Donald Trump is obviously playing with fire through the killings of the leader of the Iranian Revolutionary Guards. Qassem Soleimani, as well as Abu Mahdi al-Muhandis (leader of the “Popular Mobilisation Committee”; Al-Hashd Al-Sha’abi) were killed.
The killings, according to a kind of “letter of confession” from the White House, are a “defensive act” to protect Americans abroad:
This explanation is of course quite absurd. Right now US citizens live dangerously. Especially in the Middle East, the US government calls on all US citizens to leave Iraq immediately.
The leadership in Iran has sworn revenge. It will most likely attack US institutions or US citizens in some form in the coming days. If that happens, the US government will retaliate in turn. The spiral of escalation will continue, culminating in a military conflict, such as a US air strike against Iran.
The mullahs in Tehran thus have exactly what they need. They can say to the more liberal forces in Iran that they have advised against any contact with the “devil USA” from the beginning. And now they are obviously right. In this way the radical elements of the Iranian government then unite the dissatisfied population behind them. And distract from the massive economic problems of the country.
Iraq is thus also becoming a minefield for the US. Basically, this is the last stage of a disastrous wrong decision by the US to invade Iraq. In the Middle East as a whole, moderate forces that do not automatically regard the West as the devil’s work are now being further weakened.
But what can or will Iran do? It is conceivable, for example, that the Strait of Hormus, which is so important for the global transport of oil, could be closed. This could lead to a subsequent rise in oil prices. If oil prices were to rise significantly, this would not only have inflationary effects (to which the Fed would then have to react), but also similar effects to interest rate hikes. As Wolfgang Mueller emphasizes again and again: it is the rising cost of oil or the rising cost of money that puts an end to parties on the stock markets!
Either way: Donald Trump is taking a gigantic risk with the attack on Iran. And this at a time when nothing spoke against a re-election of the US president. If the conflict escalates, there is a threat of a sale on euphoric Wall Street. And that can be dangerous for Trump. What do the all-time highs in the Dow Jones and Co. help, if the US stock market finally goes down before the election?
It has not yet come to that. And it can also come differently. But Donald Trump has taken an immensely risky step out of a sense of strength. This step is likely to further deteriorate relations with China and Russia. It could even lead to a cancellation of the Phase 1 deal.
The risk is suddenly back in markets that thought there was no longer any risk because of Fed liquidity.