The major story on Friday, in case you missed it, was the U.S. airstrike in Iraq that killed Iran’s top military commander Major-General Qasem Soleimani. The move was directed by U.S. President Donald Trump, the Pentagon said Thursday.
Traders saw the markets’ response to the event. Now the focus shifts to the strong possibility of retaliation from Iran. The action by the United States is a potential turning point in the Middle East and is expected to draw severe retaliation from Iran and the forces it backs in the Middle East against Israel and American interests.
Here’s What Iranian officials Are Saying
Iranian Foreign Minister Mohammad Javad Zarif warned that the targeted killing of Soleimani was “extremely dangerous & a foolish escalation.”
“The U.S. bears responsibility for all consequences of its rogue adventurism,” Zarif said on Twitter.
“A crushing revenge will be taken for Soleimani’s unjust assassination … We will take revenge from all those involved and responsible for his assassination,” Iranian Defence Minister Amir Hatami was quoted by state news agency IRNA as saying.
Analysts Warn of Backlash from Tehran
“Iranian leaders are proud and quite risk acceptant,” said Eurasia Group. “We expect moderate to low level clashes to last for at least a month and likely be confined to Iraq. Iranian-backed militias will attack US bases and some US soldiers will be killed; the US will retaliate with strikes inside of Iraq,” said Henry Rome and Cliff Kupchan, analysts from political consultancy, in a report.
They predict that Tehran’s response “will stop short of what we would consider war,” and added that “the chance of war is 40%.”
How Long Will Investors React to Event?
CNBC analysts, citing historical analysis, concluded oil prices tend to see gains following Middle East crisis events, while stocks eventually churn higher as safe haven assets gold and Treasurys fade from their initial pops.
CNBC used hedge fund analysis tool Kensho to conclude that over a three-month horizon, stocks and oil rallied further while safe haven assets gave up their gains. Treasurys and the dollar post negative returns over this time frame, on average, while gold prices are flat.
Basically, if financial markets follow historical precedent, many of the moves we saw on Friday will reverse in the coming months.
China Urges Calm and Restraint but Trade Deal is Still On
Beijing has too much to lose in economic terms to justify anything more than stern criticism of U.S. action toward Iran, economists and analysts. Therefore, the U.S. killing of Tehran’s top military commander on Iraqi soil shouldn’t derail trade talks between Washington and Beijing.
“The sovereignty and territorial integrity of Iraq should be respected, and peace and stability in the Middle East Gulf region should be maintained,” China’s Foreign Ministry spokesperson Geng Shuang said Friday. “We urge all parties concerned, especially the United States, to maintain calm and restraint and to avoid the further escalation of tension.”
This article was originally posted on FX Empire
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