Midweek Update #8: Two Races Against Time

The Iranian Race, The US Race; The Three Narratives

Hi All,

Well, we are back for Week 8 of these updates. The key development of the last three weeks, the double-blockade, is now very much the focus of attention. In a sense it has set off two races against time, one Iranian and one US. These are fascinating races, involving economic and political pressures on both sides, so I thought I would start by outlining them here. It is not at all clear who actually will have the greater time pressure in the end.

Also what is clear from the last few days is that there are three distinct narratives forming on the state of the war, two from within the Trump administration and one that seems to be believed by much of the rest of the world. The Trump administration narratives might best be described as the Trump narrative and the JD Vance narrative, and they are very different indeed. The rest of the world, fwiw, tends to favor the Vance narrative. And both narratives are intimately connected to the time pressures that will be mentioned first.

What people are learning is that military superiority will always be a slave to political necessity and time is a massive political consideration. It remains remarkable that this basic but fundamental lesson needs to be learned again and again.

Two Races Against Time

One of the most frustrating things of the last few months is watching with disbelief as the US government, time and again, assumes that the country it is attacking or threatening will simply sit there, inert, not adapting. This mistake has led to foreign policy failure after failure, as other states do not play by Washington’s supposed rules and take steps to save themselves. It has happened in the trade war, even in Venezuela (where the Maduro regime seems successfully to have saved itself by abandoning Maduro) and in the Iran War. Iran has taken adaptive steps that the US clearly did not anticipate or prepare for, from small ones like attacking facilities across the region in other Gulf States to large ones such as closing the Strait of Hormuz.

The US government seems to be repeating this process in its discussion of the impact of the US blockade on Iran/or really the double US/Iran blockade on all trade out of the Persian Gulf. Now, blockades can be effective tools. I would argue blockade World War I it was a major asset in defeating Germany and in World War II it was even more devastating against Japan. However in both cases blockade took years to have a real strategic impact. That is the norm. What is most surprising now is that some people think that these blockade will have a super-charged and instant impact. It is worth exploring this assumption. Indeed, it is worth breaking down the possible blockade impacts over time for both Iran and the USA—as they have very different considerations.

The Iranian Race Against Time

There are two fundamental questions that will determine the efficacy of the US blockade on Iran. The first is when will the crunch happen for Iran in terms of either money or oil storage? Second, is what will the Iranian government do when they approach these moments? Many people, including the President of the United States, seem to think that the answers are relatively straightforward when they are decidedly not.

Let’s start with the money. If Iran cannot sell oil on the open market, it will, of course, eventually face a cash crisis. Money from oil sales were estimated to make up around 35% of Iranian government revenues in 2025-2026, before all this began. That is a pretty massive chunk, and to lose it for an extended period will undoubtedly hurt. This, however, will probably take many months if not years to have any kind of strategic impact.

For instance, Iran is not starting its race against time from a zero sum position. The Iranian government went into this war with approximately $33.8 billion in cash reserves. In 2024 Iran made approximately $43 billion from oil sales for the whole year. So existing reserves when the war started represent about 9 months of oil sales. We should assume that Iran has this kind of cushion to play with.

But that is not all.

Other reasons Iran can try and put off any cash crunch in its race against time could be affected by at least four other variables I can think of. These include (1) the fact that Iran gained a great deal of extra revenue from the end of February through early April as it was able to sell its oil for very highly inflated prices. Some of that oil is still at sea with payments incoming. As such, the income cut for the present blockade will probably not start appearing until well into May, but that is only the start of the process. The Iranian government will probably (2) allocate the resources that it has to to keep power as that is its primary motivator. It will take the money that it does have/acquire and prioritize regime survival. It is not like it will just keep spending as before. Btw, this means if anything greater suffering for the Iranian people.

Also, the Iranian government can probably (3) count on some economic support from its friends (Russia and China) to help it keep functioning with everything from food to economic assistance. It is worth noting that Russia and China are reported to be increasing some support for Iran. Finally, it can even (4) continue to raise some amounts of money from things such as charging tolls in the Strait of Hormuz on its neighbors—which now it will be even more incentivized to do.

In other words, Iran can adapt to delay the impact of any financial pressure for a while and the US Government needs to act on the basis that they will.

Then there is the time race about Iranian oil storage, which some people now are saying will be devastating though no one was really talking about a month ago. The outline of this argument is clear. If Iran cannot ship out oil as it has done for years, it will need to store it somewhere. However, its storage capacity is limited and it cannot build new storage tanks quickly. The dilemma Iran will face as it reaches its capacity (perhaps in May) is that if there is nowhere else to put the oil, it might have to cap its wells.

This is definitely the hope of Trump. What they seem to be being told is that if Iran caps its wells, it could cause major mechanical and structural problems. I am no expert on this, so do not want to guess. However the argument seems to involve the pressure within the system of the blocked up well. It could both damage existing infrastructure and make restarting the well when this is over very difficult. For information, here is an argument about this that is quite sympathetic to the Trumpist position on this.

So when Trump talks about the Iranian oil system “exploding” this is what he is referring to. Just as a marker, Trump said on April 26 that the Iranian oil system could “explode” in three days. That would be today. So do be careful.

My issue with this, as a total non expert, is that the idea that Iran would simply accept the destruction of its oil system without attempts at adapting is that same old, failing, way that the US has conducted policy so far. The Iranians can be both offensive and defensive in their reaction to this problem. They can keep loading up tankers, for instance, if they can get access to them. They can try and break the blockade by dispatching full tankers to China, which would force the US to confront the Chinese at a time when it is not good for it. The Iranians could even escalate in some pretty horrible ways. They could simply threaten to empty the pumped oil into the Gulf, which would cause an environmental disaster for the Gulf states (US allies).

Already the Iranians are reacting by burning off (flaring) more fuel than before. I would imagine that they are thinking of other things as well.

In the worst case situation for Iran, they might even cap the wells and suffer the damage. That would mean fat, reconstruction contracts for the Chinese and others after the war, but it would also mean that the Iranian government would not accept any deal that weakened its control on power (its ultimate aim).

The Trump administration seems to be assuming that these two Iranian races against time will put enough pressure on the Iranian government that they will agree to a deal that will allow the Trump administration to declare victory and go home. If the Iranian state does not adapt or try to save itself, perhaps they will be right.

Note, they have not been right so far.

The US Race Against Time

If the Iranians are facing two very different races against time, the US, or more accurately the Trump administration, is facing one. However, for the administration the difference is that their race is not indefinite. In fact, it has an exact moment that everyone and their uncle knows, November 3, 2026.

That is only six months from now.

That day is the date of the 2026 US midterm elections, arguably the most important midterms since 1862. The Trump administration cannot go into that election with massively high oil prices and the most unpopular war in US history still undecided. Indeed, this war is already finally showing signs that it could split the MAGA coalition.

As such, the real deadline for Trump to try and minimize the war’s impact on the election is months before this. Trump will have to declare victory (the easy part) and convince the American people that the war was worth it (the hard part) if the GOP is to have any chance of saving itself in the election. Already, Republican analysts are in a panic about how the war is affecting things politically.

This deadline will only grow in importance every day the war goes on, US fuel prices go up and the world economy is damaged. It is already helping destroy the Republican position on being the party that is better for the economy. The polling in this area is stark, as this recently released IPSOS poll shows.

In a nutshell, we seem to be in a race between the exploding fortunes of the Republican Party and exploding Iranian oil wells. And, if news from Washington is to be believed, the US is losing this race. In the last few hours, stories have leaked that the administration is thinking about declaring victory and walking away. If they do, they will definitely have lost their race.

The Three Narratives

The timeline yesterday was fascinating. The oil markets definitely started the day convinced that Trump was stuck and that there was a very good chance this war/blockade would drag on for a while. All the different indices were up considerably, with Brent Crude actually reaching a higher level than any that it had closed with since the war began. Just before 9 am in the morning, US East Coast time, the price crested $112 a barrel. I have circled the crest in this screenshot of yesterday’s trading.

