The Most Dangerous Scenario – and Why It Explains This War

The Eight Rationales – designed to obfuscate

On 28 February 2026, the United States and Israel launched Operation Epic Fury, killing Supreme Leader Ali Khamenei and triggering the most significant military engagement in the Middle East since the 2003 invasion of Iraq. Within days, the Trump administration had offered not one explanation for the war but eight – a proliferation of justifications that, far from clarifying the mission, seemed designed to obscure it.

Those eight rationales, as catalogued by commentators and confirmed by officials in overlapping and sometimes contradictory statements, were:

1. To ward off an imminent Iranian threat – a claim rejected by Iran, by the Pentagon, and by US intelligence assessments that found no evidence of an impending Iranian attack.
2. To enforce a publicly drawn red line – Trump had warned the regime against shooting protesters. Once crossed, the logic of his public identity required a response regardless of strategic calculation.
3. To pre-empt Iranian retaliation against US forces following an expected Israeli strike – Secretary of State Rubio’s candid admission: “We knew that there was going to be an Israeli action. We knew that that would precipitate an attack against American forces.”
4. To destroy Iran’s missile and military capabilities – a degradation objective with operational logic, even if it falls well short of a strategic rationale for war.
5. To prevent Iran from obtaining a nuclear weapon – Trump’s stated casus belli in the State of the Union Address, though the IAEA reported no evidence of a structured nuclear weapons programme at the time strikes commenced.
6. To secure Iran’s natural resources – an objective floated by administration officials and widely noted, though rarely elaborated upon.
7. To achieve regime change and bring the Iranian opposition to power – a goal with broad Israeli support and a long tail of strategic complications.
8. Force protection by pre-emption – the US joining the strikes not from independent strategic conviction but to control escalation dynamics before an ally’s action forced a reactive entry.

Australia's Fuel Reserves

Australia's fuel vulnerability didn't begin when the first US strikes hit Iran. It began around 2012, when Australia quietly fell below the 90-day oil reserve requirement it had been treaty-bound to meet since joining the IEA in 1979 – and stayed there.

By the time the current crisis started, Australia's reserves sat at around 36 days of petrol, 32-34 days of diesel, and 29-32 days of jet fuel – figures the government has cited as the highest in 15 years. That context matters, but so does what those numbers actually mean. Multiple non-comparable metrics, different inclusions for ships on-route and/or in Australia's exclusive economic zone, and the question of what is continuing to arrive and what has been released since make it surprisingly difficult to pin down the true usable buffer at any given moment. The fact that we can't get a clean number after a crisis has already started is itself part of the story.

Once fuel already in transit is stripped out, the usable buffer may be materially closer to four weeks. The critical reserve appears to be jet fuel. China – which supplied roughly 32 per cent of Australia's jet fuel imports in 2025 – has instructed refiners to halt new fuel export contracts, a move expected to cut Australian supply from April.

Australia's savings problem and the current account deficit

Introduction

Take a look at the chart above. At first glance it’s just two wiggly lines. But those two lines tell a story about the Australian economy that stretches back more than half a century – and it’s a story that affects everything from your mortgage rate to your superannuation.

The Australian Economy: Q4 2025

Introduction

I run several Bayesian macroeconomic models of the Australian economy. They fit the data to the model structure and estimate how much each variable is contributing to the key unobservables – the natural rate of unemployment and the potential growth rate. What follows is what those models are currently telling me.

But first, let's quickly recap on the RBA's policy rate, the current state of Australian inflation, and the current unemployment rate.

Q4 2025 National Accounts Update

An update to my December 2025 Economic Outlook

Introduction

Every national accounts release contains both good and bad news, and Q4 2025 is no exception.

GDP per capita is improving. Labour productivity is moving in the right direction. Real wages have reached a new high. These are genuine improvements, not statistical noise, and they deserve acknowledgement.

But the balance of this release tilts toward concern rather than celebration. Domestic inflation remains stubbornly above target. Unit labour costs are still too high. Government spending continues to crowd out private activity. And the RBA is now reversing rate cuts it should not have made.

This is not a crisis. It is not the end of the world. But the list of issues requiring attention is longer than the list of developments deserving applause.

The Headline: GDP Growing above Inflationary Speed Limit

GDP growth has lifted from the anaemic sub-1.5% rates seen through much of 2024. But 2.56% annual growth is not a recovery – it is the economy running above its compressed speed limit of roughly 2%. Australia’s potential has fallen over the past decade as productivity stagnation has lowered the economy’s supply capacity.

The December outlook argued that near-2% growth reflects supply constraints rather than demand deficiency. The Q4 data confirms this: growth has accelerated and domestic inflation remains elevated. That combination only occurs when an economy is at/above capacity. There is no spare room here.

Follow the Science: Science, Uncertainty and Values in the Pandemic

This essay is a companion to Is Macroeconomics a Science? which examines the epistemological status of macroeconomics as a social science – its reliance on provisional models, its forecasting limitations, its embedding of value judgements within technical frameworks, and the tension between orthodoxy and productive dissent. The pandemic exposed remarkably similar dynamics in public health: provisional models communicated as certainty, values disguised as science, dissent suppressed rather than engaged, and institutional authority overextended beyond what the evidence could support. The parallels are not coincidental. They reflect a structural problem in the relationship between expertise and democratic governance that applies wherever technical knowledge is used to justify political choices.

How Interest Rate Targeting Works

The Main Channels

The RBA identifies four main transmission channels in its April 2025 Bulletin article on monetary policy transmission through the lens of its MARTIN and DINGO models (Mulqueeney, Ballantyne and Hambur 2025). Christopher Kent, as Assistant Governor (Financial Markets), added a fifth – the credit channel – in his October 2023 address to Bloomberg. These aren't exhaustive, but they're ones the RBA can quantify in its models. I'll come back to some others later.