A Game Changer That Will Obscure Everything Else

Written by: Greg Valliere | Chief U.S. Policy Strategist, AGF Investments

A VIOLENT ESCALATION OF HOSTILITIES between the U.S. and Iran is nearly certain in the coming days, a game changer that will obscure everything else — impeachment, the Iowa caucuses, the stock market rally, etc. Despite Donald Trump’s aversion to Mideast entanglements, he’s about to become a war-time president.

IRANIAN GENERAL QASEM SOLEIMANI was the most feared terrorist in the world, preparing to escalate attacks on Americans in Iraq. His forces are resented throughout the region, where there’s great anxiety over Tehran’s drive for hegemony. And now U.S. citizens are hastily leaving Iraq, where the shaky government has no power to curb Iranian-backed militias.

THIS IS EXACTLY WHAT IRAN WANTED: The imagery of a U.S. retreat in Iraq, while drawing Trump into a military quagmire that will force the U.S. protect Saudi Arabia, Israel, Lebanon, etc. Trump may not have a clear vision of an end-game — no one does — but he made an enormous decision last night: the U.S. is prepared to escalate the war in the region.HUGE IMPLICATIONS: Global oil markets will be volatile for weeks to come. There’s a reason, finally, for caution in the stock market. Even more U.S. defense spending is certain. And the Democrats, desperate for an issue, are prepared to attack Trump’s inconsistencies in Mideast policy.

AS ON VIRTUALLY ALL ISSUES, Trump has near-unanimous support among Republicans for the Soleimani assassination, and — as usual — the Democrats chose to whine. Rather than celebrating the death of a notorious terrorist, most Democrats asked why Congress wasn’t consulted first.

WHAT ARE THE MIDEAST OBJECTIVES? The ayatollahs and Revolutionary Guards concluded that they could not get sanctions lifted, so they will seek to expand throughout the region, forcing Washington to defend U.S. allies. That’s been clear for months. For Trump’s inner circle, the goal has always been to eradicate the Iranian fanatics; that’s been clear since Trump’s inauguration three years ago.

EVENTUALLY THERE WILL BE AN UNEASY TRUCE, brokered by a third party such as France. But that’s a long, long way off; this will get worse before it gets better, as these two bitter enemies engage in more air strikes, more terrorism, cyberwarfare and attacks by Iranian proxies (who undoubtedly will target the Saudis again).

THE U.S. OBVIOUSLY HAS THE FIREPOWER to prevail in a conventional war, but the ayatollahs won’t sue for peace in any traditional way. U.S. adversaries — including North Korea — will be watching closely: is Trump an isolationist, as he proclaimed during much of 2019, or does he have the stomach for casualties? Trump’s temperament, as always, will be an issue.

Related: Financial Markets Are Now Awaiting Iran’s Response