Intrigue Insight: Iran war – Day 20

On the battlefield:

• Iran has answered Israel’s hit on Ali Larijani (the regime’s most senior loss since Khamenei Sr) by using cluster warheads against Tel Aviv, killing two.

• Israel’s war with Hezbollah is also intensifying, including airstrikes in Beirut and fresh evacuation orders south of the Zahrani River.

• Meanwhile, the US has hit more missile launchers along Iran’s Gulf coast as the regime’s daily drone (70+) and missile attacks (20+) persist at a lower rate.

In the markets:

• Iran is now exporting more oil than before the war, with US Treasury Secretary Bessent arguing “we’ve let that happen to supply the rest of the world”. (Comment: full enforcement would a) push prices beyond ~$150, b) risk escalation with Iran’s main buyer, China; and c) exacerbate existing pressure on DC to find an offramp.)

• Meanwhile, to say oil prices are ‘whipsawing’ doesn’t quite hit — they’re more acrobatic, with some barrels now pushing past $150 on the US West Coast and even higher out of Oman (beyond Hormuz) amid Asia’s shortages, while prices ease slightly elsewhere (still $100+) as the Iraqi-Kurdish-Turkey pipeline re-opens.

• Comment: This resumed pipeline is better than nothing, though given it’ll replace barely 1% of the Hormuz deficit, it’s technically quite close to nothing. The market’s reaction probably reflects a *thirst* for good news more than actual good news.

Beyond:

• The US counterterrorism lead, Joe Kent, has resigned over the war, stating “Iran posed no imminent threat to our nation, and it is clear that we started this war due to pressure from Israel” — claims now rejected by Trump and others.

Safe port?

We’re thinking of a spot: it’s got a 4.2/5 star rating on Google with over 3,300 reviews. One fan by the name of ‘Capt.Tanveer Chougle’ called it his “favourite place in Brazil”. 

Is it the iconic Iguaçu Falls? The best cachaça bar in Rio? That TGI Fridays in Moema?

Nope. Captain Tanveer is referring to South America’s largest container port: Santos. A five-hour drive (let’s be honest: seven) southwest of Rio, this vast port is emerging as the latest flashpoint in our century’s US-China tug-of-war. Why?

At a big maritime sector event earlier this month, between a sea bass canape and a sip of bubbly (idk we weren’t there), the local US consul-general cautioned that an upcoming tender to operate a massive new Santos terminal shouldn’t fall into “unwanted hands”.

And once those spicy words rippled out into the media, his consulate team spelled it out in writing, flagging “concerns regarding the participation of Chinese companies in the auction, related to sovereignty, security, competition, and strategic leverage”.

Now. It all raises some big questions, like…

• First… why all the fuss about Santos?

It’s not your ordinary port: with 58 terminals connecting to 600 ports around the world, it already handles three quarters of Brazil’s coffee exports and most of its beef.

And its planned new terminal is… not your ordinary planned new terminal: the $1.2B Tecon 10 expansion has been on the drawing board for a decade, aiming to double the port’s container capacity via four new berths across a new 621,000sq m terminal: that’s bigger than Vatican City.

So all that to say, the stakes and steaks are high. Then…

• Second… what’s China’s interest here? 

The big picture is that Latin America has emerged as a reliable supplier of the commodities fuelling China’s growth, while building economic leverage across the Western Hemisphere also really helps when you’re trying to eject the US out of East Asia.

The medium picture is that building offshore ports not only a) helps absorb China’s vast excess construction capacity back home, and b) generates more earnings (LatAm is China’s third-largest engineering market), but also c) gives China control over its critical import/export logistical chains, and even d) opens up dual-use possibilities.

On that last dual-use point, you don’t have to take our word for it: shortly after taking office, President Xi’s big 2015 military white paper spelled out a strategy of military-civil fusion to better harness China’s civilian strengths for its military capabilities. And his follow-up white paper in 2019 openly emphasises, say, “overseas logistical facilities”.

In practice? The fear is this kind of commercial infrastructure will help facilitate naval resupply, pre-positioning, and intelligence gathering (eg, per the Djibouti experience).

