U.S. – Iran Tensions
Last Friday (June 21 AEST), U.S. President Donald Trump cancelled the strike on Iran at the last minute. It is reported that the President had given permission to Pentagon officials to prepare for the retaliation on Iran through military strikes. Iran’s Revolutionary Guard confirmed last Thursday that it shot down the RQ-4 Global Hawk, a U.S. unmanned (UAV) surveillance aircraft. Washington stated that the drone was attacked in international airspace over the Strait of Hormuz while Tehran announced the U.S. military plane entered Iranian airspace near the Kouhmobarak district in its southern Hormozgan province. In response to Iran’s action, Trump approved an order to bomb several Iranian radars and missile batteries. However, the President pulled back the order after the U.S. fighters were in the air and ships were in position.
The cancellation has intensified global doubts about Trump’s tactics and the power wielded by the United States. Nevertheless, Trump tweeted later on Friday that “we were cocked & loaded to retaliate last night on three different sights. When I asked, how many will die? 150 people, sir, was the answer from a General. Ten minutes before the strike I stopped it.” The President halted the attack in consideration of the potential casualties and he added that Iran was “very wise” for not targeting a manned plane. The head of the Revolutionary Guards aerospace division, Amirali Hajizadeh told the Tasnim News Agency: “With the U.S. drone in the region there was also an American P-8 plane with 35 people on board. This plane also entered our airspace and we could have shot it down, but we did not.” The commander of Iran’s Revolutionary Guard stated that Iran had no intention for war with any country, but they are prepared nonetheless.
John Bolton, the Trump administration’s national security adviser, actively advocated inside the White House for a military attack. The Secretary of State Mike Pompeo and CIA Director Gina Haspel also favoured the military response. However, the Pentagon warned that the military action could irrevocably exacerbate tensions and incur more risk. After the U.S. backed away from a potentially deadly confrontation with Iran, Trump still praised the “Hawk” Bolton. On Saturday, the President said, “I disagree very much with John Bolton. His attitude in the Middle East and Iraq — was going into Iraq, I think that was a big mistake and I’ve been proven right but I’ve been against that forever. John Bolton is doing a very good job but he takes a generally tough posture.”
Escalating tensions in the Gulf
In recent weeks, a series of mysterious attacks on oil tankers have escalated tensions in the Gulf. On May 12, two Saudi oil tankers were sabotaged off the coast of the UAE. Two days later, two Saudi oil pumping stations were attacked by explosive-laden drones. On June 12, Iran-backed Houthis attacked an airport in Saudi Abha and led to the wounding of 26 people. These attacks come against the backdrop of heightened tensions between the U.S. and Iran.
Last month, Trump signed an executive order to impose new sanctions on the industrial metals exports of Iran. This had prevented countries from importing Iranian industrial metals which accounted for 10% of its export economy. The rationale was that Tehran relaxed some restrictions on its nuclear program in defiance of the U.S. and at the current pace, Iran may begin enriching uranium again, within two months.
It is well known that in 2015, the Joint Comprehensive Plan of Action (JCPOA) was signed to ensure that Iran’s nuclear programme will be exclusively peaceful, and marked a fundamental shift in their approach to this issue. However, one year ago, the Trump administration accused Iran of non-compliance and decided to withdraw from Tehran’s nuclear deal. In addition, the U.S. has deployed an aircraft carrier to the Middle-east and sent tens of thousands of troops into the region.
Heightened volatility in the market
The continued escalation of tensions have raised fears that the U.S. and Iran would initiate a conflict. The S&P 500 Index and the Dow Jones Industrial Average both dropped 0.1% while the Nasdaq Composite Index dipped 0.2%. After 3 days’ of gains, the MSCI Asia Pacific Index fell 0.4%. The Stoxx Europe 600 also slipped 0.4%. The US dollar was lower for a fourth day due to the mild signal of the Fed earlier this week. As a safe haven currency, the gold price hit a new high since 2013, increasing by 0.8% to $US1399.86 an ounce. The international benchmark Brent crude oil futures settled at $65.20 with a 4.89% increase.
The escalating conflict between the U.S. and Iran is a key factor driving the market. Beyond this, the U.S. Fed rate and the U.S. -China trade relations will also continue to draw the attention of investors. As the G20 summit in Osaka approaches, the market will continue to look for further developments.
By Steven Gao
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