As soon as the old concerns of 2019 are cleared as new reasons for divestment appear in 2020. On Friday, investors woke up to the news that the United States had killed General Qasem Soleimani, a key figure in Iranian geopolitics. A news that triggered the alarms ‘risk-on’ of the market and that sees the rise of tensions in a key region for the price of oil, the military stability of the continent and, therefore, the world economy and investor sentiment.

The so-called ‘black gold’ reacted directly to the murder of Soleimani. The West Texas Intermediate rose 2.4% to $ 62.7, while Brent gained 3.2% to $ 68.7. Despite the geopolitical tension, the truth is that the oil market was fundamentally unchanged – unlike, for example, when the drone attack at an Aramco base in Saudi Arabia occurred in September that affected the production of 5.6% of the global supply and that, therefore, led to a 20% rise to Brent.

However, there are analysts who believe that investors have been too complacent about oil prices for a few months. Just after the September peak, the Saudi government convinced the markets that the situation was under control again and that the damage had been contained, returning the crude oil to its usual price range. The analysts at the Wisdom Tree then blamed this flexibility of the markets to the apparent tranquillity that the so-called ‘black gold’ had been experiencing since at least the second quarter.

A vision that the firm recommended changing. “Although a material supply disruption of the offer – such as the one caused by the potential closure of the Strait of Hormuz to a third of the world oil market that is currently going through there – is not our base case, we believe that investors should be asking for a higher premium because of the political risk that reflects the tensions in the region. We hope this will happen next year and that it will bring the price of Brent to a fairer range of between 70 and 75 dollars per barrel”, analysts said in their outlook report 2020.

Could the murder of Soleimani be advancing this trend? The analysts of the currency platform Monex remember that the attack on the Abqaiq plant was supposedly perpetrated by militias supported by Iran, so the murder of the most powerful general in Iran risks a serious escalation of the tension between the US and Iran. In fact, regarding the issue of oil, on Friday Senator Lindsey Graham, close to US President Donald Trump, said the attack should be understood as a warning and that “if Iran continues to attack America and our allies, it should pay a higher price, which includes the destruction of its oil refineries”.

“In the murder of Soleimani, the case is more difficult to measure”, explains Dave Lafferty, chief strategist at Natixis. “In the case of the September attacks, the dynamics of the offer were quickly recognized, but, in this case, the implications on the offer are less clear“, argues the expert, who believes that “Iran’s reaction and a possible response they are likely to be meticulously calculated and occur over a longer period of time”.

Also, Lafferty argues that it is very likely that the premium in the price of oil for geopolitical risk will remain high in the coming weeks. “The risk of a direct confrontation between the US and Iran is small, but it is growing“, said the strategist, who expects Iran to deploy a series of attacks. “As always, the real ‘ace under the sleeve’ of the Middle East is who they are going to drag into the conflict”, Lafferty ditch.

Higher oil prices carry a wide range of consequences for the economy, from the rise in inflation (in an environment of economic recession) to stock market falls due to the effect of business costs on company profits. Already in September, Nouriel Roubini warned that one of the possible triggers of the next crisis was in oil: “a military conflict between the US and Iran would boost oil prices above $ 100 per barrel, unleashing stagflation as it happened in 1973, 1979 and in the 90s”, the economist narrated.

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At the market level, analysts agree that, after a few months of ‘rally’ in risk assets, this new front of uncertainty gives investors a reason to undo positions and collect profits before the markets Sour again.

Valentin Marinov, a researcher in the foreign exchange department of the investment bank Crédit Agrícole, believes that the timing of these developments has been “unfortunate” as it could “undermine the hopes of a surge in the global economy, which has yet to exceed the halo of the US-China trade war“. The analyst points out that the ‘risk-on’ of the markets will also be fragile because, in this environment, central banks will enter to rescue more slowly than the market.

Investors pointed to this trend on Friday. While the gold recovered four-month highs (it had been rising from the assault to the US Embassy in Tehran) and the yuan and Swiss franc were strengthened due to their asset quality, the bonds rose in profitability — the Bund fell to a rate of -0.28% – the S&P 500 fell 0.4%, the Eurostoxx 50 was left 0.66% and the Ibex 35 lost 0.46%.

“If we look at recent episodes of tensions between Iran and the US, we see that they have not resulted in a material escalation; but even if a benign resolution of the crisis arises, the demand for sovereign bonds and the US and Germany could still last until the week that is coming, “explains Antoine Bouvet, chief researcher on monetary policy and fixed income at ING Groep.

Anyway, some people talk about the current volatility as if it were August. “We could be moving from a ‘proxy’ model of Iran vs. Saudi Arabia and the US to a direct confrontation between the US and the armed forces of Iran … However, I don’t see what Iran could really do against the US”, defends Kay Van- Petersen, macroeconomics strategist at the Saxo Bank investment bank. “Anyway, people still won’t have returned to their offices at all until next week or halves of January, so the illiquidity could give us the feeling that the market is overreacting downwards”, says Van-Petersen.

Analysts also recommend waiting to see how the situation develops in the coming hours. Regarding the long term, not only is Iran’s retaliatory power against the United States in the air, but also the question of whether Iran is really interested in facing the hegemonic power or using those developments on other fronts. As Suzanne Maloney, an Iran expert at the Brookings think tank, explains, “Teheran will play with the news of Soleimani’s murder as an opportunity to motivate nationalism and strengthen public support (which has been significantly weakened) for his military campaigns at the regional level”.