“Common sense is the best distributed thing in the world,” wrote Descartes — and added, ironically, that not even the most demanding people want to have more than they already have.
Global financial markets seemed to agree with the philosopher during the very tense weeks that preceded the agreement between and ,: stock markets remained close to record levels, as if a reasonable outcome were inevitable. But confusing a favorable outcome with the absence of risk is a frequent mistake — and this time we came dangerously close to learning that the hard way.
The agreement reached extends the ceasefire for 60 days and reopens the , through which, before the war, 14% of world consumption of . In the description of the agreement, two vulnerabilities are identified: it is an MoU —memorandum of understanding—, not a formal agreement; and does not include , who is required, however, to suspend attacks in southern Lebanon. Trump himself, when tweeting about the issue, was explicit: “No, it’s not definitive, it’s just an MoU,” he wrote, adding that the attacks could be resumed.
Even so, the announcement represented a great relief. The prospect, if the conflict continued for a few more weeks, was frightening: and they continued to fall at a rate of 6 million barrels per day. Once a critical level was reached, prices would rise to the point of causing a global recession. It was not without reason that the same Trump welcomed the agreement with the phrase “Let the oil flow!”.
Not that the risks were invisible to everyone. Shortly before the agreement, the term “panic” appeared twice in the international press: the New York Times quoted the head of commodities at a large American bank — “a silent panic has been setting in” — as admitting “I am in a bit of panic”. The market, however, remained impassive, anchored in the belief that common sense always prevails.
The risks, however, do not arise from the lack of reasons to seek an agreement, but from the inability of the contenders to recognize them. There were reasons. Iran, with its economy badly shaken, needed to reestablish the flow of foreign exchange from its oil exports. The USA, after declaring a hundred days ago that there would be no agreement with Tehran other than “unconditional surrender”, it was now appropriate to admit the existence of the impasse and seek a way out that, if it cannot be called “honorable”, can at least be seen as realistic.
During the weeks leading up to the agreement, the international press daily brought news about the progress of the negotiations. One day, they were moving towards an agreement that seemed imminent; the next day, one side — usually Iran — denied that the discussions were concluded; in the other, neighboring nations were consulted; in the other still, specific attacks from side to side pushed back understandings. Sometimes I felt like I was reading last week’s newspaper and I agreed when someone compared the situation to the movie “”, in which the same situation is repeated over and over again.
It was precisely this situation of repeated headlines and agreements that seemed imminent and never arrived, in addition to the apparent widespread confidence in a favorable outcome, that reminded me of an episode in which I also bet on common sense, and was wrong:
As in the present case, negotiations seemed to drag on. Reacting to the Argentine invasion of the Falkland Islands, a large British naval task force set out to sea on April 5, with 8,000 miles to go. Every day the newspapers reported the advance of the fleet — which, at least to my eyes, did not seem to be in an exaggerated hurry — alongside the exhaustive diplomatic negotiations, with their advances and retreats.
At the time, I was an intern at a hedge fund in Paris and I realized, in conversations with colleagues and investors, that there was little doubt that common sense would prevail: Argentina, faced with the clear military superiority of its opponent, would withdraw from the islands before the fleet arrived. In the 27 days between the departure of the fleet from Portsmouth and the start of the armed conflict, the market bet on this consistently.
But common sense didn’t show up. On May 2, the British sank the Argentine cruiser General Belgrano, starting the conflict that lasted until June 14, when Argentina surrendered. 649 Argentine soldiers, 255 British soldiers and 3 civilian islanders died. The Argentine president fell three days after the surrender.
In the present case, at least for now, the risk of a prolonged closure of Hormuz appears to be eliminated. ; not only because of the fragility of the MoU but because of the time required for the delicate removal of mines in the waters of the strait. Even so, the existence of the agreement eliminates the immediate risk of a price explosion capable of causing a global recession.
This does not lead me to think that the risk concerns were unfounded. On the contrary. And it suggests a final reflection: common sense contemplates, ponders and often postpones. Panic, with all its irrationality, has a virtue that common sense usually dispenses with: it forces us to act.
A survey by the agency Public First with 2,000 executives in 18 countries revealed that 80% of them believe that . If the scare of recent weeks serves to accelerate the energy transition and reduce the world’s vulnerability to a single maritime strait, we may discover that the greatest legacy of this crisis was not the fragile memorandum that ended it, but the sense of urgency it provoked. Sometimes a certain panic does more for prudence than an excessive trust in the rule of common sense.
LINK PRESENT: Did you like this text? Subscribers can access seven free accesses from any link per day. Just click the blue F below.
