Dumb & Dumber Head To Middle East
Dumb and dumber—we'll let you decide who is which—arrived in Tel Aviv today to discuss a new ceasefire proposal between Israel and Hezbollah in Lebanon. In market terms: Already burdened with more risk than they realized, the pair decided to power lift the futures after favorable data releases to add to their position. Now they've been caught with too much risk on the books, market momentum has shifted, liquidity is drying up, and the market is closing soon. The frontline maps don't lie, even if government officials do. Every industry has a Mike Wilson or two.
US Ceasefire Proposal in Lebanon
A ‘leaked' outline of the draft proposal provides a 60-day period to implement the agreement. It’s difficult to say whether Hezbollah will support the latest U.S. ceasefire proposal or if it is purely for domestic political reasons aimed at creating a rift within Lebanon. Hezbollah's new leader, Naim Qassem, did not indicate an openness to the latest ceasefire agreement in his inauguration speech today, especially without an end to the war in Gaza. On the other hand, it has been widely reported that Hezbollah had already agreed to a ceasefire prior to Nasrallah's assassination, without conditions linked to the war in Gaza.
Meanwhile, the IDF continues to bombard Lebanon and North Gaza while pressing ahead with its strategy of “starvation or surrender.” It is estimated that another 20,000 residents in northern Israel have been evacuated, in addition to the 60,000-80,000 already displaced for the past year. Another newly added Israeli military objective moves further away.
Gaza Ceasefire Talks
There are also the usual reports of ongoing ceasefire negotiations among senior officials from Israel, Qatar, and Egypt. Hamas has remained steadfast in its demands for a total withdrawal by Israel, even after the killing of Sinwar. It is hard to see what future they envision for ordinary Gazans, even if Israel agreed to an unconditional withdrawal tomorrow. Nevertheless, 13 months into the war, Hamas remains the ruling authority and negotiators in Gaza.
Iran-Israel, Options & Limitations
Based on recent analyses of the tit-for-tat missile exchanges between Iran and Israel by Ted Postol (MIT) and young Decker (Middlebury Institute), we have a fair idea of the limitations and options available to both sides for the next step up the escalation ladder. We have the privilege of proof-reading their work before it makes the story in the Washington Post for the few remaining paid subscribers.
Amid the fog of war, state propaganda, decades-old grudges in academia, and research sponsored by arms manufacturers, there’s much to parse through and decipher to arrive at some semblance of the truth. Don’t believe everything you read in mainstream or alternative media on this topic—there’s a lot of posturing and grandstanding from both sides—mostly by unofficial sources. But that’s a topic we’ll save for five minutes before the next set of strikes are launched, as memories and attention spans are short.
Fiction Is Better Than Reality
Season 1 of the Apple TV series Tehran is more informative and captures the—social and practical—nuances better than most commentary on an Israeli strike on Iran's nuclear facilities. The eye candy in the show is also better than watching Daniel Hagari or the IRGC commanders talk. In the fictional version, everything and everyone is subordinate to the love of a young couple. In the real world, maintaining global oil supplies is a most sacred priority.
Iran Triples Its Defense Budget
Yesterday, Iran announced a three-fold increase in its defense budget for next year while ordinary citizens continue to struggle through economic hardship due to sanctions. This supports Ali Vaez’s view that Iran must rethink its defense strategy. We can halve Iran's defense spending outlay after adjusting for the expected rapid depreciation of the currency in dollar terms.
At present, Iran is more likely than not on course to retaliate against Israel in response to last week's attacks. The question is whether this will happen before or after the U.S. presidential election. The calculus has shifted since the pager attacks against Hezbollah and the assassination of its leaders.
Meanwhile, we're all wondering how long it will be before the methods behind the pager and walkie-talkie attacks are reengineered now that they’re in the wild. It wasn’t long after the Stuxnet virus was used on an Iranian nuclear facility, in 2010, that it inspired ransomware attacks worldwide by various illicit groups. Experts believe it set back Iran's nuclear enrichment program by, at most, four to six months.
Updates
NOT FOR REDISTRIBUTION
Based on current reports coming out of Tehran, we assess a high likelihood of a retaliatory strike against Israel before U.S. election day (Nov. 5), or at least one with a much higher probability than commonly portrayed by Western media. The rhetoric coming from the IRGC core command is firm and unwavering with calls to retaliate.
This time around, Iran is unlikely to give much, if any, warning. It is also likely that the Iranian strike package will differ from the previous two—perhaps including the use of drones and cruise missiles launched by Iran-backed proxies in the region. The risk of Israeli casualties is also significant.
Of course, it could also be posturing to see what concessions they can extract from the Biden administration to delay any action until after the U.S. election. Therefore, we kindly ask you do not to redistribute this copy to avoid unnecessary overreaction.
