Flash Report /

Iran: Major escalation yes, all out war no

  • The assassination of Major General Qassim Soleimani marks the latest escalation between the US and Iran.

  • Oil price initially spiked 4% (receding to nearer 3% at the time of writing).

  • Our previously published view is that a full blown war with Iran remains unlikely.

Iran: Major escalation yes, all out war no
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
3 January 2020
Published byTellimer Research

The assassination of Major General Qassim Soleimani via a US drone attack marks the latest, and perhaps the most serious, in a long list of escalations between the US and Iran since US President Donald Trump reneged on the Iran Nuclear Deal in May 2018. 

Attention will turn to where in the region Iran will retaliate. The radar is wide given the plethora of US military assets and the much softer targets of US allies. 

Oil price initially spiked 4% (receding to nearer 3% at the time of writing). This follows a c30% increase from the lows of December 2018.

Soleimani was in charge of the Quds Force of the Islamic Revolutionary Guards Corp of Iran and was effectively Iran's most senior military and intelligence figure in its regional operations. He was the architect of Iran's coordination of regional proxies and allies in Lebanon, Syria, Iraq, central Asia and Yemen, among others. For Iran's opponents he was viewed as the coordinator of his country's regional destabilisation efforts. For Iran's supporters, he was regarded as a key figure in both the protection of Iran's own territorial integrity and the regional fight against anarchic militant organisations like Daesh (Islamic State).

The background over the last week leading up to this action is the rocket attack on a US base in Kirkuk, Iraq, which the US blamed on Iran-aligned Kataib Hezbollah, a retaliatory attack by the US on Kataib Hezbollah assets in Iraq and Syria, the 24-hour encirclement of the US embassy in Baghdad by Iran-aligned protestors, and an exchange between US President Trump and Iran Supreme Leader Khamanei over Twitter.

Our previously published view is that a full blown war with Iran remains unlikely for ten reasons (summarised below):

  1. Low support for war among the US electorate (following the Iraq and Afghan wars);
  2. The Middle East obviously still matters for the US, but less so following the tight oil and shale gas output expansion in the US and the greater long-term threat (territorial, trade, technology) posed by China; 
  3. Economic siege (followed by ultimate negotiation) is likely the more cost-effective approach to changing Iran's foreign policy than all out war; 
  4. Long-term regional balance of power may be emerging with greater Israel-GCC alignment and the increasing influence of Turkey; 
  5. Qatar (home to US regional air command) is less anti-Iran than other GCC members; 
  6. Tehran is a formidable physical location to occupy (mountainous surrounding);
  7. Any war with Iran is unlikely to remain localised given Iran's regional network of proxies and allies;
  8. War might terminally sideline the "pragmatic conservative" camp within Iran that is willing to negotiate (just as succession to the 80-year old leader looms); 
  9. The EU and Turkey (both with a long-term interest to develop Iranian gas imports as an alternative to dependence on Russia) would be unlikely to join a US-led coalition; and
  10. Russia and China would likely support Iran (to increase costs for the US and to inhibit a precedent for externally-imposed regime change).