Ahmadinejad Goes for Broke

The Iranian president is going for broke. He sees what he believes is an opening to break free of any international restraints on his ambitions to make his country part of the MAD equation of the nuclear-armed world, first by announcing ten new massive nuclear processing plants last week and this week snatching British yachtsmen and threatening to cut off oil exports, saying the world needs Iran more than Iran needs the world. Think how much fun this will be when and if this beloved leader has nukes and the delivery systems to send them anywhere in the region and well beyond.

The Iranian military have spent a lot of time and money trying to make the Strait of Hormuz a kill-zone should push come to shove. Oil prices have surged from $72.39 on Friday to $79.04 today basis the Jan contract. Ahmadinejad has calculated that given the tepid economic recovery in the West, but perhaps one that could broaden and strengthen over the coming months, the ability to bully the UN Security Council out of heavier sanctions on Iran may be slipping away from them, so why not go for broke. Given how gullible the UN has been in its negotiations with Iran over the years, he suspects there is nothing to stop him from doing as he pleases. Even the theocrats may be losing their grip on the President. At some stage, even a war-weary West and needy Asian energy buyers, may decide enough is enough and Mr. Ahmadinejad and his backers will find they have overplayed their hand. Even Mr. Obama may find himself in a position where retreat is no longer an option, particularly if his popularity at home continues to wane and if the Iranian regime tries to throw the world back into a downward economic spiral or steps over the line militarily by attacking US assets.

At this stage, most see a direct war with Iran as being either an outlier or simply a long-term rather than near-term risk. This is probably correct, but Black Swans can pop up in places other than financial markets.