As global tensions simmer in the Middle East, investors and policymakers alike are watching the situation very closely. James Kostohryz, founder of Investor Acumen, provides a deep analysis of the unfolding situation between Israel and Iran, highlighting the extraordinary risks and potential opportunities that may arise now that Trump has won the election.
For related podcast interview, see In Depth: A Potential Post-Election War Escalation.
The Intersection of US Elections and Middle East Strategies
From the outset, Kostohryz emphasizes the significant influence of the US presidential election on the strategies of key Middle Eastern players. Specifically, the timing and manner of Israel's responses to recent aggression have been carefully calibrated with the US political timeline in mind.
For instance, following the massive missile attack on Israel by Iranian forces on October 1st, where around 200 missiles were fired, Israel was prepared to launch a substantial retaliation. However, Kostohryz notes that "the Biden administration was putting very heavy pressure on the Israelis to temper their response... because they didn't want an all-out war to break out right before the election."
Israel, understanding the political implications, made what Kostohryz describes as "a very intelligent tactical concession." They agreed to delay their planned response against Iran. This move was not a strategic retreat but a calculated decision to secure unwavering US support in the future. "We are going to delay our planned response towards Iran... to make sure that you're going to support us 100% when and if an all-out war breaks out," he elaborates.
Israel's Strategic Imperative
Delving deeper into Israel's perspective, Kostohryz asserts that Israel is "highly probable... to engage the Iranians in an all-out war sometime in the next few months." The urgency stems from a narrowing window of strategic advantage. "They need to engage the Iranians now... while they still possess a strategic advantage relative to the Iranians militarily," he says.
This advantage includes Israel's possession of nuclear weapons and technological and military superiority in various areas. However, Kostohryz warns that "the Iranians are very quickly catching up." Israeli leadership believes that a military confrontation with Iran is inevitable. Therefore, "they want to have this conflict at a time where they still possess a strategic upper hand."
Moreover, the global context is currently more sympathetic to Israel. "Many Israeli leaders have actually pointed out that right now it's probably the best opportunity... precisely because the Iranians have very clearly attacked the Israelis directly," Kostohryz notes. The world recognizes Iran's role in financing and supporting proxy forces that have been attacking Israel, making a strong Israeli response more justifiable on the international stage.
Iran's Stated Objectives and Ideological Underpinnings
Understanding Iran's perspective is crucial. Kostohryz explains that Iran has explicitly stated its goal of eradicating Israel. "The Supreme Leader of Iran, Ayatollah Ali Khamenei, stated in 2015 the goal of eradicating and annihilating the State of Israel by the year 2040," he notes. This is not mere rhetoric but part of a long-term strategic plan.
Iran's approach involves supporting proxy forces to conduct continuous asymmetric warfare against Israel. "Their long-term strategy is to simply terrorize the Israelis with these proxy forces... implementing this 'ring of fire' strategy," Kostohryz explains. This strategy aims to exhaust Israeli society, causing divisions and potentially leading to an internal collapse.
A significant aspect of Iran's approach is rooted in ideological and theological beliefs. The concept of Mahdism plays a role in shaping Iran's policies. Mahdism refers to the belief in the eventual return of the Mahdi, a messianic figure in Shia Islam. Kostohryz clarifies that while Mahdism itself doesn't necessarily advocate for war, certain interpretations within Iran's leadership have linked it to aggressive actions against Israel.
"There's been a revolutionary and radical shift in religious thinking in Iran... the idea that the leadership needs to actively seek to set the stage and create the conditions for the return of the Mahdi," he explains. Among some in Iran's religious and military leadership, there is a belief that a necessary condition for the Mahdi's return is an all-out war with Israel.
The Existential Threat Perceived by Israel
A pivotal shift in Israeli thinking has been the heightened sense of an existential threat from Iran. Kostohryz points out that Israel's approach towards Iran has transformed radically in the past year. "There's been a much greater sense of urgency about the existential threat that is posed by Iran to the very existence of the State of Israel," he says.
This urgency is fueled by Iran's "ring of fire" strategy, wherein Israel is surrounded by Iranian proxy forces from multiple fronts—Lebanon, Syria, Iraq, Yemen, Jordan, the West Bank, and Gaza. These forces, equipped and financed by Iran, have been conducting attacks that pose significant threats to Israeli security.
For instance, Kostohryz highlights the situation in northern Israel, where "over 60,000 Israelis were forced to evacuate their homes" due to indiscriminate rocket attacks from Hezbollah in southern Lebanon. These attacks have underscored the potential future Israel faces if these proxy forces continue to gain strength and more advanced weaponry.
"The type of attacks that Hezbollah conducted were almost random... but imagine what's going to happen if we let them continue to implement this plan by 2040," Kostohryz warns. The fear is that with extended missile ranges and guided missile technology, these proxy forces could severely disrupt Israeli society and economy.
Potential Conflict and Global Implications
Given these dynamics, Kostohryz anticipates a high probability of escalation over the weeks and months ahead. "I think they're probably going to start almost immediately after the election," he says regarding Israel's potential actions against Iran. The timing is strategic, as Israel seeks to capitalize on existing support from the current US administration.
The potential for an all-out war raises significant concerns for global markets, particularly regarding oil prices. Iran, if faced with an existential threat, could respond by disrupting global oil supplies. "Iran has the military capacity to disrupt virtually all commercial traffic through the Strait of Hormuz," Kostohryz warns. Approximately 20% of global oil supply flows through this strait. A disruption of this magnitude could lead to oil price shocks surpassing those seen during the 1973 oil embargo.
Kostohryz elaborates, "The scale of this disruption... would be even greater than the one that was brought about in 1973 that caused a quadrupling of oil prices." Such an event would have cascading effects on the global economy, potentially triggering inflation spikes and recessions.
Additionally, Iran might target oil production and transport facilities in neighboring countries. "They can attack oil production and oil transport facilities in Saudi Arabia, Kuwait, the United Arab Emirates, and Iraq," Kostohryz states. The resulting supply shortages and price increases would put immense pressure on global markets.
Conclusion
James Kostohryz's analysis underscores the complex interplay between Middle Eastern geopolitics and global economic stability. The potential for an all-out war between Israel and Iran, especially in the aftermath of the US presidential election, presents both extraordinary risks and opportunities.
Understanding the motivations of key players, the strategic imperatives driving their actions, and the potential global repercussions is crucial for policymakers, investors, and observers alike. As Kostohryz aptly puts it, "We are pretty confident that there is going to eventually be this all-out war between Israel and Iran... and this has tremendous ramifications for the global economy."
For related podcast interview, see In Depth: A Potential Post-Election War Escalation. If you’re not already a subscriber to our FS Insider podcast, click here to subscribe.
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