As we predicted in our client note last week, Iran responded to the Soleimani killing with a measured symbolic attack on a US airbase in Iraq but apparently took great care not to cause casualties. We expect to hear from President Trump this morning on the path forward. Oil is up today on the attack last night but Trump is likely to take it as an opportunity to hit the pause button on continued military action.
However, in our view, geopolitical risk remains sky high. Just because Trump doesn't take further action now, it does not mean calm waters are ahead. We think Iran will continue with its "maximum chaos" strategy in the region to try to get Trump to the negotiating table. Up until now, Iran calculated that Trump would avoid military action at all costs but they will now need to recalibrate, and we will have to see how this plays out. Another part of Iran's playbook includes using proxy groups to launch attacks and claim deniability but that is unlikely to resonate with Trump, especially in an election year. Then there is Iraq and its considerable oil exports in the middle of the US-Iran tension and experiencing its own political crisis.
Also, as we said in our previous client, political considerations are also impacting the Iran decision making. We wrote that Trump's political advisors had been concerned about the President looking weak by not responding to Iran's repeated attacks, and in fact, the Washington Post over the weekend wrote about Trump himself being concerned especially in light of the embassy attack and the killer of the US contractor employee. We think this will continue to be a factor going forward.
Join us for a special conference call on the geopolitical risks and the impact on oil markets with General Dan Christman and senior energy policy analyst Joe McMonigle.
Wednesday, January 8 at 1:00 PM ET
Participating Dialing Instructions
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Confirmation Number: 13697929
