The developing world is being slow to wake up to the potentially devastating consequences of a key aspect of US President Donald Trump’s foreign policies, particularly now that that John Bolton and his strident “f… the world” views have become so important.
News almost everywhere is dominated by the display of politics and hypocrisy accompanying the appointment of a member of the US Supreme Court, a supposed judicial appointment marred by tawdry performance on all sides. One needs to ask why this display should concern a world simultaneously confronting three frighteningly serious economic issues.
The first is the long-needed rise in interest rates which is necessary but unsettling after so long a period of cheap money, which has boosted asset prices more than economies. The second is Trump’s trade war. Its scope has narrowed with deals with Mexico, Canada and Korea that change the trade picture very little but provide the president with necessary political cover. But the war against China is ever more intense, with unpredictable consequences for world trade generally and Asian trade in particular.
The third however could prove as important as the other two. That is the US attempt to shut down Iran’s sales of oil. The mind boggles at how self-defeating this policy is to US global interests. The main beneficiary is Vladimir Putin’s Russia, which is not only reaping billions of dollars but becoming an even more influential player in the global oil market. Meanwhile US relations are growing poisonous with Europe, which refuses to go along with Trump’s agenda and is sticking with its nuclear deal with Iran. Then there is India, whose friendship the US badly needs if it is not to cede supremacy in Asia to China. It not only needs Iranian oil but has long seen Iran as an informal ally for influence in the Indian ocean, and countering China’s influence via its huge investments in Pakistan roads and ports.
Trump’s Iran threats have added US$15-20 a barrel to the price of oil, and a further rise to US$100 a barrel is widely forecast. The strains this is placing on the trade balances of the likes of India, the Philippines and Indonesia, not to mention an already troubled Turkey and countries in Latin America, has already shown up in steep falls in currencies and stock markets throughout the developing world, and has had an outsized impact on interest rates. As of now it seems unlikely to spark a major crisis, but if oil hits US$100 plus, there is no knowing the consequences.
As it is, the price increase is already limiting the room for the major east Asian importers China, Japan, South Korea, to spur domestic demand to offset weakness from the trade wars.
Trump has been complaining about the oil price rise, which is also hitting consumers, but he has only himself to blame for a policy towards Iran which has only two beneficiaries apart from Russia: Israel and Saudi Arabia. The former has had nuclear weapons for decades without being sanctioned by anyone.
Now Trump is adding to support for a state which is not only self-evidently expansionist but is now overtly racist by law as well as practice. Thanks to US protection 5 million Palestinians in the West Bank and Gaza are under Israel’s iron fist, which also treats the 1.7 million Arabs in Israel as second-class citizens.
The other beneficiary is Saudi Arabia whose vicious war in Yemen is causing as many casualties as in Syria. Crown Prince Muhammad bin Salman has stirred up the Gulf while his promises of modernizing the country are largely for overseas consumption. A desert empire built by warrior king Ibn Saud is unlikely to last long if the price of oil falls back to US$40 and stays there. Such are the few friends of Trump’s America. No wonder the world laughs as well as cries and treats the US claim to be defender of liberty and democracy as a sham.
It is reminder too of how childish the US can be – hardly the sign of a superpower with staying power. It took it 20 years to get over its loss of the Vietnam war. Its view of Iran is still driven by the need for revenge nearly 40 years after the 1979 overthrow of the Shah and the humiliation of the failure of its Tehran hostage mission. It is also a US view which conveniently forgets the CIA-organized coup against the elected secular nationalist Dr Mohammed Mossadeq in 1953, which enabled the Shah to impose a royal rule which became increasingly unpopular, leading to the 1979 revolution.
And it forgets US behind-the-scenes encouragement of the invasion of Iran by Saddam Hussein (later to become evil incarnate) which solidified the rule of the clergy under Ayatollah Khomeini.
Longer term, the biggest damage to the US from its Iran fixation will be to drive others away from using the US dollar. Dependence on that currency for trading and settlement has enabled the US to make it difficult for countries to buy Iranian oil without incurring US reprisals. US policies are already beginning to push countries to use other currencies such as the euro and yuan, but for now the mechanisms are poorly developed and oil majors also fear US reprisals in other ways.
But the more the wider world loathes US arrogance, the more it will seek alternatives to allying with a country which is untrustworthy as well as arrogant. Meanwhile those with smart ways around the sanctions will make a lot of money.
In Asia, there one country which is benefiting from Trump’s Iran policy: Malaysia. He cannot like the thought, but luckily for retreaded Prime Minister Mahathir Mohamad, for the time being revenues from the oil price are partly offsetting the coalition’s rash promise to voters to abolish the Goods and Services Tax and bring in the narrower-based Sales and Services tax. Revenue from this source has been cut in half. As the Asian Development Bank in its mid-year update of the Asian Development Outlook points out, Malaysia’s goal of reducing reliance on commodity prices for revenue has “received a major setback,” endangering fiscal health unless new sources of revenue can be found.