This, btw was higher than any other close of day price for years. Here is how it compared to prices over the last year—it looked like a new high was in the offing.

And then miraculously, just as prices reached their new high, Trump tweeted out that Iran was about to throw in the towel and was desperate for a deal.

It was part of a general White House campaign to claim that the USA was in charge of negotiations and was rejecting Iranian offers because they did not go far enough. It comes, as you almost certainly know, four days after Trump claimed Iran was boxed and he was in control of the situation. Using one of his favorite phrases, Trump exclaimed “we have all the cards, they have none!”

This kind of extreme optimism in his strategic position is something Trump has projected regularly over the last month to try and control the narrative. He has often succeeded. In the past, the markets seemed to accept his confident tone and the price of oil would go down. Even though there has been no corroboration of these extremely optimistic reports from other sources, if Trump said it, it was widely reported and enough people seemed to give it credence.

Until now. What was notable yesterday and into today was that after an initial decline in the price of oil after Trump’s rather optimistic take, the market is declaring “bullsh$t”. Brent crude, as an example is now over $114 a barrel ($114.45 to be exact as I release this). The market no longer believes that Trump understands what is happening or is speaking anything resembling the truth.

Indeed, almost all the analysis not coming directly from Trump was that the USA remained stuck in a stare down with Iran from which it cannot extract itself without making a difficult deal. Maybe the most extraordinary example of this view was given by German Chancellor Friedrich Merz, in speaking (publicly) to a group of students in Germany. Merz was shockingly unconcerned with Trump’s feelings, and said that the Iranians were humiliating the Trump administration who had no easy way out. Here is his quote.

“The Iranians are obviously very skilled at negotiating, or rather, very skilful at not negotiating, letting the Americans travel to Islamabad and then leave again without any result,”

“An entire nation is being humiliated by the Iranian leadership, especially by these so-called Revolutionary Guards. And so I hope that this ends as quickly as possible.”

Trump, btw, was stung by Merz’s comments and fired back last night, but by Trumpite standards it was pretty weak and uncertain stuff.

However beyond the Trump and Rest of the World narratives, there is another narrative that is emerging, from inside the Trump administration no less. If you look closely, you can actually see cracks starting to form within the administration as the president desperately tries to present things in the best possible light. I was struck by this section near the end of a NY Times article was about how hard line Trump was being. Even those who were trying to be supportive were talking about the blockade needing months to work, while administration sceptics poured cold water on the whole idea that Iran was close to breaking.

Some administration officials believe that continuing the blockade for two more months would cause significant long-term damage to Tehran’s energy industry. Oil wells cannot be turned on and off, and they would be damaged if they are forced to shut down, incurring costly repairs. Iran, these officials argue, will make a deal to avoid such long-term problems.

But others in the administration have said the assessment is flawed, noting that Iran’s positions have hardened, and that the Islamic Revolutionary Guards Corps has only solidified its hold on power.

There is a very good chance that this latter assessment is connected to someone close to VP JD Vance. As part of the narrative struggle, it is fascinating to see how sources close to Vance are now trying to put blue water between him and the more optimistic pictures being painted by Trump of Secretary of Defense Pete Hegseth. The Atlantic had a major article about it that came out two days ago, and it was worth a read. Here is a gift link.

This third narrative might actually be the most interesting of all, as it shows the political situation within the GOP and adds to the idea that it is the USA that is under the greater time pressure. If administration sources are attacking other administration sources, and Vance seems key in this, it is because they understand that the war is unpopular and destined to become more of a drag on the country. And while Vance, who was widely seen as a sceptic about the war in the first place, is getting his narrative out, supporters of the war such as his great political rival Marco Rubio, have become quieter.

So pay attention to this third narrative. The more it appears, the more trouble the administration understands it is in.