Do Economics Guarantee an Iranian-US War?

by JT McGee

This isn’t GetRichSlowly.org. Politics are in. I know you don’t care to hear my political views, which is why you can click right here to skip my rant and go straight to the good stuff.

war with iran, us war with iran, iran sanctions, tank

Basically minutes after we finally leave Iraq (except for 15,000 “contractors” and a $1 billion embassy) we’re already on the hunt for new evils. I guess I could just tell you that 2012 is an election year. Republicans have to prove how they “support a strong foreign policy” by talking up war with any country for the sake of a massive international arm wrestling competition.

Democrats, needing political “cover” for leaving Iraq (seriously, who still thinks we should be there?) are going to play into any bit of war propaganda.

Economic War with Iran

In case you’ve missed it, the world is unleashing economic war on Iran at the moment we speak. Virtually every country around the world has agreed to cease to reduce Iranian oil imports. BusinessWeek has a great write-up on European involvement in international sanctions.

Of course, these sanctions are the reason why oil looks like this:

Iran Sanctions, oil prices

But it’s also the reason why the Iranian currency looks like this:

Iran rial, Iran currrency exchange rate, Iran US currency exchange rate

(Note: Rial PER dollar. A move up in the chart is related to a decline in the Rial.)

Anyone knows that trade makes every economy stronger. Even in the most basic sense we as individuals partake in trade to create better outcomes. I pay Target $5 for a 24 pack of Coca-Cola, because I’m not very good at making it myself. Target values the $5 more than the 24 pack. We both leave happy.

An end to trade essentially kills every bit of an economy. The United States is extremely awesome at finance, for example, but we lag horrendously in manufacturing. If other nations stopped trading with us, we’d have no manufactured goods because we simply don’t have the capital to start manufacturing stuff. And we’d expend far more resources for the same standard of living like people who choose to live without money. Think about how much of the stuff in your home is imported, and how much of it you would miss if the rest of the world cut you off.

Now – I’m no extremist, nor do I necessarily side with Iran in the debate about Iran’s nuclear program. However, I do realize that economic sanctions are almost always a precursor to war.

Historical examples:

  • The Japanese bombed Pearl Harbor after the US refused to continue exports of anything remotely related to war-time materials. Apparently even very mundane and ordinary products like motor oil and other industrial goods were included on the do-not-sell list.
  • The War of 1812 was fought over hemp supplies. The English had the strongest Navy around the world, but even the strongest Navy was worthless without sails. Realizing this weakness, Napoleon pushed Russia to cease hemp exports to the English. Without hemp, then the main component of ship sails, Britain had the most ships but the most worthless Navy. American ships begin buying Russian hemp to sell discretely to England. American shippers make bank. American hemp farmers go broke. Congressmen from farming states vote for war with England. Congressmen from seaside states vote against war. Farmers win – to war we go over economic sanctions.
  • The Cold War is another example, although there were no shots fired. It is commonly understood that the Cuban embargo enabled extremism in Cuba at the height of the cold war. Even Hillary Clinton takes this very conservative position, noting that the embargo has only helped Castro, stating “It is my personal belief that the Castros do not want to see an end to the embargo and do not want to see normalization with the United States.” Giving another country the justification for war – potentially unrelenting nuclear war – is suicide.

There are plenty of examples for sanctions leading to war. Just pick a war, and you’ll find that it escalates rapidly – almost exponentially – in the moments following an end to free trade.

Bottomline + Game Theory

There is no logic in economic sanctions. If the supposed enemies are as evil and as irrational as we are lead to believe, then why would we suppose – for even one second – that somehow they are to care about the economic welfare of their own citizens?

And if these leaders care so little about human life, wouldn’t mass degradation in the public’s standard of living from continued economic sanctions (potentially to the point of starvation) and the death of the same people in warfare be equal?

If anything sanctions serve to lower the barriers to war while increasing the public’s willingness to take part in it. That’s a dangerous double whammy. But hey – these are just my viewpoints. Share yours!

Photo by: skuds

{ 16 comments… read them below or add one }

cashflowmantra January 9, 2012 at 05:36

Sad to say, but I think you are right. There will likely be some conflict with Iran. Many are concerned about their nuclear threat which would make a preemptive strike against nuclear targets attractive.

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JT McGee January 9, 2012 at 13:24

If the world were a bar, the United States would walk in, look for the drunkest guy, claim danger, then punch him across the face under the guise of “protecting myself.” Seems pretty aggressive.

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Jeffrey Trull January 9, 2012 at 09:07

I feel about 50/50 on going to war. I think the biggest reason is that our other recent Middle East wars are or were going very badly.

Maybe I’m misunderstanding, but isn’t the US still the #1 manufacturing country in the world, at least in terms of output? http://www.npr.org/blogs/money/2011/02/07/133561265/3-ways-of-looking-at-manufacturing-in-america

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JT McGee January 9, 2012 at 13:23

The US is #1 in manufacturing, but also #1 in consuming manufactured goods. We produce far less than we consume when it comes to finished goods, thus running a deficit in the manufacturing sector. Finance is the opposite; we consume less than we produce.

