Iran's Supreme Leader Ali Khamenei was killed on Saturday along with 40 other top Iranian leaders when the US and Israel launched a military campaign against Iran’s Mullah regime.
In a February 28 post on The Free Press, historian Niall Ferguson observed that President Donald Trump’s approach to dealing with America’s adversaries in Latin America and the Middle East isn’t regime change but regime alteration: “Indeed, regime alteration is the practical consequence of the approach laid out in Trump’s National Security Strategy published late last year. The strategy rules out the deployment of American ground forces, except for special forces. It requires a short time frame for military operations. It will disappoint those who want to fast-track Venezuela and Iran to democracy. But the lesson of Iraq has not been lost on Trump.” So no boots on the ground.
In Venezuela at the beginning of the year, Trump snatched President Nicolás Maduro and replaced him with Delcy Rodríguez, leaving the structure of the regime in place but requiring her to follow Washington's commands, including on the country’s oil production and exports (Fig. 1 below).
Trump seems to be angling for a regime alteration in Cuba by cutting off the country’s access to oil from Venezuela. In Iran, Trump’s goal is to force the next regime to end the previous regime’s ambitions of building nuclear weapons, destroying Israel, and dominating the Middle East by supporting terrorist organizations around the region.
Now that the “Axis of Evil” has lost Iran and Venezuela, what will be the impact and reaction of its other three members, China, North Korea, and Russia? Losing Iran is a big blow to Russia, which received military equipment, especially drones, from Iran. China imports lots of oil from Iran and has invested significantly in the country. In North Korea, Little Kim is probably scrambling to fortify his bunker. China has seen America’s military might in action twice in Iran and once in Venezuela since the start of Trump’s second term. China’s leaders might now consider postponing any planned invasion of Taiwan.
In the Middle East, the terrorist proxies of Iran’s Mullahs in Gaza (Hamas), Lebanon (Hezbollah), and Yemen (Houthis) have already been decapitated once by the Israelis. Now they’ve lost their puppet master in Tehran. The Abraham Accords are likely to be expanded to include more Arab countries. The Israeli stock market has been discounting this scenario for the past two years (Fig. 2 below).
For the financial markets, the immediate issue is whether Iran’s decapitated regime will block the Strait of Hormuz. We are not military experts, but it seems to us that if that were going to happen, it would have happened by now. The probable reason it hasn’t is that the US and Israel have incapacitated Iran’s navy. At the same time, it is very unlikely that the two allies would have done any damage to Iran’s oil production and export facilities (Fig. 3). As in Venezuela, Trump probably expects to be running Iran’s oil business from the White House soon.
Of course, in the next few days, oil prices could spike higher. Indeed, Reuters reported that Brent crude jumped 10% to about $80 a barrel over the counter on Sunday, according to oil traders, while analysts predicted that prices could climb as high as $100 (Fig. 4). Most tanker owners, major oil companies, and trading houses have suspended crude oil, fuel, and liquefied natural gas shipments via the Strait of Hormuz, trade sources said, after Tehran warned ships against moving through the waterway. More than 20% of global oil is moved through the Strait of Hormuz.
