications of the massive rundown in defensive munitions that have been expended in the Gulf in the past four weeks.

While Australian motorists are starting to hear of petrol stations that have run out of fuel, the financial markets don't seem to know how to price a rapidly evolving global crisis caused by a sudden reduction in the world's supply of oil by 10 per cent with the blocking of the Strait of Hormuz.

Sure, the markets have been subject to huge volatility — swinging violently up and down in day trading driven overwhelmingly by the US president's announcements.

(And that's even without the revelation that someone placed a $500 million bet on the market this week just five minutes before another Trump announcement — leading to widespread speculation that someone in the immediate presidential circle was engaged in insider trading.)

But it's not clear that, even with all that volatility, the markets have actually grasped how serious the situation is.

'Mother of all nightmare scenarios'

The US energy policy expert Jason Bordoff told Ezra Klein from the New York Times this week that "this is the mother of all nightmare scenarios — closing the strait".

"If someone had said: we're going to close a strait with 20 million barrels a day to most of its supply — you'd be talking about US$150, $200 a barrel," he said.

"It's striking that oil prices are just a bit over $100, which historically is not an excessively high price. It's high, but it's not crazy high."

Bordoff thinks that is partly because of "a general market perception that this was going to result in Trump pulling back".

"I think if this goes on, we haven't seen anything yet in terms of how high energy prices are going to go.

"Right now, the price of oil that you're reading about in the newspaper is one that's set by traders every day based on market expectations. At a certain point, physical reality has to catch up and prices need to rise high enough to destroy 10 million barrels a day of global demand. We don't exactly know what that price is, but it's really high, a lot higher than the price is today." 

There's another physical reality screaming towards the world too.

The attack on Iran by the US and Israel — and the subsequent counterattack by Iran on Israel and the Gulf states — is seeing a depletion of weapons and air defences on a scale that alarms military strategists.

Global munitions stockpiles diminish

A paper published on the website of the Royal United Services Institute (RUSI) this week documented the use of various types of weapons in the current conflict and argued that the sheer volume of munitions used raise questions about how long the conflict can go on before these munitions just run out. The answer? Not very long.

"A munition becomes critical when it's replenishment is gated by thin suppliers, long qualification cycles, or constrained components like rocket motors and guidance electronics," the paper says.

Apart from the fact that — wait for it  — US manufacturers had not received orders for any extra munitions as of early March, there are risks that some of the components needed to make them, like sulphur, are likely to be in short supply because the Strait of Hormuz is closed.

The chief executive officer of the massive German defence manufacturer Rheinmetall, Armin Papperger, assessed last week that global stockpiles are "empty or nearly empty" and that if the war continues another month "we nearly have no missiles available". 

The RUSI authors estimate that the Coalition forces had used "11,294 munitions in the first 16 days of the conflict, at a cost of approximately $26 billion".

Or, as German defence minister Boris Pistorius noted in Canberra this week, "the Gulf states used more interceptors, Patriots for example, in just a couple of weeks than Ukraine (used) in more than four years".

The institute's paper says "the US military is approximately a month, or less, away from running out of ATACMS/PrSM ground-attack missiles and THAAD interceptors.

"Israel is in an even more precarious spot, with its Arrow interceptor missiles likely to be completely expended by the end of March.

"While the war could proceed with other munitions, this implies accepting greater risk for aircraft and tolerating more missile and drone 'leakers' damaging forces and infrastructure.

"The precariousness of this 'empty bins' issue could possibly explain why President Trump is already suggesting the "winding down" of the Iran war; it could take years to replace what was expended in only 16 days."

Two good reasons for an off-ramp 

So there are two really good reasons why Trump might be looking for an "off-ramp" beyond the political optics of getting bogged down in a conventional war: the fallout of a huge fall in oil supply (even if the price shock wasn't enough to move him) and a lack of things with which to repeatedly 'obliterate' Iran.

Pistorius said this week that the war had been started "without clear objectives, without a clear strategy and especially without any exit strategy".

And as Trump has swung wildly between claims of peace negotiations and ordering yet more troops to the Gulf, as the Iranians make clear that they are not exactly crumbling, and Israel runs a noticeably separate strategy from the US, the prospect that he could find an exit strategy quickly seems unlikely

In an interview with me on Thursday, Pistorius said "we see the catastrophical impact this war has had already, in the first place, for the security of the Gulf region and the Gulf States, which are, first in history, attacked by Iran, and, second, by the closure of the Strait of Hormuz, which really has an impact on every part of the world's economy, especially in terms of energy supply.

"So this is a serious challenge for all of us, and therefore we need a ceasefire or peace as soon as possible in negotiations."

The fact that the US and Israel have not been able to force a change of regime in Iran, but if anything have helped install an even harder line regime, isn't just a failure of a sometimes-stated war aim.

It has real world implications for the likelihood of a ceasefire.

Pistorius says that the United States cannot leave the region now unless a proper ceasefire is in place.

"I'm not in the White House. I don't know the strategy if there is one," he says.

"So I can't really give an answer to that. I mean, withdrawing all the actions by the US out of the region, would leave the region in a situation of crucial and critical instability. And this is a challenge and a threat to all the regions around — for Israel — but also for the supply chains into all regions of the world.

"So I'd rather prefer that the US really negotiate a cease fire, negotiate with Iran about what is needed to be achieved, like nuclear weapons, and so on. And then we can see how it proceeds, with for example, the Hormuz Strait."

How concerned would the Europeans be if the US actually escalated its attack, say, by trying to take over Kharg Island?

"I mean, having a look on Iran, this huge country, with huge mountains, with long borders," he says. "It is not that easy to conquer this country and to force it to have a regime change from outside. It's not that easy.

"So even if the Americans now deploy troops in whichever measure or size, that doesn't mean we come closer to an end of that war. And we are already seeing the impact of that war to the world. I mean, we have increasing prices of energy, following this, we have increasing prices for everything else.

"So this is the risk of a recession, a global recession, and therefore, it should be an obligation, I think, of the US to have that in mind when going on, or negotiating with Iran."

To all the surreal things happening in the world just now, add the blunt talking of a European leader about the contemptuous risks to which the US administration is exposing the rest of us.

Laura Tingle is the ABC's Global Affairs Editor.