How
Might Iran Retaliate Against the U.S. and How Might Markets React?
By the Curmudgeon with Victor
Sperandeo
Iran Retaliation Scenarios:
In the aftermath of the U.S.
bombing of Iran’s three nuclear sites, Iranian Foreign Minister Abbas Araghchi said on Sunday that there would be
“everlasting consequences” for an attack that he called “extremely dangerous,
lawless and criminal behavior.” Tehran’s Supreme
Leader Ayatollah Ali Khamenei
and his cohorts will ultimately determine how and when the Islamic Republic
will retaliate. Here are a few
possibilities:
1.
The most likely response by the Islamic Republic would be to attack U.S.
bases in the Arabian Peninsula or in Iraq using its arsenal of missiles and
drones. There’s an important precedent for that: Iran launched missile strikes
on the Al Asad U.S. Air Base in western Iraq after an American drone strike
killed Islamic Revolutionary Guard Corps leader Qasem Soleimani on January 3,
2020.
2. Iran could also launch a much
more comprehensive attack against U.S. forces in the Middle East which could
result in significant casualties.
Although Israel has significantly degraded Iran’s long-range missile
capabilities, it’s unclear what damage has been done
to Iran’s stock of shorter range missiles that could
reach U.S. bases in Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, the United Arab
Emirates, and elsewhere.
3. Iran might target critical
infrastructure, such as oil and gas facilities in the Gulf countries, aiming to
disrupt energy supplies and inflict economic damage and exert political
pressure on its enemies. Iran has a
diverse and advanced missile and drone arsenal, including ballistic and cruise
missiles, as well as various types of unmanned aerial vehicles (UAVs). These
can be used to target specific components of oil and gas facilities, such as
storage tanks, processing units, pipelines, and export terminals.
The 2019 attack on Saudi Aramco's
Abqaiq and Khurais facilities, widely attributed to
Iran, demonstrated the potential for precision strikes to significantly impact
oil production.
4. Tehran
could also close or mine the Strait of
Hormuz, although that would sabotage their own oil exports. The Strait,
located between Iran and Oman, remains a critical oil choke point, and closing
it could have serious implications for both the global and U.S. economy. Most of the oil that goes through the Strait
is delivered to Asia, and Iran is wary of alienating its ally China which
imports its oil. Also, Iran relies
heavily on the Strait of Hormuz for most of its maritime exports, including
oil, which is a vital part of its economy.
Approximately 85% of Iran's oil exports pass through the Strait.
U.S. Secretary of State Marco
Rubio, in several Sunday interviews, warned against shutting down the Strait,
calling the move “suicidal” for the regime. Rubio also called on China — Iran’s
most crucial oil customer — to encourage the country against shutting it down. “I encourage the Chinese government in
Beijing to call them about that, because they heavily depend on the Straits of
Hormuz for their oil,” Rubio said on Fox News’s Sunday Morning Futures with
Maria Bartiromo.
Closing the Strait would cripple
Iran's ability to export its oil, a primary source of revenue. This would lead
to a severe economic decline, potentially causing widespread instability within
the country. China is Iran's biggest oil customer, and a closure would disrupt
this crucial trade relationship. China has even used its UN Security Council
veto power to protect Iran from sanctions, highlighting the importance of this
relationship.
The U.S. 5th Fleet, stationed in
nearby Bahrain, has long pledged to uphold freedom of navigation in the Strait
and would respond with far superior forces if Iran tried to close it.
àPlease see Victor’s
Comments below for his view on this topic.
Expansion of the U.S.-Israel vs Iran Conflict:
Any attacks on the U.S. military
would result in a significant escalation of the conflict. The U.S. would surely
retaliate using military force, especially if military personnel were severely
injured or killed. That would greatly
increase regional tensions and potentially draw other actors into the conflict.
In
particular, an armed attack on U.S. military could trigger a
strong response from the North Atlantic Treaty Organization (NATO). Article 5, the collective defense clause,
states that an attack on one ally in Europe or North America (or
forces/vessels/aircraft in those areas or the North Atlantic north of the
Tropic of Cancer, or in the Mediterranean) is considered an attack on all. Although U.S. bases in the Middle East
generally fall outside this strict geographic definition, NATO might present a
united front against Iran, amplifying international pressure.
Victor’s Comments:
The major consequence of Iran's
response to the U.S. strike will be to disrupt oil flows. In
particular through the Strait of
Hormuz (see photo below). IMHO, this
is the only chessboard move left for Iran. Indeed, the Iranian Parliament on Sunday approved a measure to close the Strait
of Hormuz. However, Iran’s Supreme
Leader Ayatollah Ali Khamenei has the final word, and he has remained silent.
The Strait of Hormuz, situated at the mouth of the
Persian Gulf, is one of the most critical chokepoints in global trade.
….………………………………………………………………………………………………………………………………………………………………..
Any attack on U.S. military bases
would be suicidal for Iran. It would be met with extreme U.S. return attacks on
Iran, most likely resulting in the end of the Supreme Leader and the Islamic
Revolutionary Guards around him. Tehran
hasn’t a chance against U.S. Air Force and Navy firepower.
Economic and Market Impact if Iran Blocks Oil
Shipments:
It would create economic havoc
and a call by all nations to end the fighting.
In particular:
• Crude oil would trade at
$120-130/barrel and all markets would go berserk - stocks and bonds down, gold
up, T bills yield down, risk off, etc.
• Oil producing nations would
scream as it would disrupt their economies. At $130 oil, demand would drop greatly,
and sales volume would be much lower. Hence, overall profits would not be as
high with oil at $70 to $75.
• China would become more of a
U.S. enemy as it buys a great deal of oil from Iran.
• Russia would benefit as its oil
would be worth a whole lot more.
• Inflation up as all prices would rise and recession is a guarantee.
JPMorgan analysts warned earlier this
month that a full-blown military conflict and a closure of the Strait could
hike oil prices as high as $130 per barrel. That would probably push prices at
the pump in the U.S. up by more than $1/gallon from where they are now.
àThat is the
risk that might result from Trump’s gamble to attack Iran’s nuclear sites!
Victor’s Conclusions:
Iran’s Supreme Leader and his
Islamic cleric followers would rather die than lose face with the beliefs of
Islam. As radical believers in Allah
(see End Quotes below), they will never back down or surrender!
End Quotes:
“Say, ‘Nothing will happen to us
except what Allah has decreed for us; He is our protector.'”
— Surah At-Tawbah
Here we learn that no harm (and
no good) can come to us unless Allah has already written it as so. This lesson
will help Muslims get through major tests such as war, bereavement, injury,
etc. We will be able to handle our losses with more patience this way. Plus, we
will be brave enough to go into battle and get through other tests when we have
faith in Allah being our protector.
“Your ally is none but Allah and
[therefore] His Messenger and those who have believed…” — Surah Al-Ma’idah
Stay calm, be healthy, successful
and good luck. Till next time……….
The Curmudgeon
ajwdct@gmail.com
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever-changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
Copyright © 2025 by the Curmudgeon and Marc Sexton. All rights reserved.
Readers are PROHIBITED from duplicating, copying, or reproducing article(s) written by The Curmudgeon and Victor Sperandeo without providing the URL of the original posted article(s).