Stuck

Two obscure pieces of Arabian history explain why Trump has no good options in Iran. Less obviously, the strongest argument for renewables has less to do with climate change and more to do with history.

The first history lesson: Zaydism is a branch of Shia Islam distinct from the ‘Twelver’ Shiism dominant in Iran. For a thousand years, Zaydi imams ruled north Yemen. This imamate was overthrown in 1962 by a pan-Arabist movement backed by Egypt. After years of Civil War and marginalized by the secular government, a religious revival started in the 1990s led by Hussein Badreddin al-Houthi, a charismatic preacher. In 2004, the government of President Ali Abdullah Saleh moved to arrest Hussein, and he was killed by government forces. His brother Abdul Malik al-Houthi took over the movement, now bearing his family’s name, fighting six rounds of war with Saleh’s government and briefly with Saudi Arabia in 2009. When the 2011 Arab Spring arrived, Saleh was forced from power, and Yemen entered a chaotic transition with the Houthis filling the void pushing into Yemen’s capital Sana’a in late 2014. The Iranians supplied the Houthis with missiles, drones and technical know-how, while the Saudis and the UAE supported the anti-Houthi opposition who hold southern Yemen. This opposition has fractured into Saudi-backed factions manoeuvring against UAE-backed proxies. Crucially the Houthis control the land around Bab al-Mandab which is a chokepoint for the southern route of the Red Sea. The Houthis have launched attacks on ships at various periods, and as Saudi Arabia tries to expand its pipeline to the Red Sea, the Houthis have stepped up their attacks this past week making the southern route impassable. Years of air bombing campaigns by the U.S., Saudi and the UK seem to have only marginally degraded their capability. Its fighters hide in rugged mountains ideal for defence.

A second history lesson: in 1913, the Ottomans in Turkey were distracted by the First Balkan War. Ibn Saud mobilized a militia that fought against an Ottoman garrison and took the oases of Qatif and al-Ahsa. These are majority Shia areas. Ibn Saud wanted the lands for its fertile agricultural land (dates, rice, grain) plus maritime access to the Persian Gulf. The Shia religious leaders negotiated a surrender and recognition of Saudi political authority in exchange for religious freedom. What none of them knew at the time is that the lands also contained Saudi’s largest oil field, Ghawar. In fact, most of Saudi’s oil intersects where its Shia minority resides. Subsequent Saudi rulers after Ibn Saud did not subscribe to the religious freedom doctrine. In 1979, following the Iran Revolution, the Qatif uprising occurred and the Saudis have ruled the areas with an iron fist. In 2009, a Shia leader named Sheikh Nimr al-Nimr made the Dignity Speech saying the only option for the persecuted Shias was to secede from Saudi Arabia. In 2012, during the Arab Spring and the Eastern Province protests, and after a shootout, he was arrested and then executed four years later. From 2017-2020, there was unrest in Qatif with heavy clashes between the state and its citizens. Iran may also have received insider help from Shia dissidents who worked for ARAMCO in a cyberattack that crashed 30,000 workstations. Currently the Shia mainstream has distanced itself from secession, and Iran is not known to have active cells. Every flare-up has been met with disproportionate force relative to the scale of the unrest.

With the Israelis potentially pushing out of southern Lebanon as part of Trump’s negotiation with Iran, it’s worth noting that Hezbollah could potentially disrupt Mediterranean shipping routes.

The history lessons are useful in understanding how completely stuck Trump is in his Iranian War, and the long-term implications of how it plays out. If the U.S. leaves and says the job is done, Iran will control Hormuz and will use the Houthis and pipeline drone attacks to force Saudi Arabia, Kuwait and others to continue to use the Hormuz Strait giving Iran potential control over oil markets. Countries would have to play by Iranian rules. Oil cargos may have to be denominated in non-dollar currencies to evade America’s financial sanctions. Iran would become a strong power and potentially foment unrest in Saudi unless the Saudis played along. It would continue to fund proxy groups against Israel. If the U.S. continues the status quo, oil prices keep pushing higher, probably leading to terrible mid-terms results on account of inflation. There might be a stock market correction. If the U.S. sends in ground troops, the U.S. is sucked into a forever war, which will cost hundreds of billions, likely end Republican dominance of Congress and potentially destabilize bond markets. The stock market would get pummelled and oil markets might completely destabilize.

