If Iran closes Strait of Hormuz….

Strait of Hormuz is a narrow semi-circular bend way in the Persian Gulf. The naval topography favours Iran to close this artery at any time she wants. Now that Houthis have effectively closed Bab-al Mandeb, Iran may be tempted to do so. Here are the nuts & bolts:

More than 25% of the global oil traffic traverse thru Persian Gulf something about 21 million barrels per day of crude. KSA, UAE, Kuwait and Iraq depends on this waterway to export their oil. Besides about one third of the sea born LPG, mainly from Qatar is carried through this artery.

The Hormuz Strait is 90 nautical miles in length curving out of the sea way in a bottle neck located between Persian Gulf and the Gulf of Oman. Whereas at the narrowest point the artery is of 33 KM of breath throughout it hovers around in a fairly narrow band between 35 km to 96 km., unescapably, the narrowest point is under the Iranian control. That alone gives Iran geoeconomics clout unheard so far in the navigation annals.

There have been precedents of its closure. In 1972 both Iran & Oman closed it jointly after their dispute of the extent of ownership of the Hormuz gateway. Later the matter was settled to the advantage of Iran due mainly to the influence Persian Shah wielded.

On 18, April 1988, US Navy began a day’s hostilities to re-open Iran’s closure of the Strait. Since then the US Fifth Fleet located at Bahrain is tasked to protect commercial shipping throughout the Persian Gulf.

But Houthi’s success in interdicting naval operations in the Bab-al Mandeb along with Red Sea extended to Oman Sea as well has changed the table and heralds fairly strong position on the part of Iran.  

Ground situation has changed now so is the naval power dynamics. America and/or the Global North cannot rule the waves as it was used to be in the halcyon days. Iran has already demonstrated what she can do when she launched quantum salvo of drones, and missiles on pre-announced date of 13 April 2024 and pre-targeted locations deep inside Israel dubbed as “Operation True Promise”.  The cost benefit alone favoured Iran. For a meagre US$ 30 million outlay by Iran, Israel and her partners had to run through more than US$ 1.35 Billion in deterrence activities.

Could this be replicated in the closure of Strait of Hormuz? Only time and geoeconomics would tell.

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

 

From SMO to CTO, putting changes to the narrative but not the goals

On February 2022, Putin announced the beginning of Special Military Operations in Ukraine and later in March 2024 he has recalibrated and launched Counter Terrorism Operations. Only the narrative got shifted. But the goals remained with the scale & scope of them being much enlarged. What is behind this strategy?

The invasion into Ukraine launched on the February 24, 2022 is the largest in Europe since the World War II. More than 150,000 Russian soldiers began hostilities under the hubris of ‘special military operations’ (SMO) with a stated objective of defending Russian-speaking territories in eastern Ukraine, namely Donetsk & Luhansk oblasts, under Article 51 of the United Nations Charter. His goals were demilitarization and denazification of Ukraine. After more than two years into operation major parts of these oblasts fell into Russian hands.

Citing the Crocus City Hall attack purposefully claimed to have been carried out by ISIS on March 28 2024 which was later traced onto Ukrainian Intelligence Apparatus, and acting under legality of The United Nations Global Counter-Terrorism Strategy adopted by General Assembly resolution 60/288 in 2006 Putin recalibrated the running of current SMO as Counter Terrorism Operations (CTO). Here the stated objectives differ widely.

Taking actions aimed at prevention, detection and suspension of terrorist activity emanating from the soil of Ukraine or sponsored by her but operationalized from international level is prioritised. Moreover a gamut of military moves, tactics, techniques, and strategies are systematically being executed to punish proven perpetrators of crime against humanity in general and the civilian population of Novorossiya. Incidentally most part of Eastern Ukraine is dubbed as Novorossiya including several oblasts spread across the land of Ukraine.

That is only one side of the story. The real stuff, however underpins   geoeconomics imperatives. When the SMO began in earnest in February 2022 the unstated goal was to make Ukraine a land-locked state without access to the Black Sea. The present CTO casts the net much wider. Destroying the economic back-bone is clearly evident. Land based and aerial attacks are mounted against power plants both coal fired and electricity generated, critical irrigation architecture and storage tanks that are used for fuel & gas meant to be supplied to both domestic users in Ukraine and pumped outside to users in eastern and northern Europe.

While the meat grinding military strategy can look after the men & materials thrown into the battlefield by Ukrainian army the geoeconomics strategy is focussed on denying the use of power & electricity within Ukraine so that de-population of the areas east of Dnieper River accelerates. Besides with the drying of wet soil in the early spring, Russia can bulldoze the remnants of Ukrainian army out of most parts of Northern, Central and Southern Ukraine including Odessa, Kharkov and Zaporizhzhia. By the way Zaporizhzhian nuclear power plant is already in Russian hands.

A decapitating exercise is well under way, this time not only the men but the geoeconomics clout, hitherto enjoyed by Ukraine in terms of food such as corn wheat and seed oils and steel for heavy duty manufacture.

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

Why China is on gold buying spree?

Arguably China the largest producer of gold is not exporting but importing huge gold quantum from many countries. The irony is, it is buying gold from the second largest producer of gold that is Russia. What is the business strategy behind it and how this impacts geoeconomics?

Gold production was the key industry even in the ancient China. According to World Gold Council she produced about 368.3 metric tons of gold. A figure that works out to be 11% of the global count.  Most are used within the country and nothing much is exported unless in the case of jewellery that too in lower quantity. Ironically the second largest producer of gold Russia at 331 metric tons exports part of her gold to China. Even after the imposition of sanctions against Russian Gold, China continues to buy via intermediaries located in the Persian Gulf. By the way Russia is the 4^th largest gold exporter globally.

Not only Russia, several other countries are supplying Chinese requirements chiefly amongst them stand Switzerland with a value tag of US$ 27.5 Billion and UK at US$ 17.6 billion. In 2022 alone China imported gold to the tune of 67.6 Billion.

What is exactly happening?

About two decades ago China gold reserves was about 600 Metric tons whereas today officially China has slated to have reserves at 2,235 metric tons. But unofficial figures are as high as ten times of this conservative estimate. One thing is clear much of the imported gold is not put to use in factories but buried in the vaults of Chinese banks.

As regards to investment in US Treasuries, progressively China is downsizing. According to financial statistics this figure has declined from US$ 816.3 Billion end December 2023 to US$ 797.7 Billion end January 2024. That is within one month period a slicing off of US$ 18.6 Billion has taken place. Among the reasons trotted out the following seem to be plausible:

1. Evidently China is losing confidence over US Dollar as a reserve currency on one hand and the fear of her reserves being frozen at any time by US authorities on the other.

2. Increasing use of US Dollar as a geoeconomics weapon by America has alarmed China especially after Russia was shut out from the use of US$ in international trade and reserve holding.

3. As de-dollarization is slowly but steadily progressing in the multi polar world holding dollar as currency amounts to almost committing hara-kiri. Therefore converting Dollar to gold is a feasible and profitable solution not only for China but for many others in the Global South.

But I have a reason that could convince you more. China is on the verge of making Yuan a gold pegged currency for both trading & reserve purposes. Unveiling of digital Yuan and holding it under digital wallet requires backing & support of a peg and an efficient currency management system. This business strategy fulfils the age old maxim of Empires: ‘the largest trading nation must have the largest circulated currency’. And that fits smugly for the geoeconomics plan for the Imperial China then and now!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist