Middle East conflict deal: Why economics, not US or Iran, won

This column predicted, without the hindsight of a prophet, that economics, not weapons and bombing runs, would end the US and Israel versus Iran war.

It argued that Iran was more solid than was reported. One, it had prepared for this showdown for 47 years, and its cohesiveness was an asset. Iran is not just a country; it’s a civilisation like India, China, and Japan.  

One underestimated cause of Iran’s cohesiveness is that it’s a theocracy; the supreme leader has religious powers.

Sounds strange? Is the king of England not the head of the Anglican Church? Remember the Japanese emperor used to be a god? 

Could such observations be the reason religion is embraced with open arms in Kenya?  

Even the US, despite the separation of state and religion, has a national cathedral and a Bible Belt. Religion is a force in political power. What role does the Orthodox Church play in Ukrainian or Russian political systems? The interconnection of religion and law makes it a formidable tool for political power.

Noted how religion becomes central in countries where government services are inadequate, and opportunities are rare.

Ask Kenyans how religious they remain when they go abroad (majuu). Does the church serve the same purpose as in Kenya?

Back to Iran. The 60-day pause and the 14-point memorandum of understanding (MoU) will be debated in the US, in Iran and across the globe, with relief and thanksgiving. Why does it matter? 

The world is addicted to oil, and the closure of the Strait of Hormuz confirmed it. From big to small countries, economies were shaken.

The leaders stared at chaos in their eyes. We saw the price of fuel hit a record high in Kenya and the subsequent effect on inflation. We now hope there will be a quick fall in oil prices, just as they rose. But be sure the prices of goods and services will not fall that fast; they are “sticky”. 

Why did the US and Iran finally talk? Let us start from the US: the price of oil was going up and so was inflation, which has political consequences.

The midterm polls are near, and Republicans want to retain power. The popularity of the president and his party was taking a hit. The general public never supported the war. That intersection of politics and economics nudged the US to a deal. Why can’t we have midterm elections in Kenya? 

There could be other geopolitical reasons. American and European support for the Ukraine war was diverted to Iran.

Remember, wars are costly. Others think a continued Iran war could turn into a Vietnam: prolonged, bloody, and unpopular. 

Is that why boots never hit the ground? Remember the Gulf Wars? Could the possible sucking in of other key powers like China or Russia be the cause of the deal? It is unlikely Iran was working alone in such a crisis.  

The fact that Iran drew its neighbours into this war was another pressure for a deal. The small countries like Kuwait and the United Arab Emirates (UAE) felt the full wrath of being Iran’s neighbours.

Few expected Iran to react that way. But war is about strategy and hidden cards. The attack made the other countries “own” the war.

It was no longer the Iran war. It was not just about the oil but also other sectors of the economy, like tourism and air transport.  

The closing of the Strait of Hormuz was expected in such a war. It made the Iran war become a global war on the economic front. I am not a military strategist, but the consequences of this war were easy to predict.  

Many nations must have called the US asking for a pause to this war. Think of the consequences, both economic and political, if the price of oil hit $200 a barrel.

Think of India, Japan and other big economies that rely on the Middle East for oil, fertiliser and other resources. We often forget that oil is not just about petrol and diesel but petrochemical industries, too.

That is why a refinery is an asset; the byproducts of crude oil processing are other assets. What next?  

We can now exhale, to quote the late Whitney Houston, the talented girl who died young. We hope the US and Iran will come up with a permanent deal and peace will engulf the Gulf region like its sands.

The effect of this short-lived war will reverberate for many years to come, just like the oil crisis of 1973, in which Iran was involved. Be sure that when we plot most countries’ GDP growth rates against years, the effect of the Iran war will be noticeable, like Covid-19. The short-lived war will be an input into countries’ and companies’ security and economic plans.  

We could start diversifying from oil; electric cars could become more popular. That could by itself reduce the possibility of war in the Gulf. Can we start electrifying our trains?   

The big question is the change in geopolitics and economics. Will Iran emerge a stronger nation, with pride that they stood up against a superpower?

One interesting observation is how Iran looped into the deal the war in Lebanon pitting Israel against Hezbollah, an ally of Iran.Why does it seem Iran got its way? Is there something we do not know? Another curious observation is how Iran replaced its supreme leader with his son. A bigger question: where does the deal leave Israel?  

Will Iran’s pride be felt by the ordinary citizens through higher standards of living? Will Iran “behave”, to quote Americans?

Will Iran be a better player in the global scheme of things? Kenya will benefit from this deal not just with lower oil prices but also with a market for our tea.

Do not forget that Iranians, better called Persians, came to East Africa centuries ago. But their presence is muted compared with Arabs. What if Republicans lose in the midterm elections in the US? The war will have changed not just Iran but also the US.

In Kenya, the government (read President Ruto) must be smiling. The deal will lower energy prices and remove the cost of living as a major issue in the run-up to the 2027 polls. One hopes there is time for prices to fall and be felt.  

Finally, the war tested the robustness of our economies and political systems – how they can withstand shocks.

We hope Cuba or Taiwan will not be next. The world has enough troubles. We need a long rest.