📈 first Derivative [124]
"If the Islamic regime does fall at some point, then we shouldn’t expect a liberal pro-western government to emerge"
📺 Just finished and highly recommend the second season of Andor to everyone. You do need to have seen the first season but you don’t need to be a Star Wars fan at all to appreciate the realistic and dramatic quality of the show from Tony Gilroy of Michael Clayton fame.
🇮🇷 In January, I was at a dinner party where we all had to offer up a prediction for the year. A friend texted me last week to remind me of mine, which was regime change in Iran. I was more hedged about it in fD, but I did highlight that in February as what I was keeping an eye on:
One prediction I’m considering is regime change in Iran. Polymarket has Khamenei out by end of 2025 at 41%. That feels high to me, although I know that’s also factoring in the fact he’s just 85.
Khamenei out by end of 2025 is now at 62% on Polymarket. More on everything below.
Highlights in this issue: Israel vs. Iran, rising political violence in the US, AI vs. IP
Good reading,
—TK
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🍸 Woke up hungover last weekend? I wrote about why that actually happens. Next time, take Last Call to help you metabolize alcohol and feel better the next day. fD readers get 20% off their first order with promo code “FD20”
🇮🇷 The big news in the headlines is the escalation of the Israeli-Iranian conflict from a largely proxy-driven tit-for-tat into a full-on hot war. The facts on the ground are changing day-to-day and it’s difficult right now to know what’s real and what’s fake, not to mention informed & objective vs. motivated reasoning & propagandistic talking points being put into the media from all sides.
Moreover, I have to imagine a lot of the actions being taken now are based on classified intelligence that’s simply unavailable to the public, which makes it even harder to judge them. Public rhetoric is also going to differ from private overtures. I don’t really have an angle here, just want to organize the ideas in the air. But even so, take everything with a huge grain of salt.
What’s happened so far
Israel launched an attack on Iranian nuclear facilities, military bases, infrastructure, key military commanders (head of the IRGC, chief of staff of the military, head of IRGC intelligence) and senior nuclear scientists
Israel sabotaged Iran’s air defense and missile launching infrastructure. A secret drone base was involved in that effort, similar to the recent drone attack launched by Ukraine against Russia a few weeks ago which involved smuggling the drones deep into enemy territory prior to the attack.
Iran has launched multiple waves of drones and ballistic missiles at Israel in retaliation. There’s some incredible footage of the missiles en route and being intercepted or striking Israel.
I think Trump wanted to avoid war and Iran is already signaling its willingness to come back to the negotiation table. But bottom-line, I’m expecting things to escalate, maybe even tonight. Vice-president Vance is already laying some of the groundwork to justify any intervention to the non-interventionist camp of the Republicans.
Here are the key questions that frame what happens now:
Will the US get actively involved?
US is already helping shoot down Iranian missiles. It seems like Israel is now pushing the US to join in the fight to help strike the underground nuclear enrichment plant at Fordow with powerful enough bunker-buster bombs that only the US has. That might’ve been the plan all along, start the conflict and then present the marginal action to the US as a fait accompli. There’s already speculation that Trump has been convinced. There’s a lot of military assets moving towards the Middle East.
Will Iran close off the Strait of Hormuz?
The Strait is critical for the transportation of exported oil from the Middle East,
Large volumes of crude extracted by OPEC countries like Saudi Arabia, the United Arab Emirates, Kuwait and Iraq from oil fields across the Persian Gulf region and consumed globally flow through the strait. Qatar, one of the world's largest producers of liquefied natural gas (LNG), relies heavily on the strait to ship its LNG exports.
It’s especially important for Asian consumers:
The EIA estimates that 82% of crude and other fuel shipments that traversed the strait went to Asian consumers.
China, India, Japan and South Korea were the top destinations with these four countries together accounting for nearly 70% of all crude oil and condensate flows that traversed the strait.
Current thinking seems to be that if Iran does move to close off the Strait, the US will definitely become involved.
Will Iran decide to breakout and develop a nuclear weapon? Can Israel (+US) do anything to stop Iran?
Even if the US gets involved and destroys the Fordow nuclear site, it’s unclear if that’s a permanent solution to an Iranian nuclear threat. Recent US intelligence was that Iran was not actively pursuing a nuclear weapon and was three years away from actually being able to assemble and deliver one (not that US intelligence hasn’t been majorly wrong before).
