Columns

There are signs of the US withdrawing from its involvement in the war with Iran due to domestic pressures. It is, however, uncertain how and when President Trump would declare a victory and withdraw from the war. On Monday, Trump announced he had obliterated Iran’s army, navy and air force and would wind up the war in 48 hours. Then came his announcement that he was negotiating with Iran and that negotiations with them are going well. This was, however, denied by Iran. However, it had a momentary effect of reducing oil prices and increasing share indices.

Again, on Wednesday he declared that he had negotiated with Iran successfully and ended the war, a claim denied by Iran. On Thursday, he despatched troops to the region.

Twists and turns

On Tuesday Iran attacked the Ben Gurion airport in Israel and threatened to attack the vital desalination plants in the countries that have US bases.

By the time this column is read, there may be other twists and turns in US policy. Nevertheless, there are indications of the US withdrawing from the war owing to unfavourable developments in the country.

Continuation of war

Iran and Israel are likely to continue hostilities, and the global economic crisis will continue till there are negotiations to arrive at a durable peace. This is, however, a distant dream, hopefully not an impossible one.

Economic crisis

The global economic crisis is likely to continue for some time.

There are signs of growing opposition to the war in the US. The escalating price of petrol and the rising cost of living are contributing to this fatigue. The death of twelve US soldiers, the killing of 164 Iranian schoolchildren, the huge expenditure on the war, the depletions of armaments and the global economic crisis are exerting severe pressures on the US regime to end the war.

Prices and elections

While all the above have made the US regime unpopular, the compelling reasons are the high costs of living, the doubling of gas (petrol) prices and the mid-term elections in November.

Victory

How and when will President Trump be able to say that he has achieved his objectives and withdraw from the war with Iran?

War continues

Even after the end of the US involvement, the war between Iran and Israel may continue, with both countries attacking each other’s economic and military installations.

Economic crisis

The global economic crisis is likely to drag on in a different manner. The continued instability of the region, bombings of military targets and the continued closure of the Strait of Hormuz would make the region an unsafe air and sea transport hub and an insecure financial centre. The availability of oil and gas and much higher prices for them would affect the global economy adversely.

Bottolm line

The bottom line is that though there is a prospect of the US involvement in the war against Iran ceasing, hostilities will continue and costs of oil will continue to be high. The serious adverse impacts on Sri Lanka’s economy discussed in previous columns will persist. However, they may be moderated somewhat.

Iran and Israel may continue hostilities, and the global economic crisis will continue till there is a negotiated settlement.

Summary and conclusion

The explosion of the oil refinery in Texas, though unconnected with the West Asian conflict, would add to oil prices in the US.

While all this has made the US regime unpopular, the compelling reasons are the high costs of living, the doubling of gas (petrol) prices and the midterm elections in November. Even though there is a likelihood of President Trump declaring that he has achieved his objective of obliterating Iran and withdrawing from the war owing to domestic political pressures, external shocks affecting Sri Lanka will continue even after the US stops the aggression.

The continuation and expansion of the war in West Asia and especially the closure of the Strait of Hormuz are causing severe hardships to the country and threaten the economy. High prices for our essential imports and threats to our exports are severe setbacks to our external finances. The economic growth and the price stability are likely to be affected adversely. Furthermore, adversely affected would be West Asian remittances, which constitute about one half of total remittances Sri Lanka receives and which are the biggest strength to our balance of payments and external reserves.

Concluding remarks

The insecurity in the region, which is an important transit point from Europe and North America, could reduce tourism earnings. Our exports of tea to West Asia, which is our largest market for our tea, have been disrupted. Our merchandise exports to Europe and North America would also be affected adversely by the closure of the sea route.

The government has taken appropriate measures to cope with the external shocks. It is imperative for the people to cooperate by curtailing consumption of imports to ease the use of our external finances.

The global economic crisis will continue until there is a negotiated settlement to the West Asian conflict.