We all know that the Middle East is a Tinderbox – though I wonder just how many people today would recognise such a thing if it hit them on the forehead?
So once you come round, now you can identify with what you have just been bludgeoned!
How will last night’s reprisals work out? Well it is fair to say that Tehran had to be seen to be doing something, to show the domestic audience and local acolytes that the leaders aren’t cowed by the US gorilla (yep, I mean you-know-who). But their target selection was fairly low level, and the results not even a pin-prick.
Will Trump reply, or just laugh at them? A big man would stand and smile benignly at the small child who is having a paddy. But this is Trump we are talking about. Oh dear!!
Our feel is that he will wait to see if the Iranians try again. If they do something of real economic consequence, then one can expect a hard strike at Tehran. I hope the ayatollahs have a good bunker.
There is some risk to global oil supplies, and successful attacks on Saudi refineries or shipping would provoke a very sharp response from the US. It would be a short erasing of any Iranian production capacity. However, we do not feel that it would lead to a sustained rise in oil prices. Pipelines can be repaired, and US Shalegas drilling is is very elastic to price rises.
Meanwhile, the markets are calm, down by less than 0.5%. We think that is right. The worst thing for Trump right now would be to appear weak to his electorate, or to blink. Our feel is that Tehran is drinking in the last chance saloon, and just ordered another round…….. There is clearly a point at which Trump will be keen to demonstrate to the world that the US economy and US lives are sacrosanct. If the bullets (or missiles) start to fly, then the markets will fall by less than 20% – because everyone, us included, will see very limited global economic consequences, and any falls representing a buying opportunity.
Why did we say “NOT YET”? Where is the real risk here then? If the Russians or the Chinese see an angle for stepping in to control the Middle East, then suddenly it becomes a geo-political play, and then we really are worried!
Have a nice day now!