Following a flaring up of tensions between the US and Iran over the last two weeks, rhetoric seems to have calmed down a little this week, which has been a boost for risk markets. Last week, the prospect of conflict between the two nations spiked higher amidst increasingly aggressive rhetoric between the two nations.
A great deal of the tension has been attributed to the IRGC successfully launching a military satellite into orbit. Following a series of failures, the IRGC succeeded last week in launch a strategic satellite from a military base east of Tehran, the nation’s capital.
The launch quickly drew the condemnation of a number of nations, including France and Germany as well as the US who accused Iran of contravening UN Security Council Resolution 2231. Speaking to reporters in the wake of the incident, US Secretary of State Mike Pompeo said: “Every nation has an obligation to go to the United Nations and evaluate whether this missile launch was consistent with that Security Council resolution,”
The launch itself has been interpreted as a signal of Iranian aggression and raises fears of further tensions between the US and Iran. Given the particularly challenging global conditions right now, there is a fear tensions could boil over.
Following reports of Iranian gun boats “harassing” US navy ships in the Gulf, Trump tweeted that he had instructed Navy captains to protect themselves and shoot down the gunboats if necessary. This message was then countered by a similar one from Iran military chiefs who said that Iranian navy had been instructed to protect themselves against US agents in the area.
Satellite Launch Increases Risks
While the rhetoric itself merely echoes sporadic period of previous tit-for-that, the concerning development here is the launch of a military satellite which raises the prospect of eventual US intervention. For now, the US is trying to get the UN to agree to a Security Council resolution against it. However, with Russia arguing in support of Iran, and China unlikely to back the US, such an outcome appears unlikely.
This week, Brig. Gen. Abolfazi Shekarchi, a senior spokesman for the Iranian military, warned the US against any aggression in the Gulf reaffirming Iran’s message that it is willing to defend itself. Meanwhile, the US Space Force General, Jay Raymond, took to Twitter in an attempt to discredit the launch which he mocked, was not of a military satellite but a “tumbling webcam”.
While tensions have cooled somewhat for now, the episode proves that there is still a great deal of hostility between the two nations and as such, the threat of conflict between the US and Iran is certainly a theme to monitor this year, posing downside risks for asset markets.
S&P500 (Bullish above 2977)
From a technical viewpoint. The S&P is challenging the 2884.50 level. If price breaks above here the main test will be the 2977 level where there is a confluence between the underside of the broken bullish channel, VWAP and the retest of the yearly pivot. If price can sustain above there the recovery will have gained momentum.
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