Bullion
and energy counters soared on domestic bourses on Monday as a flare-up in
tensions between the United States and Iran spooking traders towards safe-haven
commodities.
Gold
and silver jumped 2 percent each to Rs 40,933 and Rs 48,500, respectively.
Meanwhile, crude prices continued to rally and were at Rs 4,643, up 3.2
percent.
“Escalating tensions may dent market risk appetite and weigh
down on riskier assets like equity and commodities like base metals. However,
it may continue to lend support to safe-haven like gold and silver and will
also be supportive of Crude oil prices amid worries over supply disruption from
the region, said Ravindra Rao, VP- Head Commodity Research at Kotak Securities.
If
conflict breaks out, the US will use bunker busters and precision weapons to
destroy Iran’s missile and nuclear weapons centers.
Many
Democrats are trying to whip up hatred for US President Donald Trump over the
killing of Iranian General Qasem Soleimani, who was taken out by a drone strike
on January 3 near Baghdad’s airport.
The
Democrat thesis is that Trump will guide America into a full-scale war with
Iran and lead to the massive loss of US military personnel and bases.
These
assumptions appear to be based on a faulty interpretation of what the Soviet
Union used to call “the correlation of forces.”
In this reading, America has put itself in a position to be victimized
by the Iranians and there isn’t much we can do about it.
Iran
has short, medium and some long-range rockets, and the ability to use terrorism
to its advantage. Beyond that, Iran has little else. The Iranian navy is
worthless as a fighting force. Its air force is made up mostly of old planes
that are hardly flightworthy. It does not have precision weapons.
Iran
does have drones and aging Russian cruise missiles. It also has proxy forces
that can cause trouble for Israel in the form of Hezbollah and, to a degree,
Hamas. But not much more. (In fact, Hamas was celebrating the demise of
Soleimani, handing out candies in the Gaza strip. After all, Soleimani killed
countless Palestinians in Syria.)
The
US has formidable allies in the region. Israel has a first-rate air force,
missile defenses, submarines and strikes naval assets. It has a
well-disciplined and trained army along with civil defense to protect its
citizens. Like the US, Israel has excellent situational awareness and
intelligence assets, formidable command and control capabilities, and deep
fighting experience.
Saudi
Arabia, the UAE and other allies in the region also have frontline fighter
aircraft and competent naval assets. Like Israel, they also have some missile
defenses. They are supported by the US, have precision weapons, and in a
setting of general war can be useful and effective assets.
Iran
has none of these things. Its questionable allies – China and Russia – are not
going to get into a war with the United States over Iran. The argument that
China needs Iran’s oil doesn’t stand up: there is so much oil available from
the Gulf states, Russia, even the United States that the argument makes little
sense.
The
Russians, for their part, have not prevented Israeli strikes on Iranian
operations in Syria (Hezbollah plus Iran’s Revolutionary Guards). In fact, it
can be argued that they have aided and abetted Israel to some degree. Why would
they risk war with the United States? If Russia did so it would lose its
growing support in Europe, trash any chance of a political settlement in
Ukraine and probably end up going broke. Speculation about a combined Russian
and Chinese intervention is unrealistic. Russians still understand what
correlation of forces means.
Legally
speaking, neither Russia nor China has a security agreement or defense treaty
with Iran. Russia does have a military cooperation agreement, but the agreement
says nothing about Russia coming to Iran’s aid. The cooperation agreement is
not a defense treaty. Similarly, China has a military cooperation agreement
with Iran, but it imposes no obligations on China and is not a defense treaty.
With
President Trump’s clear threat to forcefully answer any Iranian action against
the US, the critical issue is whether Iran would talk itself into a fight with
the US.
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