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.
SILVER LONG (buy)
ENTER AT: 18.343