I’m about .1/99.9 on going to war. It’s a waste of time, but still politically popular, it seems.

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Jeffrey Trull January 9, 2012 at 13:27

Got it. Thanks for the clarification.

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tom January 9, 2012 at 09:41

War? No, never. Iran is weak, they know it and I would hope they aren’t stupid enough to actually launch an outright attack. Here’s a good article summarizing:

http://globalpublicsquare.blogs.cnn.com/2012/01/08/zakaria-iran-is-weak-and-getting-weaker/?hpt=hp_t1

They have been reduced to political posturing with no real military power to back it up. If they provoked the US into a war, it would be over in a matter of days, but with no nation building to follow. Frankly, I don’t see them building a nuclear weapon because Israel would never allow it to happen.

I mean, what would Iran cut us off from? Oil? We don’t buy oil from Iran. Sand? We have that too. Iran has nothing of value to the US. The only thing they can do is make idle threats.

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JT McGee January 9, 2012 at 13:22

The rest of the world cut Iran off. Their economy is crumbling, along with the value of their currency – which is worthless without things to buy.

Israel is the 51st American state. To say that Israel won’t let it happen is to say the US won’t let it happen. The stakes have been raised, though – even by your own link the price of food in Iran surged 40%. They’re going to get desperate.

Oil is a commodity. Naturally a reduction in available supply, even if not directly consumed by us, but by another nation, creates higher prices.

(Thanks for using Fareed Zakaria as a source – really. Probably one of the best people for discussions on international relations.)

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tom January 9, 2012 at 16:36

If anything, I see the Iranian people going to war with their government.

We started to see that in the last presidential “election”. And as Zakaria pointed out, their only friend in the Middle East is on the verge of a revolution.

I look forward to that day.

Also, the Saudis have come out and said any reduction in Iranian production would be met with an increase in Saudi production. Prices would rise, but not dramatically. Also, hopefully we’ll start seeing Iraqi production to start increasing.

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JT McGee January 11, 2012 at 01:24

Will it be like the 1953 revolution, where we back it silently and cheer as it goes on? If so, I can definitely see that kind of revolution.

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Jai Catalano January 9, 2012 at 13:16

Sounds like a game but with real people and death as the meaning of game over.

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JT McGee January 11, 2012 at 01:24

Yeah – that’s usually seen as collateral damage to those in charge.

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Darwin's Money January 9, 2012 at 21:46

Game theory says both sides will keep talkin’ shit but nothing will happen. Iran has played the world like a fiddle for decades now. They love talkin’ tough, watching the price of oil spike and laughing all the way to the bank. The US cannot win a ground war in Iran and the US populous will not allow it. Heck, we can’t even stomach taking on the Taliban (who our vice president now says is not an enemy). Both sides will continue the rhetoric but nothing will happen. Eventually, Iran will be nuclear.

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JT McGee January 11, 2012 at 01:29

I think it’s 100% unwinnable. As you mention, we can’t even make a dent in the Taliban (I suggest we’re improving their ability to recruit) despite having the best military in the world. You’d think that in 10 years we could get rid of an estimated 25,000 Taliban militants in 2001.

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PK January 10, 2012 at 11:33

I’m not convinced Game Theory – specifically Mutually Assured Destruction – wouldn’t work in this case (not that I’m down with another country acquiring nuclear missiles, I’m just saying this for the sake of argument). Generally, the most devoted followers who are willing to die are at the bottom of the food chain while power likes to remain in power. I mean, Japan discussed having nuclear missiles – are we worried that they historically had Kamakazes? As long as those in power don’t feel like dying, MAD holds.

Also, I love political discussion on blogs – happy to be back in an even year!

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JT McGee January 11, 2012 at 01:26

Oh, I don’t think we’ll have a nuclear war, but it’s becoming more and more apparent that a war of some kind is becoming a reality that many accept, embrace, and (if you’re Rick Santorum) sell as a key campaign issue.

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American Debt Project January 15, 2012 at 14:48

Thanks for writing this article. What bothers is me is the idea of US exceptionalism…we can have nuclear weapons in the thousands but you cannot attempt to build one. Neither side has shown that they are willing to negotiate, but I was just listening to someone discussing how Iran is using its ability to build a nuclear weapon as a diplomatic tactic…that sounds weird, but basically he was saying that it is their defense against the US attempting an attack, which would then mean that the two sides need to talk. Of course the US doesn’t like that tactic at all. I only hope for no attacks against the people of Iran. As for the candidates discussing foreign policy, I just shut my eyes and pretend I don’t hear the nonsense spewing from them. Iran has a population with so much potential, its people are highly educated, entrepreneurial and adaptive. Both the Iranian regime and the US have done great harm by closing off this population to the rest of the world. Its young people are very restless. The Iranian population (not the regime) and the Iranian diaspora are ready for a change.

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