Lebanon and Iran: the fog of war and some unusual voices on the conflict

Does anybody know what exactly is the military situation in Lebanon? It is impossible to tell because there is very little coverage in the mainstream media and what we have is mostly the Israeli point of view as told by embedded journalists.

Israel's ground invasion of Lebanon has been on for more than four weeks now. Reports of the progress made by Israel vary widely. Israel wants to push the Lebanese militia, Hezbollah, beyond the Litani river. It would like to clear an area of about five kilometres into Lebanon from the border of bunkers, tunnels and Hezbollah fighters so that Hezbollah cannot fire artillery rounds into Northern Israel. (It would still be able to fire rockets). 

How far have these objectives been achieved? The Institute for the Study of War, a US based think-tank, contends that Israel has had considerable success. Other military analysts dispute this claim. They say the IDF is heavily bogged down,it has not penetrated more than three kms into Lebanon and it withdraws after making incursions. In other words, the IDF is loath to stay deep inside Lebanese territory for fear of inviting fierce reprisals from Hezbollah. The IDF top brass says it has substantially achieved its objectives in Lebanon and the time is ripe for a political settlement. That is not quite the same as what PM Netanyahu wants to achieve, which is to change the strategic situation in Lebanon drastically, with the elimination of any political role for Hezbollah.

Now, let's turn to Iran. About a week ago, the long promised Israeli attack on Iran materialised. The Israeli version is summarised by the Economist:

How effective were the Israeli strikes? So far there is too little evidence to be sure. Israeli officers claim they destroyed most of Iran’s advanced air-defence capabilities and that, as a result, their air-force can operate freely in Iranian airspace. If true, it means a future Israeli strike could be much more extensive.

According to Israeli security sources, most of the targets this time were hit by air-launched ballistic missiles (ALBM) fired from aircraft well out of the range of Iran’s defences. Israel’s stock of ALBMs is limited and a more intensive air-strike campaign against Iran would call for a large number of jets using munitions at a shorter range. If Israel’s claims about this strike are true, this is now possible. It will take many months for Iran to rebuild its air-defences, especially when its Russian suppliers need their own batteries for their war with Ukraine.

Other reports say that important sites that produced material for ballistic missiles were hit. Iran's ability to produce long-range ballistic missiles is thus seriously impaired and Iran's military capability compromised. It will not be in a position to mount any more attacks on Israel in the near future. 

However, several media reports suggets that a strong Iranian response is pretty much on the cards. One military analysts, Alastair Crooke, says that the IDF had planned several waves of attacks but it had to stop after the first wave because Iran displayed an air-defence mechanism that the IDF was not aware of.  If these stories are correct, the Economist version becomes suspect. 

It is impossible to go by what appears in the mainstream media. The media merely cite Israeli and Western sources but have no means of independently verifying what is told to them. I have been reading and listening to several independent military analysts. I do not know how right they are but what they say is certainly interesting. Let me list a few prominent ones:

i. Elijah Magnier: He's a veteran war correspondent who tweets regularly on X. His tweets are free. He has more detailed analyses. A basic part is free but the rest is available only through subscription. I have access to the full versions. Magnier is emphatic that the ground invasion has turned out to be unsatisfactory, if not disastrous, for IDF and that Israel will sue for peace before long.

ii. Colonel Douglas Macgregor: A former US army officer who has also served in the Defense department. Macgregor is among the analysts who predicted long back that Ukraine and Nato would face defeat in the fight with Russia. He has been proved right although the conflict has stretched out much longer than he had forecast. Macgregor does not see the conflict in Lebanon going well for Israel.

iii. Scott Ritter: He's a former US marine and weapons inspector in Iraq. He has had the same views on Ukraine and the Middle East conflict as Macgregor.

iv. Alastair Crooke: He's a former UK diplomat who served extensively in the Middle East and developed contacts with Palestinian groups, Hezbollah and officials in the government of Israel. Only recently, I have been hearing that he was, in fact, an MI6 agent- I don't know if that is true. Crooke sees Israel's plans unravelling swiftly. He has also forecast certain doom for Ukraine.

iv. Andreas Krieg: He's a faculty member at King's College, London. He too tweets on X and provides extensive background to the Middle East conflict and views on the unfolding situation.

v. Rania Khalek: She's an American journalist of Lebanese origin. She gives expression to the outrage amongst people of Middle East origin in the US over the destruction of Gaza and Lebanon.

vi. War Monitor: This is again on X. I don't know who the author is. But this is a source that provides frequent updates on the war front in Gaza as well as Lebanon.

For the official Israeli and Western version, there is the website of the Institure for the Study of War.

One thing is for sure. The social media has become an indispendable to getting a complete picture of events. The mainstream media can at best give only  a partial account and often a distorted account. 

Middle East conflict and the global economy

It hasn't happened since the Ukraine conflict erupted in February 2022. It hasn't happened since the Gaza conflict erupted in October 2023?  Will events in the Middle East now derail the global economy? One obvious way they could is by causing oil prices to shoot past the $100 barrel a mark.

Let us see if we can list a few facts:

i. Israel is not interested in a cease-fire in Gaza, much less in a two state solution

ii. Israel thinks it has a good chance of eliminating Hezbollah, the Lebanon-based militia or at least reducing it to a point where it cannot interfere with events in Gaza

iii. Israel also thinks that in order to degrade Hezbollah, it has to deliver damaging blows to Iran

iv. Israel thinks it has the US behind it, wintess the latest US decision to deliver the THAD anti-missile system to Israel and have it manned by American technicians.

The four above mean an escalation in the conflict and a prolonged conflict. Will the oil market remain unscathed in such a scenario? It's not just a matter of enough oil supply being available outside Iran. If Iran's supplies are disrupted, Iran is not going to allow other oil supplies to go through. When Israel attacks Iran, it has to deliver a blow powerful enough to deter Iran from any sort of retaliation. I leave it to military experts to judge if that is possible.

