by Greg Valliere, AGF Management Ltd.
OVERVIEW: After talking this weekend to geopolitical experts, we offer the following ten conclusions as developments move at warp speed:
1. Instability will persist: The market sell-off was surprisingly modest on Friday, apparently based on a view that this crisis may cool off. That’s naive, all of our sources agree; this is a deadly serious crisis and retaliation is imminent.
2. What type of retribution? Most experts believe cyberwarfare is an Iranian strong suit. The Strait of Hormuz and oil facilities are likely targets. Saudi Arabia and other Gulf states are vulnerable.
3. An anti-war movement revs up in U.S. This was one of the big stories of the weekend. Looking for an issue — impeachment hasn’t gained traction — the Democrats’ activists will claim that the Suleimani killing was illegal and could lead to all-out war. The clear beneficiary: Bernie Sanders, flush with cash and doing surprisingly well in Iowa and New Hampshire.
4. Shaky Iranian government shored up: After slaughtering hundreds of unarmed protesters in the past few months, the Iranian regime seemed shaky. But that’s over now; the country’s dissidents have been driven into hiding as the ayatollahs reassert their iron grip.
5. Iraq — Be Careful What You Wish for: We don’t think the legislature’s show vote this weekend to oust all foreign troops was a true reflection of the country’s voters. If the U.S. actually leaves, would Iraq want an occupying army of Iranians to take over? Cooler heads will prevail on this.
6. Best piece we’ve seen: We strongly recommend Tom Friedman’s column in yesterday’s New York Times. He said what few have dared to utter: Gen. Suleimani was inept, Iran’s “most overrated warrior,” who miscalculated consistently, Friedman asserted in a brilliant piece.
7. No help from Western Europe: The silence has been deafening from U.S. allies (other than Israel). Trump is reviled in Western Europe, which is bracing for new U.S. tariffs. Boris Johnson and others were blindsided by the Suleimani killing, and there’s little sentiment to embrace Trump’s action.
8. Impeachment — Obscured but still on track: A brief trial and acquittal is still the likely scenario, but many Democrats will whisper that the Suleimani killing was designed to divert attention from impeachment (“Wag the Dog”). The House will vote to disapprove the attack; the Senate will not.
9. Was there sufficient evidence to kill Souliman? This will become the pivotal issue in the U.S. Respected moderate Sen. Mark Warner (D-Va.) seems to believe there was, but this will will have echoes of the Iraq war, where no weapons of mass destruction were ever found.
10. The market and economic implications: The markets will stay choppy, oil prices will stay high, and consumer spending could slow a bit. Uncertainty will persist; no one knows how this will unfold — not even the Federal Reserve,
which would prefer to keep rates steady this year but suddenly has a wild card to deal with that could tilt policy from neutral to back accommodative.
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This post was first published at the AGF Perspectives Blog.
