Donald Trump’s Greatest Crisis?
Author: Greg Valliere
June 14, 2019
A SERIOUS ESCALATION: Iran has been caught red-handed — on video — attempting to sink ships in the Persian Gulf, a brazen act that demands a response from Donald Trump, whose bombast on foreign threats is negated by his aversion to a new commitment in the Mideast. A confrontation can’t be ruled out, and it could quickly become Trump’s greatest crisis as president.
U.S. ECONOMIC SANCTIONS ON IRAN have crippled the country’s economy and have pushed hard-liners in Tehran to adopt a militant stance; they won’t even negotiate with the U.S. and are now determined to use proxies to destabilize the Mideast, not just the Gulf. This gives hard-liners at the White House — led by John Bolton — the pretext they’ve long sought to confront the Iranians.
WHAT ARE THE U.S. OPTIONS? Two seem to stand out — first, deploy U.S. ships to escort oil tankers in and out of the Strait of Hormuz, risking chances of a confrontation with Iranian vessels which could quickly spin out of control. Second and even more ominously, the U.S. could respond to fresh Iranian aggression by launching targeted air strikes on military installations in southern Iran and against Tehran’s surrogates throughout the region.
A THIRD OPTION — the beginnings of some diplomacy — was stunningly rejected by Iran, which launched these new ship attacks just as Japanese Prime Minster Abe was visiting Tehran; Abe was trying to cool tensions. The ayatollahs crudely rebuked the idea of any negotiations, signaling that the hard-liners are totally in control.
WHAT’S THE END GAME? Trump’s maddening pattern of using threats against adversaries with no clear end-game is once again on display; he may continue to send confusing signals, as he has done recently with North Korea. The good news is that the U.S. is energy self-sufficient — an exporter of oil — and more importantly, Trump instinctively wants to stay out of foreign confrontations — to the point of him publicly mocking Bolton’s stridency.
OUR SENSE IS THAT TENSIONS WILL PERSIST for many weeks, potentially ruining what was looking like a feel-good story: the likelihood of much cheaper gasoline prices as the summer driving season begins. If the Persian Gulf crisis persists, it’s likely that consumers would be deprived of a boost in their real disposable income. Still another reason to worry about a soggy economy . . .
DISTURBINGLY, THE LIKELIHOOD OF A SIMMERING STANDOFF in the region may be the best case scenario. We’re in uncharted waters, with the Revolutionary Guards Corps and U.S. hard-liners itching for a fight. Lurking in the background is Congress, where Trump’s support is at an all-time low; neither Democrats nor Republicans appear likely to grant him speedy authority to confront Iran, which could weaken his hand if hostilities erupt.
THIS COULD QUICKLY BECOME TRUMP’S GREATEST CRISIS, more serious than the Russia probe, which never really threatened conviction by the Senate. The fanatic ayatollahs in Iran, determined to ease U.S.-imposed sanctions, are a far greater negotiating challenge than the North Koreans or the Chinese, and the risk is that this crisis will continue to escalate.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2019 AGF Management Limited. All rights reserved.