ANALYSIS: Implications of the US’ attack on Iran military leaders

The overnight US strike on targets in Baghdad resulted in the deaths of key Iranian military official Qasem Soleimani and has been met by vows from Tehran to retaliate. The initial reaction has been risk-off, with traders fearing an escalation of tensions in the Middle East.

Qassem Soleimani, commander of the Islamic Revolutionary Guard Corps' Quds Force; the head of the Iraqi Kataib Hezbollah militia, Abu Mahdi al-Muhandis; the deputy head of Hezbollah in Lebanon, Naim Qassemwere (although Qassemwere's death is yet to be confirmed)

The Pentagon said that one of the reasons for the attack was in retaliation for the attempt by Hezbollah supporters to overrun the US Embassy in Baghdad on 31st December 2019. Additionally, Defence Secretary Esper stated that the US was willing to pre-emptively strike Iranian-backed militias in Iraq to protect US interests, suggesting that further attacks and retaliations may be seen in the weeks ahead. This sentiment can also be via comments from US Senator Graham who warned that "If Iranian aggression continues and I worked at an Iranian oil refinery, I would think about a new career.” Furthermore, US Defence Department sources note that patriot batteries are active in Bahrain for alert posture, according to Newsweek's LaPorta. Traders are now focussed on the implications for global markets. On the prospect of direct US-Iran conflict, Cap Eco suggest "the resulting collapse in Iran’s economy could knock as much as 0.3%-pts off global GDP – equal to our estimate of the damage from the US-China trade war". Additionally, analysts at Citi have also suggested this could make things "tougher for Democratic Party electoral candidates to argue against a stronger defense budget in 2020, which would remove a defense sentiment overhang".

Geopolitical consultancy Stratfor says the US retaliation marked a significant escalation, as Iran could well target high-ranking U.S. military personnel in the Middle Eastin response, adding that ultimately, Iran will seek to retaliate against the US, the only question is at what level, what scale and when. Note, reports have since suggested that the US has called upon all citizens to leave Iraq immediately.

SAUDI ARABIA: Stratfor notes that it has been nearly four months since Iran attacked Abqaiq and Khurais oil-processing facilities, which took around half of Saudi Arabia's oil production down. "If the United States and Iran continue their escalation with direct strikes on one another, Iran could certainly retaliate against countries like Saudi Arabia, one of the closest US allies in the region, and their economic interests," Stratfor writes, "each of the Gulf Cooperation Council states —particularly Bahrain and Qatar — hosts a significant US military presence that Iran could target."

PERSIAN GULF: Iran may also opt to launch attacks against the US naval presence in the Persian Gulf. "For most of US President Trump's term in office, Iran has hesitated to use its naval assets to harass US ships in the Persian Gulf, Strait of Hormuz and Gulf of Oman despite its aggressive strategy to counter US sanctions pressure." Stratfor thinks that could change: "As it is, the USS Abraham Lincoln carrier strike group reported last month that Iranian naval ships had harassed it as it was leaving its deployment in the Gulf of Oman and Arabian Sea."

IRAQ: The US attack took place on Iraqi soil may drive tensions between Washington and Baghdad which may result in a re-evaluation of the twos security cooperation, which could complicate the two sides ability to work together to combat the Islamic State.

ISRAEL: Israel has reportedly previously attempted to assassinate Soleimani. Stratfor says potential Hezbollah retaliation against US interests in Lebanon could also turn into attacks on Israel, given the widespread perception in Lebanon —and throughout the region — that US and Israeli interests against Iran and its allies are one and the same. "In the worst-case scenario, that could touch off a separate fight between Israel and Iran." Indeed, Stratfor points out that Hezbollah commands large influence in parts Lebanon, including parts of Beirut, and has the capability to launch attacks against US targets in the country. “That risk will be even more pronounced if the death of Qassem, Hezbollah's second in command, is confirmed.” Note, source reports have suggested that Netanyahu has cut short his trip to Greece following the assassination.

03 Jan 2020 - 08:56- EnergyGeopolitical- Source: Newsquawk