INSUBCONTINENT EXCLUSIVE:
By DK Aggarwal Calendar year 2020 started with the intimidation by Great America, as prescribed by President Donald Trump after he took
With a strong military base across West Asia, especially in Iraq, Trump directed a drone strike and killed one of Iran's most powerful
generals, raising fears of a major geopolitical flareup.
Now, there is fear of tensions escalating in the region, along with the potential
for retaliation and further conflict
No sooner did the news break, global markets and asset prices reacted sharply
This happened mainly due to two main reasons: First, the Iraqi government voted to expel foreign troops from its soil under a non-binding
mode, which seemed highly impossible to implement as that may pave way for the re-entry of ISIS.
Second, and also the more worrisome issue
nuclear weapons.
There was also fear among investors that an escalation in the US-Iran tensions could disrupt regional crude supplies
Oil indeed was the biggest beneficiary of the rising tensions and crude prices saw a steep rise to above $70 level
Gold prices zoomed to a seven-year peak of $1,574 in the international market.
A spike in oil prices may deal a body blow to the world
economy, already struggling due to the trade tensions
Meanwhile, global markets remained skeptical of any immediate diffusion of the conflict, especially given the memories one has from the
1970s oil shock.
Although the tensions have cooled off for the time being, they have not dissipated entirely
There is speculation that Iran may engage in some proxy action in Lebanon or Iraq
In case there is retaliation, oil price may rise further and that would mess with macroeconomic arithmetic in countries like India, which
import more than 80 per cent of their crude oil requirement.
The rupee may come under pressure and a global risk-off sentiment may shrink
foreign flows to emerging economies
For the time being, markets look relaxed after President Trump indicated that both countries may want to avoid a crisis
Even crude oil prices have cooled off quite a bit
But it remains to be seen how the situation pans out going forward.