The prospect of an escalation in the Middle East and higher oil prices has obvious implication for the Indian economy. That is the subject of my article in BS, India's economic growth faces two risks and two key challenges.

FINGER ON THE PULSE
T T RAM MOHAN

The finance ministry’s latest Review of the economy, which came out on September 26, exuded confidence about the Indian economy being able to meet the Economic Survey’s growth forecast of 6.5-7 per cent in FY 25. Some two weeks later, the prospect of the forecast being upended by global events is very real. 

Oil prices are hovering around $80 a barrel for Brent crude, an increase of 16 per cent from the September low.  The Indian economy can take the increase in its stride. However, if events in the world at large were to push the price of oil beyond $100, we will have to start worrying.

“Nothing new there,” optimists would argue. “The world has shrugged off worries about oil prices for over 30 months since February 2022, when Russia commenced its military operations in Ukraine.” In June 2022, the price of oil went up to around $120 a barrel. From July 2022 onwards, oil prices have stayed below $100, with prices staying below $80 for the most part.  

Two factors contributed to this remarkable outcome. One, the North Atlantic Treaty Organization (Nato) and the European Union (EU) imposed a price cap of $60 on oil purchased from Russia while also  reducing dependence on oil supplies from Russia. The cap turned out to be quite effective. 

Two, the doctrine of “managed escalation” has played out well. According to this doctrine, Nato would progressively equip Ukraine to effectively fight Russia. Each step on the escalatory ladder would be managed so that Nato itself was not drawn into a direct conflict with Russia. Escalation has been managed,   the war in Ukraine has not derailed the world economy.

The same doctrine has been applied to the conflict between Israel and the Axis of Resistance (comprising Iran and its proxies, such as Hezbollah, Hamas and the Houthis). For over a year now, Israel has been trading fire with Hezbollah on its northern border with Lebanon. These exchanges have been confined to a narrow strip on either side of the border, with casualties on both sides staying within limits. Iran and Israel have engaged in tit-for-tat missile exchanges, inflicting damage that both sides find acceptable. 

“Managed escalation” always carries the risk of miscalculation or error- at some point, one party or both parties can cross tolerable limits. The issue now – and this is where optimists would be mistaken- is not so much miscalculation as cold calculation on Israel’s part. With the successes Israel has had against Hezbollah in recent weeks, Prime Minister Benjamin  Netanyahu believes the time has come to “change the Middle East.” There is the  (prospect?- ok) not only of escalation but of a prolonged campaign.  

A probable Trump victory in November heightens the implied risk. Following Iran’s missile attack on Israel, Mr Trump wants Israel to go after Iran’s nuclear facilities.  While Mr Trump may well be posturing in the run-up to the polls in early November, his known hawkishness on Iran poses clear risks for West Asia and the world economy.

There is another risk that a Trump victory poses, one about which there seems to be less ambiguity. Mr Trump promises sweeping cuts in taxes for corporations as well as individuals, higher tariffs and substantial deregulation. He sees the tax cuts as paying for themselves by boosting growth, but many economists are sceptical. They think the tax cuts will result in wider deficits, an increase in public debt, and slower US growth down the road.  

Mr Trump has promised a tariff of 20 per cent on all imports and a tariff of 60 per cent on Chinese goods. Mr Trump sees higher tariffs not just as protecting US manufacturing but as paying for the tax cuts he has in mind. Economists have raised a howl but many American business leaders think Mr Trump has got it right. Whatever the long-term impact, there is little doubt that Mr Trump’s policies will be disruptive for the world economy in the short term. 

The two risks apply to the world economy as a whole. Apart from these, there are two challenges that are specific to India.

One relates to foreign direct investment (FDI). Net FDI (item 1 in the accompanying table), which is the FDI inflows minus FDI outflows, fell by over $28 billion in 2023-24 compared to 2021-22. The Review says that this is because repatriation of profits (item 4) surged considerably in 2023-24. It says this is not a bad thing because it assures foreign investors of an exit route for profits made in the country. 

However, repatriation of profits is not the only factor dragging down net FDI flows. Gross inflows of FDI (item 3) have fallen steeply from $85 billion in 2021-22 to $71 billion in 2023-24.  The Review argues that FDI flows to emerging markets as a whole have fallen by 15 per cent in 2023 and India is likewise affected. But if India is positioning itself as an alternative to China for FDI, this should not be happening. 

Some analysts contend that the fall in gross FDI has to do with India’s scrapping of bilateral investment treaties that allowed for third-party arbitration of disputes. The change, they say, has made foreign investors nervous. Maybe. Or it may well be that FDI has fallen for the same reasons that private domestic investment has not picked up in recent years. If gross FDI does not rebound strongly in FY25, we would need to be concerned.   

The second challenge, which is relatively short-term in nature, is with respect to foreign institutional investment (FII) flows. FIIs invested $44 billion in India in 2023-24. FII inflows in the April- July quarter of FY25 have fallen to $6.3 billion, from $20.5 billion in the same period of FY24.  Analysts say this is to be expected as Indian stocks are overvalued. There has also been a huge switch of funds to Chinese stocks, given the low valuations in that market. This shift is said to have increased in recent weeks following the stimulus to the Chinese economy. 

A fall in capital flows, combined with oil prices exceeding over $100, is not the best place for the Indian economy to be in. Happily, India’s external position today is strong enough to cope with such a scenario. However, higher oil prices and disruptions in the world economy could   undermine growth projections.  

India has had considerable success over the years in dealing with the sources of instability within the economy. The threats to growth and stability now emanate from outside- geopolitical risks, rising protectionism, and banking instability in the West.