GLOBAL DISORDER 4: THE CRISIS IN THE MIDDLE EAST AND THE MARKETS: IRAN AT THE CENTRE OF WAR TENSIONS

The growing tension between the U.S. and Iran, and Erdogan’s advance in North Africa, weigh on financial markets and put them on the defensive without any particular shocks. Many private equity funds are ready to compete for volatility.

The killing of Qassem Soleimani, head of the Al Quds Forces, had been planned for some time and occurred after the intensification of anti-government demonstrations in the streets that had spread in Iraq since last October, leading to resurfacing tensions in the Shiite world and causing more than 200 casualties and 500 injured, as well as thousands of arrests. This had already occurred a few years ago in Turkey, which, after two years of state of emergency, and a balance of 80,000 arrests and 160,000 layoffs in the public administration, has passed an authoritarian anti-terrorism law.

Soleimani, fighting ISIS in Iraq to avoid an even more widespread religious and dogmatic conflict, was a sort of proconsul. His decision-making and operative power extended as far as Afghanistan and Yemen (in an anti-saudite key, of course). With him died also Abu Mahdi al-Muhandis, deputy head of the People’s Mobilisation Forces, considered responsible for the December attacks on the K1 base in Kirkuk and the American embassy and sentenced to death in absentia by Kuwait.

Those who think they can explain everything with a header from President Trump for electoral purposes either don’t know the US protocols for attacks outside the national territory or don’t want to look at the complexity of the balance in the Islamic world, two aspects that have nothing to do with the American elections. From the explosions in May on the oil tankers in the Strait of Hormuz to the drone and missile attacks by the pro-Iranian militias against the Saudi oil wells in mid-September (which compromised the privatization of Aramco), it had been months that the tension was brooding under the ashes of a US-Iran relationship worn out by the nuclear chase.

The assault on the US embassy in Baghdad immediately dusted off images of the US embassy occupation in Iran and the hostage crisis 40 years ago. From that point, the countdown started…

THE MARCH FORWARD OF ERDOGAN’S “NEW OTTOMAN EMPIRE” IN NORTH AFRICA

Meanwhile, Erdogan – taking advantage of the impasse and the guilty delay of the European Union and  of Italy, in an active Foreign Policy for the Mediterranean – lands in Libya against the Government of Haftar, General of the Libyan National Army (LNA) and head of the Government based in Tobruch and supported by the Parliament. Despite the fact that the Libyan Parliament voted unanimously to reject the Memorandum of Intent signed with the Turkish President by Fayez al Sarraj (number one in the Presidential Council and Prime Minister of the Libyan National Agreement Government based in Tripoli since 2015). Erdogan did not hesitate for a moment to give the green light to Turkish troops (reinforced by Syrian rebels flanking Turkey) to land in Libya, with the same lightness with which he cleared the Kurds in the border areas with Syria last month.

Therefore, on the one hand Turkey (with Qatar and Sudan) supports al Sarraj; on the other hand Egypt, the Gulf countries, the United States, Great Britain, France, Algeria and Russia support Haftar.

In essence, Qatar, which since 2017 has broken relations with Saudi Arabia and the other Gulf Countries, being under embargo, is officially tied to Iran and both have always been accused of financing various pro-terrorist groups operating in the Middle East area, from Hezbollah to al-Qaeda, and also ISIS and Hamas. In recent years, the evolution of the Syrian conflict has intensified Saudi Arabia’s warning towards the entire Arab world, leading a fight against terrorism and extremism which is crucial to reduce Iran’s Shiite expansionist aims on Iraq and Lebanon.

Many Arab states have therefore invoked UN resolutions against  the Turkish incursion: even at the Arab League meeting on 31 December, Egypt led the debate by strongly criticising Turkish action, representing a clear escalation of the Maghreb conflict and also forcing the EU to cancel the mission in Tripoli. This has immediately impacted the Turkish lira, which is once again under pressure.

FROM ARGENTINA TO IRAN IT IS A SHORT STEP…

In Argentina, the ghost of Prosecutor Alberto Nisman, who in 2006 accused Iran of having ordered the 1994 AMIA attack (the Asociacion Mutual Israelita Argentina), arming the Hezbollah militias that caused 85 deaths, hovers in the Presidential Palace after the recent outcome of the elections in Argentina. The first  elections experiencing,  after 91 years, a government led by a non-Peronist premier, who has however chosen, as vice-president, the former President and now Senator Christina Kirchner (CFK).

It was indeed Christina Kirchner who signed a Memorandum with Iran in 2013 in Ethiopia, representing an attempt to change the outcome of the investigation by allowing the real culprits, a dozen important Iranian leaders colluded with the Hezbollah group that had carried out the attack, to go unpunished. During her presidential office, however, CFK changed her mind, drastically modified her policy aligning it with that of  the Obama’s US Administration. A foreign policy that was seeking an agreement with Iran on several fronts: from nuclear to trade.

After Nisman’s controversial suicide/homicide in 2015, the new magistrate Bonadio who resumed the investigation, proving that Kirchner tried to bury the case to save the economic relations between Iran and Argentina during her term in office.

This is the background of the electoral result of the recent Argentine elections, with the victory of Alberto Fernandez, skilfully orchestrated by his vice-president Christina Kirchner, well aware of having to govern a country in economic collapse, backed by a loan from the International Monetary Fund of almost 60 billion dollars, given in small doses since September 2018. With inflation exceeding 50% and the debt/GDP ratio back to close to 100% (doubled in 4 years), a new  foreign debt restructuring will be inevitable. But it is, above all, social instability that conditions the action of the recently elected Government, over which the Iranian shadow hangs.

Certainly, Argentina aside, it is becoming increasingly difficult for mutual funds, specialized in emerging markets,  to be exposed to Latin America , which seems to be imploding from Venezuela to Chile, passing through protests in Ecuador, Colombia and Bolivia.

THE REACTION OF MARKETS AND THE GERMAN-RUSSIAN MEDIATION

The first reaction on international markets was  a revival of the gold rush (now at its highest since 2013) and the oil rush (+3.5%), pending the reaction of the EU and Russia. This is especially important in light of President Putin’s meeting on the 11th of January with German Chancellor Merkel, where there will be several geopolitical issues to be discussed and open fronts, such as Ukraine, Libya as well as Syria, Iran and Iraq.

The Russians, who are interested in maintaining their base in Syria and sound trade relations with Iran, have always supported the successful outcome of the nuclear agreement (JCPOA) signed with Obama in 2015 and suspended by Trump in 2018. However, the Russian diplomatic silence now makes us perceive that Putin is attempting to reconcile the two open war fronts without losing positions on global risk.

Merkel has already gone ahead, opening a line of communication with Erdogan offering mediation to mitigate the effects of possible Iranian responses to the elimination of its two military leaders. The meeting in Russia will be crucial to test the diplomatic capabilities of the recently established EU governing bodies and for the following decisions of international investors on European assets.

To date, Asian oil importers, such as Indonesian and Korean ones, have seen their currencies lose ground on fears of an increase in their oil bill. At the same time, the safe heaven currencies, such as the Swiss franc and Japanese yen, have strengthened their positions.

Given that for most analysts the risk of recession for 2020 was averted, either the new year  will start with a growth of the so-called Dread risk (acronym born in 2008 in Microsoft’s risk modeling), or there will be a domino effect  on global GDP, due to renewed pressure on investments. However, it is too early to alarm anyone. Analysts see Iran as cautious in its reactions, even without neglecting the attack in Kenya unleashed by the Somali jihadists of Al Shabaab, who they judge as a timid attempt to raise the tone of the clash.