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THE KILLING OF IRAN'S SOLEIMANI RAISES TENSIONS AND OIL PRICES

Following the killing of the Iranian General Qassem Soleimani by a US drone strike on Friday near Baghdad Airport in Iraq, as expected in situations like this oil prices rose sharply. 

The concern for the markets is the danger the fallout from the US action poses to oil supplies, given that Iran's Supreme Leader Ayatollah Kamenei promised a "harsh revenge".


If Iran carries through with its threat to retaliate, then oil prices will almost certainly rise even higher, depending on what type of retaliatory action Iran decides to take.

So what could the Iranians realistically do to the US in response to the killing of their top General and probably the second most important and influential person in the Iranian regime's hierarchy?


The reality is that Iran does not appear to have any good options. The country does not have the military capability to engage the US in a conventional war. It would suicidal to do so, and the Iranian regime is not suicidal, it is more concerned about survival.


Years of sanctions, especially President Donald Trump's 'maximum pressure', have diminished Iran's capacity to arm and strengthen its military forces.


Moreover, Iran favours asymmetrical warfare over conventional military confrontation. Apart from the 8-year war with Iraq, the Iranian regime prefers to use its regional proxies, such as Hezbollah in Lebanon and Shia paramilitary groups in Iraq to strike at its enemies.


In recent years, Israel has carried out hundreds of air strikes against Iranian military personnel and assets in Syria and Lebanon, designed to prevent Iran from establishing a significant military presence on Israel's doorstep.


Apart from bombastic statements, Iran has so far failed to take direct retaliatory military action against the Jewish state, which they have vowed to eliminate. Although the Iranians like to use belligerent rhetoric when provoked, they tend to be more pragmatic and measured in their subsequent actions.


They might turn to their several proxies in the region, or the terror sleeper cells that they are known to have in some parts of the world to attack the US or its allies, however, such action could be problematic for them. This is because the killing of Soleimani is a direct consequence of Iran using its Iraqi proxies to attack US interests in Iraq.


It was the tit-for-tat actions of the US and Iran, as well as President Trump wanting to demonstrate his tough and ruthless guy credentials by raising the ante that has led to General Soleimani's demise. 


Trump's unpredictability is something the Iranians are now painfully aware of, and they will have to change their calculus on Trump not wanting another foreign war, especially in the Middle East.  This changes that, which is a headache for the regime.


Any retaliatory action by Iran against the US will need proper plausible deniability. The Iranians have to be able to convincingly distance themselves from any action carried out by their proxies. This means that previous actions like attacking oil installations in the Gulf region and claiming it was carried out by the Houthis in Yemen will not wash.


If the Iranians decide to respond to Soleimani's killing, which may never happen, then the response will happen much later rather than sooner. In the meantime, oil prices will gradually return where they were before the US strike.


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