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Escalation of Tensions – Iran and the US (Oil Prices Surge 5.4%)

Escalation of Tensions - Iran and the US (Oil Prices)

The ongoing tensions between the US and Iran continues to reach new highs as the Republican Guard gets closer to US forces and the US applies pressure to the regime in Tehran. But a New York Times article reported that the US had approved air strikes against Iranian forces – but at the last moment, pulled back. President Trump seemed to have second thoughts about the confrontation. According to CNBC, which was used as a source or this piece, officials still expected the operation to move forward. The price of US crude oil, WTI or West Texas Intermediate crude, jumped 5.4% on the back of the Trump comment saying that Iran made  a big mistake.

Military planes and ships were getting ready to attack Iranian targets – such as radar and missile batteries – before the final decision to pull back was announced by Trump. On the say day, President Trump said that Iran had made  “big mistake” when it shot down a drone, but he qualified it by saying that someone under the command made a mistake, letting the senior members of the military off the hook.  Note that Oil prices rallied in the past 72 hours after these episodes shocked markets, concerns of supply disruptions are ever present.

Our Views: We must not lose sight of the fact that Iran is building nuclear program that will, in the end force other members of the Gulf region to arm themselves. This could be the start of a nuclear arms race in the Middle East, with multiple countries that will demand their own weapons of mass destruction. Iran has waged war with Iraq in the past and has had several close calls with Saudi Arabia. The Saudis are mainly Sunni Muslim while Iran has the largest population of Shia Muslims. These two groups have been at odds for centuries and more recently, the tension has risen. The fear for many in the region is that Iran will be able to make the terms of relationships once it has a workable nuclear weapon. More on this topic in the coming weeks.

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