It took just three days for the end of year rally in financial markets to meet a harsh reality in 2020. The assassination of Qassem Soleimani, the key Iranian general, in a US air strike has led to a reassessment of risk: oil prices have risen to $70 a barrel, gold is at its highest price for seven years and equity markets have sold off across the world. Haven assets, such as government bonds and the Japanese yen, have rallied.
This recalibration, however, has been modest. Compared to the assessments of some geopolitical analysts who warn that retaliation and escalation could lead to a full-scale war between Iran and the US, the adjustment in markets has been limited.
Not panicking and waiting to see how Iran responds to the killing of Soleimani is a sensible strategy. Yet there is also a degree of complacency in the relatively muted reaction. War is in no one’s interests, but it could still happen. With an erratic US president seeking re-election and a cornered Iranian regime, the cycle of tit-for-tat violence could easily escalate out of control.