Middle East:  Iran-U.S. conflict has escalated

Middle East: Iran-U.S. conflict has escalated

January 08 2020

The killing of Iranian General Qassem Soleimani after a targeted U.S. airstrike on 3 January could be a game-changer for the whole stability in the Middle East. An escalation of the conflict between the U.S. and Iran seems now to be irreversible, as evidenced by the launch of ballistic missiles by Iran targeting U.S. troops on 8 January, with three main consequences to be visible in 2020:

(i) U.S. foreign policy is likely to continue in disengaging from being an important provider of world public good (of security) while using foreign policy (trade and geopolitics) as a counter-fire to domestic affairs (e.g. impeachment).

(ii) The confrontation between Iran and the U.S. is likely to intensify over the next months, with more lethal skirmishes. However, it is most likely to remain controlled, though the risk of a full-blown war between the two sides has certainly increased and should not be neglected when doing business in the region. In any case, already high regional instability in the Middle East has further risen.

(iii) The increased tensions will add a premium to the oil price this year and raise volatility; our model suggests an upward revision of our central oil price scenario from USD62 per barrel to USD66 on average in 2020.

Senior Economist for Emerging Europe and the Middle East