Spike

Today, gasoline prices rise by almost P3. The trend towards lower fuel prices we saw through August and September has reversed.

The fuel price spike reflects the rise in crude oil prices globally. The most proximate cause for that spike is the possibility a full-scale regional war could break out in the Middle East.

Netanyahu’s war cabinet met last Tuesday to decide on a course of action in the aftermath of Iran’s massive missile attack on Israel last week. Feverish diplomatic efforts have been ongoing the past few days to restrain Israel’s retaliatory action. Tehran has mounted its own diplomatic campaign to get third countries to intervene to moderate Israeli action.

Earlier this year, we saw a well-choreographed skirmish between Iran and Israel. Tehran sent a barrage of missiles almost entirely intercepted by Israel’s Iron Dome defense system. Israel launched its own bombardment, although this was limited to a few military targets in Iran.

This well-choreographed skirmish reflects the desire of both sides to avert a full-scale war even as they undertake hostile actions to appease their respective domestic constituencies. Through calculated diplomatic signaling, what could otherwise be a devastating regional war was avoided.

The same fine diplomacy may not work this time. There are voices in Tel Aviv that want Israel to use this opportunity to destroy Iran’s nuclear program. That will retard the Islamic state’s capacity to bomb Israel out of existence. It will buy the Jewish state a lot of time — perhaps enough time for dramatic changes to happen in Iran’s domestic politics. Under the rule of the mullahs, the entire purpose of building nuclear weapons capacity is to annihilate Israel.

There is a wide range of actions Israel may undertake to enforce its “eye for an eye” policy. The country, deeply embroiled in hot wars with the Hamas, the Hezbollah and the Houthis, could choose the same minimalist attack it launched a few months ago. This destroys a few military targets while leaving the door open to a diplomatic arrangement that avoids total war.

Or else, as it did with the Hezbollah, the Israel Defense Forces could mount a campaign of decapitation against the Iranian leadership, particularly the radical paramilitary Revolutionary Guards. A decapitation campaign could target Iranian generals and religious leaders. This could have the beneficial effect of hastening a transition in Iran’s political leadership.

Then, of course, Israel could mount a major bombardment targeting Iranian nuclear facilities and oil processing plants. The targets are pretty much out in the open and weakly defended by an inferior air defense system.

An attack on the nuclear facilities could cause a fallout affecting Iran’s population centers. An attack on the oil facilities will impair Iranian oil exports for a long time and result in a period of high global fuel prices. A prolonged period of high oil prices could push many economies into recession. It will further slow the growth of the global economy.

The US has been pressuring Tel Aviv to avoid attacks on either the nuclear facilities or the oil processing plants. This reflects the cautious disposition of the Biden administration. Beyond a certain point, forceful action by Israel could lead to a chain of events that widens the effect of the conflict beyond the region.

By contrast, presidential contender Donald Trump has urged Tel Aviv to go ahead and bomb Iran’s nuclear facilities. The man is characteristically reckless, with a poor grasp of global political realities.

Israel’s response could not be as limp as the one undertaken earlier this year. That imposes little punishment for Tehran. It will not dissuade Iran’s leaders from conducting another missile strike in the future.

We will know in a few days the precise nature of Israel’s response to Iran’s missile attack. It will almost certainly be more severe that the previous one. It will have to be more penal or else it loses its value as a deterrent.

While we await, with great suspense, the exact nature of Israel’s response, global oil prices will likely remain at their present elevated levels. That is not good news for anyone.

At the same time, should Israel’s response be unduly massive and severely destructive, this could set the stage for a widening of the war. In which case, the greater anxieties these spawns will push oil prices much higher – perhaps close to the $100 per barrel level. If this happens, Israel will end up penalizing the whole world, not just Iran.

Israel has demonstrated a knack for thinking out of the box in its strategy and tactics. Its secret operation to arm the pagers and walkie-talkies used by the Hezbollah was entirely unexpected, especially by the Palestinian militants. This tactic has killed or wounded Hezbollah militants with the least collateral damage.

Perhaps Israel will deploy its much-vaunted out-of-the-box thinking in devising a punitive response against Iran this time. Unsure of what Israel will do, it has been reported that senior Iranian leaders have been confined to bunkers much like their Hezbollah friends.

Whatever that response might be, the rest of the world hopes it will be the least disruptive to the world’s economy. No one wants a long period of excessively priced oil. No one relishes the though of the major powers becoming even more involved in this volatile region.

To be sure, the world’s most important leaders are making sure their voices are heard in Tel Aviv. But the Netanyahu government is least consultative in deciding its courses of action.