Either way, a new report has crunched the numbers and found China has committed ~$24B to 168 ports across 90+ countries since 2000! So it’s not phoning this in.

Then finally, the really zoomed-in, pixelated picture is that Santos specifically handles $50B+ in annual trade with China, more than 2.5x the US footprint. And the port’s broader rail, road, and pipeline links make it an attractive hub for the whole continent.

So… there’s nothing surprising about China inevitably making a play for Santos, and it seems Mr Consul-General now wants to get ahead of the game.

Intrigue’s Take

But okay, if there’s nothing surprising about a move on Santos, what options does the US really have in response? For years US friends and partners have urged DC to come to the party with counter-offers so the world at least has options, but what’s even out there?

• No US firms can realistically compete with China’s low-cost, state-backed port bids, with only European giants MSC and Maersk showing interest

• Tariffs mean America’s main advantage (being the world’s largest economy) is losing some lustre for the region, and

• Big government initiatives either die (the TPP) or could die and nobody would notice (think IPEF, which came with zero market access or investment dollars).

And yet with President Xi inaugurating Peru’s big Chancay port in 2024, doing nothing is hardly an attractive option either. Beyond the kind of US hardball we’ve just seen in China’s undersea cable to Chile (killed via US visa threats), and the hints we’re now seeing on Santos above (spicy statements), there are other models potentially on DC’s table:

• One is last year’s quiet deal for the US Army Corps of Engineers to support Guatemala’s Quetzal port expansion — it’s less about hustling for tenders, and more about somehow inserting US oversight and standards.

• A second is last year’s louder but stalled deal for a BlackRock-led consortium to buy-out China’s Panama Canal stakes — ie, some kind of arms-length push to leverage America’s vast capital markets for strategic purposes

• A third is 2022’s purchase of a strategic Subic Bay shipyard in the Philippines by the natsec-linked Cerberus Capital — ie, a slightly more naked alignment of private capital with national strategy, and…

• A fourth is 2023’s sweetheart deal via the US Development Finance Corporation to back an Ecuador port bid from a friendlier nation like Turkey (Cerberus is also now partnering with Korea’s HD Hyundai to target port projects).

Anyway, keep an eye on which US strategy emerges ahead, assuming there is a strategy beyond spicy statements, which hardly seem a sustainable, longer-term answer to China.

Sound even smarter:

• Both Beijing and DC will be tracking Brazil’s presidential elections this October, pitting the left’s more multipolar incumbent (Lula) against a more pro-business and pro-US Flavio Bolsonaro (son of the jailed ex-president).

Meanwhile, elsewhere…

Extra Intrigue

The Intrigue jobs board 💼

• Entrepreneur in Residence @ OCCRP in Amsterdam, Sarajevo, or remote

• Global Operations Manager, Latin America @ SpaceX in Texas

• Research Manager, Int’l Trade & Finance @ Library of Congress in DC

• Partnerships and South-South Cooperation Specialist @ UN in Shanghai

Site of the day

Next time you’re passing through Uzbekistan like the big party animal you are, you might notice this vast new structure above, towering over Tashkent’s old city.

Personally overseen by President Mirziyoyev for almost a decade, the ~$150M Islamic Civilization Center had its grand inauguration yesterday (Tuesday).

Roughly seven times bigger than the White House, Mirziyoyev announced the project shortly after his strongman predecessor (Karimov) died in 2016. Beyond the faith specifics inside (rare manuscripts, repatriated relics, historical artefacts), the centre also serves political and geopolitical purposes, including to…

• a) signal post-Karimov continuity and stability

• b) anchor his rule and legitimacy in tradition, and

• c) position his country as a custodian of shared legacy across the region.

Today’s poll

Yesterday’s poll: Which Hormuz strategy do you think the US will prioritise next?

✈️ Maintain the status quo in hopes the regime collapses (23%)
💥 Escalate in hopes the regime collapses (57%)
🤝 De-escalate via a negotiated offramp (18%)
✍️ Other (write in!) (2%)

Your two cents:

• 🤝 R.N: “Since Trump is not getting the support he thought he would get from allies, and midterms are approaching, he needs to have an exit strategy.”

• ✍️ R.O: “Will and should are two different things. They should look for an offramp.”