Investment Committee Update - US / Iran Tensions

US / Iran Tensions

On Friday 3rd January, Qasem Soleimani, General in Iran’s Revolutionary Guard, was killed in a US drone strike under the command of President Trump. Soleimani was arguably the second most important person in Iran, responsible for orchestrating attacks in the Middle East using proxy forces throughout the region. Trump has said the US has targeted 52 Iranian sites (representing the 52 American hostages taken by Iran in 1979) that would be hit if Iran retaliates to the drone strike. 

Iran hardliners are likely to respond to divert attention away from the economy which has been crippled by US sanctions. However, a full-blown war seems unlikely given the supremacy of the US military from the Iranians’ perspective and Trump’s reticence to put US troops on the ground. It is much more likely that Iran will carry out small scale attacks on the infrastructure of the oil sector, which would likely cause the oil price to rise further. However, it may be some time before any response comes as Iran is likely to have been blindsided by the drone strike and Soleimani would be the person that would have masterminded any retaliatory action.

From a market perspective, this is a classic “known unknown”. There has been a risk of an escalation with Iran since Trump was elected, but the timing was unknown. Equities have responded by falling sharply, but within the ‘dynamic model’, our holdings in gold and energy stocks have rallied, helping to dampen shocks from this type of event.

Our philosophy is to be genuinely multi-asset in our approach, which allows clients to sleep at night, even if geopolitical events are somewhat unnerving. We believe this event emphasises not only the importance of ensuring portfolio diversification, but also highlights why we allocate 50% of client assets to the ‘dynamic’ market model, so that we can implement tactical overlays like this in a very decisive and cost efficient manner.

Posted by Chartered Financial Management (UK) Ltd on January 8th 2020

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