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Editor's Note: Below is a complimentary research note written earlier this week by National Security analyst General Dan Christman. To access our Macro Policy research email sales@hedgeye.com.

The #1 Geopolitical Risk Right Now Is Iran - z39

The deepening crisis with Iran - President Trump's first foreign policy crisis with military implications - has, over the last week, made one issue clear: the White House objective is no longer negotiations and an improved nuclear deal ("JCPOA"); it is to collapse the existing, mullah-led Tehran theocratic leadership.

What it is replaced with is anybody's guess; our track record in this area, especially in the Middle East, is not encouraging; see: Iraq, Libya.

But as respected regional analyst Robin Wright recently wrote in the New Yorker, when the U.S. sanctions a foreign leader, as Trump just did with Supreme Leader Khamenei, "it's a signal the leader is no longer deemed legitimate." Does anyone seriously believe, in light of the president's latest move, that negotiations with the U.S. will be sanctioned by the ayatollahs as long as Trump is in the White House?

Needless to say, this is a disturbing turn of events: diplomatic off-ramps are now effectively foreclosed, and both rhetoric and posturing continue to escalate - involving not just so-called "kinetic" operations (missiles, mines) but cyber attacks as well. Our DHS, FBI, and a raft of U.S. cyber experts have all warned American businesses: expect Iranian cyber intrusion (spear phishing expeditions at the very least), especially against companies operating in our critical infrastructure.

While Iran developments may have helped clarify White House objectives over the last 10 days, public debate and pundit posturing remain surprisingly intense over what U.S. Iranian policy suggests about the broader Trump operating style: is he an Isolationist, or a Unilateralist?

Whatever criticisms may be leveled against Trump, he is clearly NOT an isolationist; he believes in trade, U.S. engagement with partners he views as strategic (Israel, Saudi Arabia, Japan, India, for example), and confronting rising or revanchist powers. But he wants to interact internationally on his terms! As many analysts describe his policy execution, it is succinctly "to operate alone when we can, with allies only when we must" - the reverse of every president's international behavior since WWII. The president is in short a Unilateralist.

But "America First" Unilateralism has its serious shortcomings when crises arrive that require support from friends and allies - as the Iranian nightmare now vividly illustrates.

Trump eschewed key allies' urgings about not leaving the JCPOA well over a year ago; and he has been dismissive of NATO allies throughout his presidency, an alliance to which new Acting Secretary of Defense Mark Esper turned last week for help. Is it any surprise that those same countries are not "leaning forward" and offering to help the president on the very crisis they warned him to avoid?

BOTTOM LINE

No Washington-Tehran love letters will be exchanged, no summits will be scheduled, and there will be no stand-down of military testing or posturing. In the end, Trump himself may lose interest, as he has with Venezuela; his team, however, especially John Bolton and Mike Pompeo, will not.

And likely, neither will Iran. All this means is that, at least for the near term, Iran has replaced China as the #1 geopolitical risk for markets and firms' bottom lines. Both downside risk, and risk acceptance, especially by Iranian leaders who feel they are fighting for their survival, continue to escalate.

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ABOUT LIEUTENANT GENERAL DAN CHRISTMAN

LTG Dan Christman, USA, Ret. serves as Hedgeye Potomac Research’s Senior National Security Analyst, providing deep insight into international affairs and national security. Most recently, Dan provided strategic leadership on international issues affecting the business community for organizations such as the US Chamber of Commerce. Dan’s long history of leadership includes his service as a United States Army lieutenant general and former Superintendent of the United States Military Academy. He served in highly visible and strategically important positions and four times was awarded the Defense Distinguished Service Medal, the nation's highest peacetime service award.

He also served for two years as assistant to the chairman of the Joint Chiefs of Staff, during which time he traveled with and advised Secretary of State Warren Christopher. He was centrally involved during this period with negotiations between Israel and Syria as a member of the Secretary's Middle East Peace Team. Further, Christman represented the United States as a member of NATO's Military Committee in Brussels, Belgium.

Graduating first in his class from West Point, Christman also received MPA and MSE degrees in public affairs and civil engineering from Princeton University and graduated with honors from The George Washington University Law School. He is a decorated combat veteran of Southeast Asia, where he commanded a company in the 101st Airborne Division in 1969.