Now, after days of Israeli airstrikes, US intelligence officials believe that so far, Israel may have set back Iran’s nuclear program by only a matter of months, according to one of those people, a US official. Even as Israel has done significant damage to Iran’s facility at Natanz, which houses centrifuges necessary to enrich uranium, a second, heavily fortified enrichment site at Fordow has remained effectively untouched.
Iran already has the material and knowledge to build a bomb. Even if the US bombs the Fordow site, given the likelihood of other underground sites, it’s unclear if this really puts an end to any long-term nuclear threat. Post-attack, the Iranian regime might decide they need to develop an actual weapon to deter any existential threat.
How far the nuclear programme has been set back won’t be clear for a while. Having struck once, the Israelis may have to go back regularly to “mow the grass” if the Iranians make a dash for nuclear weapons.
Given that risk, regime change seems to be the long-term security play.
How likely is regime change? Will it become the explicit objective of Israeli and potentially American action?
The Israelis are already floating regime change as an objective. The FT published one of the better pieces I read on where all this is heading. On the likelihood of internal regime change…
But when a country is attacked from outside, the population often rallies around the flag and opposition groups are unable to exploit a moment of regime weakness. The real threat to the regime is internal, on the streets of Iran’s cities…
If the Islamic regime does fall at some point, then we shouldn’t expect a liberal pro-western government to emerge. Without a well-armed opposition inside the country, elements of the armed forces are best placed to emerge on top in any fight for power.
…or fragmentation/civil war:
The alternative is fragmentation, as happened in Libya, Syria, Yemen and Somalia. In Iran, such a process would be on a much bigger scale as Kurds, Arabs, Baluch, even the well-integrated Azeris, fall back on ethnic nationalism in a country where Persians form barely a majority of the population. One lesson from recent decades is that the fall of repressive regimes doesn’t always lead to a better outcome, as there is no one to hold to account, and terrorist groups will thrive in ungoverned space.
There’s reporting that Trump vetoed a plan to assassinate Iran’s Supreme Leader Ali Khamenei.
A U.S. official told Axios that since the Israeli operation commenced, the Israelis had an opportunity to kill Khamenei. "We communicated to the Israelis that President Trump is opposed to that. The Iranians haven't killed an American and discussion of killing political leaders should not be on the table," the official said.
“Interesting market. Novo never filed a patent in Canada. Never know why,” Sandoz CEO Richard Saynor told Endpoints News earlier this month. “I’m sure someone’s lost their job, but never mind. It’s the second-largest semaglutide market in the world.”
Sandoz, a generics pharma company, has already filed to launch a generic GLP-1 drug in Canada next year. Expect to see a lot of cross-border arbitrage!
🇺🇸 Minnesota state representative Melissa Hortman was assassinated, and another state senator shot.
Authorities earlier said they had found a list in the suspect’s vehicle that named other public officials. It had dozens of names, including prominent individuals who support abortion rights in Minnesota, as well as many Democratic lawmakers and abortion providers, according to an official who has seen the document.
Another tragic example of what feels like increasing political violence in the US, which I touched on last week.
🏰 Disney and Universal are suing AI company, Midjourney, for stealing their intellectual property
The two entertainment companies filed a lawsuit Wednesday against artificial-intelligence provider Midjourney, claiming it illegally made copies of the studios’ copyrighted works… Disney, which owns Marvel and Lucasfilms, and Comcast’s Universal, the studio that owns DreamWorks Animation, said in their lawsuit that Midjourney ignored their earlier requests to cease violating their intellectual property rights.
The “Greg the Stormtrooper” videos generated by Veo are pretty good and I’m surprised they haven’t been taken down by Disney yet.
Most significant for the veterans’ movement was the participation of 93,000 German soldiers in the US-led war in Afghanistan over a span of almost 20 years… Grassroots pressure from those who served in Afghanistan — including many who came home bearing physical and mental scars — created a drive for a veterans day
🇮🇹 “Italy’s citizenship referendum fails after voters heed Giorgia Meloni call for boycott”
Had the referendum succeeded, 2.5mn foreign migrants already in Italy for five years or longer could have been eligible to apply for citizenship immediately, proponents said. Of those who voted, more than 65 per cent supported the change and under 35 per cent opposed it, with nearly all the vote counted.
You’ve made it all the way to the end! Thanks for reading fD. You can support my work by upgrading to premium or share the newsletter with a friend. —TK
Here’s a link to my News Journal where I'm collecting the headlines that catch my interest each day so that when we look back at that at the end of the year, we'll see when things happened, what kind of patterns emerged, without the problem of hindsight bias.