We can’t avoid the Middle East fallout

While Australia is not directly involved, Donald Trump’s bombing war on Iran’s theocratic despots shows we still live in a globalised world, albeit an increasingly disrupted and dangerous one.  The Israeli-American elimination of Iran’s supreme leader Ayatollah Ali Khamenei is a stunning Middle East payback for the Tehran-backed Hamas terrorist attack on Israel on October 7, 2023.

The Iraq war launched by Republican neo-cons following the 9/11 terror attacks on New York and Washington a quarter of a century ago didn’t turn out as planned. Ironically, Trump’s populist political rise was fuelled by the MAGA-led nationalist backlash against such ‘forever’ wars, also opposed by everyone from the progressive left to such classical liberals as Milton Friedman.

But the rules-based global order already has been pillaged by Iran’s sponsorship of global terrorism, Vladimir Putin’s brutal invasion of Ukraine and China’s militarisation of the South China Sea.
Trump has piled on with his bunker-busting bombing of Iran’s nuclear facilities, his snatch-and-grab capture of the oil-rich Venezuelan autocrat Nicolas Maduro and his trade war on everyone.

Unlike with Iraq, Australia is a bystander to Trump’s Iran war.  But we can’t avoid the fallout, as the thousands of Aussies trapped in Doha or Dubai have discovered. Russia’s invasion of Ukraine four years ago temporarily pushed the federal budget into surplus because we’re a net exporter of energy and higher global oil prices translated into higher company taxes on mining and gas companies.

Regrettably, the revenue surge also encouraged Labor’s big spending instincts, ratcheting up government outlays to a 40-year high, excluding the pandemic, as CIS scholars led by Robert Carling have documented.

And higher petrol prices helped push up domestic inflation to almost 8 per cent, prompting the Reserve Bank’s 13 successive cash rate hikes.  Four years later, the lack of budget repair and a new inflation pickup mean Australia’s economy is not as well placed as Jim Chalmers suggests to deal with the new global shock, including a new petrol price jump. This week’s 2.6 per cent real annual GDP growth number is the fastest in almost three years. But it’s still being driven by too much low-productivity public spending. Reserve Bank governor Michele Bullock warns that productivity is so weak that overall demand in the economy — including needed defence spending — can’t grow by much more than 2 per cent without running into inflationary supply constraints.

That’s why CIS research focuses on liberalising the economy’s supply side, including by winding back the excess regulation and compliance burden. And it’s just one of the reasons why Australia needs to wake up to the consequences of this increasingly disrupted global order.

Trump and Benjamin Netanyahu may reasonably hope to obliterate most of Iran’s offensive capability and leave a regime less threatening to western and Israeli interests. But Trump’s unilateralism is testing the western alliance, including with our AUKUS partner Britain. Anthony Albanese won’t want to get caught up in Trump’s “not Winston Churchill” sneer against Keir Starmer.

Canada’s Mark Carney told parliament on Thursday that middle powers need to join forces as the great powers become less restrained by accepted rules. True, but there’s also no real Australian alternative to the American alliance, especially amid China’s neighbourhood aggression.

And it all comes with social disruption at home, as the CIS antisemitism project is studying. In the wake of the radical Islamist shooting deaths of Jewish festival-goers at Bondi, Shiite mosques in Sydney and Melbourne are openly mourning the end of the Iranian leader whose regime last month butchered thousands of his own people.

Those mourning the tragedy of Palestinian deaths in Gaza and calling for intifada against the Jews don’t seem to be joining the Iranian diaspora’s celebrations over the demise of the hated ayatollah.