I think Trump is most likely to choose the first scenario. If Democrats win both houses in the mid-terms, they will likely invoke impeachment hearings and focus on a White House that has been highly criticized for unethical business practices to say the least. The final two years of Trump’s presidency will be mired in corruption probes. In order to mitigate the probability of this scenario, he needs to exit and bring inflation down.

This brings me to renewables. Looking at my yellow lawn and spiralling heat waves year after year, it’s certainly getting hotter. But buying an air conditioner is easier than changing your lifestyle, and most of humanity can only think one quarter ahead. In America, a shift in administration torpedoed renewables investment. But the most effective argument for renewables is to start educating people about Middle East history and the fundamental instability in the region. Why couple energy infrastructure to oil and gas, when an Iranian super regional power can cut off 20% of the world’s oil? China seems to understand this history and has taken great pains to secure energy self-reliance using a combination of hydro, solar/wind, battery storage and nuclear. The world was shocked when during the brief respite of the MOU, China, which reliably buys dips, sat this one out even as oil prices fell to the low 70s. If you don’t need the oil, then the chokepoint doesn’t matter.

Knowledge to the Rescue. OpenAI was testing a model in a sandbox. Its model found a zero-day exploit at one of its vendors (meaning that there is no time or warning sign to prevent the attack) and accessed the Internet. To try and beat the benchmarks, it figured that if it could hack into Hugging Face and steal the test solutions, it could accomplish the mission and get the Sam Altman “I Love You” reward. Exploiting vulnerabilities in Hugging Face’s data pipeline, the model managed to get into systems, and eventually Hugging Face noticed. Hugging Face’s initial defence tactic was to use frontier models via APIs to fight the attack, but those requests were blocked by safety guardrails. In desperation Hugging Face used Zhipu’s GLM-5.2 model (owned by Knowledge Atlas Technology and listed in Hong Kong), which found the vulnerabilities, allowing Hugging Face’s team to patch, rebuild nodes and rotate credentials.

The series of events calls into question Anthropic’s arguments against open-source models. Open-source models and their modifications can be downloaded from the Internet. Jail-break versions of LLM models are sold on the dark web. Guardrails and regulatory oversight are like trying to catch water with a sieve.

Instead, enterprises will have to be like Hugging Face, establishing cyberattack defences, and then using self-hosted models without guardrails to fight off the attack. Ironically, this could reduce eventual cyberattacks because enterprises in the long term will be able to identify their vulnerabilities, fix them and move on. For instance, ransomware attacks have sharply increased, but the ransomware payments peaked in 2023 and are now below levels seen in 2020 mostly attributed to better back-ups and resilience, law enforcement takedowns and a growing refusal to pay. Let’s just hope the upcoming learning curve won’t be too painful for us.

The Limits of Buying Your Antitrust Approval. Paramount is trying to buy Warner Brothers Discovery and create a streaming giant and dominant content franchise. The DOJ cleared the merger on antitrust grounds, but a combination of Trump tweets, backroom meetings and a WSJ article suggesting senior DOJ officials steamrolled its staff’s views to clear the deal, has led several U.S. states to bring their own antitrust suit. A judge issued a temporary restraining order (TRO) and arguments were set on whether to convert the TRO into a preliminary injunction, and on scheduling a trial on the merits. But things did not seem to be going in Paramount’s direction, so they agreed to go to a full permanent injunction trial. The states and Paramount will now go through a trial that will extend into early to mid-2027.

Various mergers have been blessed by the FTC and DOJ, including the HP/Juniper deal where a backroom deal over whiskey led to a mysterious weak settlement and the DOJ dropping its case. The most visible ones, like Warner, are now being challenged by individual (all blue) states.

In the TRO judgement, the judge found merit in the claim that a 27% market share in wide theatrical releases could violate antitrust laws. Paramount will now have to mount an analytical defence that it won’t, something that most analysts and our internal research think is possible. But like a Texas Hold’em game, legal discovery may unveil more cards that impact Paramount’s probability of winning. More details will emerge on backroom dealings. We will also learn a lot about tentpole films and how Chris Nolan negotiates with media companies for distribution of films like The Odyssey. Prepare to be entertained.

End Note

I saw this troubling stat: last year 38% of Americans read a book but 57% placed a bet. I guess books don’t buy houses.

Omar Sayed