Luongo: Trump’s Act of War Has Horrific Implications

If I wasn’t a complete cynic, I’d say U.S. President Donald Trump’s killing of Iran’s Islamic Revolutionary Guard Corps Major General Qassem Solemaini was his way of goosing oil prices back toward $70 per barrel. The perpetually cash-bleeding fracking industry in the U.S. could sure use a boost.

But this dangerous escalation by Trump is far worse than that.

Back in April of 2017 I thought the missile strike on the airbase in Syria responding to the now thoroughly discredited chlorine gas attack at Khan Sheikoun was the worst geopolitical blunder I’d ever seen. That event today looks like a fist fight between Amish men.

The importance of this act of war by Trump cannot be overstated. It has horrific implications. That Trump acted to make some macho point about U.S. soil and the storming of the U.S. embassy in Baghdad earlier in the week is, frankly, pathetic.

The escalation of events over the past week since a rocket attack outside of Kirkuk to this point puts the entire world on notice. Trump’s presidency has been marked with these impromptu, almost limbic, responses to circumstances which have done nothing but destabilize the global economy and relationships around the world.

I don’t think this was a limbic, emotional act, but an opportunistic one to send a message to Iran that the U.S. is done playing by the old political rules.

The real fear today is what Iran’s response to this will be.

I won’t speculate too much because the Iranians, contrary to Neoconservative crazies on K Street and in the White House, are careful plotters and planners. Nothing they will do here will be off the cuff or done out of rage in the moment.

But what I will do is remind you of what the real reason was why Trump didn’t go to war with Iran in June after the Global Hawk drone was shot down. And it had nothing to do with disproportionate response, i.e. killing hundreds over a drone.

That was the made-for-TV version of events.

The real reason was what I stated at the time: oil prices.

What we are looking at here is the ultimate game of brinkmanship. Trump is saying his maximum pressure campaign will break Iran in the end and if they go one step further (which they won’t directly) he will eliminate them.

Iran, on the other hand, is stating categorically that if Trump doesn’t allow Iran to trade than no one will. And that threat is a real one, given their regional influence. Incalculable financial and political damage can be done by Iran and its proxies around the region through attacks on oil and gas infrastructure.

Governments will fall, markets will collapse. And no one gets out without scars.

It’s the kind of stand-off that needs to end with everyone walking away and regrouping but is unlikely to do so because of entrenched interests on both sides and the historical grudges of the men involved.

So what’s changed? Obviously, if Trump felt in June he couldn’t risk an oil derivatives meltdown, why would he risk it today when markets are even that much more fragile?

Again, I don’t have a good answer for that but it’s something we all should consider carefully. My first thought, and most generous one, is that Trump is stuck between the impeachment rock and a hard place. The Senate is a nest of neocons who extracted a price from him here to secure their vote for him on impeachment.

That U.S politics has sunk to this level should worry anyone if I’m correct.

On the news of Solemaini’s death, oil prices spiked $2 per barrel. Gold popped up around $15 and equity market futures were off 3-4%.

Gold pushed up to the $1,550 level once U.S. markets opened and the U.S dollar roundtripped during early trading as the Fed likely pumped massive liquidity into the system to stop a panic melt upward. It is, however, the extreme moves in U.S. Treasuries, down 6 to 7 basis points across the yield curve that should be considered the most important.

A nascent safe-haven trade now that Trump has told the world the U.S. accepts no limits on its behavior is now a done deal.

No one outside of the usual neoconservatives in the Trump administration or in the media was happy about this. Only chest-thumping and typical cheerleading for when a U.S. president murders people for acting against the Imperial interest. Russia, China and France all condemned Trump. Germany talked out of both sides of its mouth with no word from Chancellor Angela Merkel.

War is not good for anyone other than banks and defense contractors. Everyone else suffers greatly. War is not healthy for an economy nor is it ever really justified at the level Trump is waging it. Say what you want about the situation in the Middle East, there are grievances on all sides and imperial hubris doesn’t do anything to deescalate it.

We’ve been at war with Iran for 40 years and under Trump, his policy has been to escalate that war economically and politically to the point of an existential crisis for both sides. The Empire cannot be seen as weak and Iran rapidly has little left to lose.

What’s clear now is that Trump is prepared for a wider conflict with troops getting put on C-130’s and carrier groups heading out to sea. How much of that is bluff and bluster to scare Iran into submission, and how much of that is the prologue to a wider conflict again is unknown.

But as an investor I would not be prepared to ride this out at current prices. Iran’s response will be asymmetric and designed to do maximum damage where it hurts the U.S. most, in its financial markets.

Moreover, the political war for Iraq has only just begun. Watch action levels in gold above the 2018 high near $1,560. A break above that on a daily closing basis opens up a run past $1,600. Equity markets will be choppy here at best as Iran plots it next move.

• Money & Markets contributor Tom Luongo is the publisher of the Gold Goats ‘n Guns Newsletter. His work also is published at Strategic Culture Foundation, LewRockwell.com, Zerohedge and Russia Insider. A Libertarian adherent to Austrian economics, he applies those lessons to geopolitics, gold and central bank policy.