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A confrontation of the West and Iran could start in a so called “proxy war” between Israel and its two northern neighbors, Syria and Lebanon, where the Shiite Hezbollah calls the shots. Oil and currencies could move well before the conflict reaches Iran.

In the middle of the civil war raging in Syria, the Assad regime had the time and the resources to conduct a major military  exercise in the east of the country on December 3rd and 4th. This met a response on December 6th by the Israeli side, that exercised an invasion in the Golan Heights, close to the Syrian border. There are quite a few more  ominous sings:

  • Israel: In an uncommon announcement, Israel reported that Matan Vilnai, an ex-general and a minister in the government, held a visit in the refineries of the Israeli northern city of Haifa, to test the readiness of supplying fuel to the country in case of emergency. Haifa was hit by Hezbollah rockets during the 2006 war.
  • Lebanon:  the leader of Hezbollah, Hassan Nasrallah made his first public appearance in 3 and a half years and made fresh threats against Israel. Nasrallah is usually in hiding, fearing an Israeli  assassination. Hezbollah is backed by Iran and receives its weapons through Syria.
  • Turkey imposed a customs tax of 30% on any Turkish goods sent to Syria, including fuel. It also cut shipments to other Middle Eastern countries that run through Syria. This adds to the pressure on Syria.

These developments join the mysterious explosions that rocked Iran in recent weeks, and the successful Iranian landing of an advanced US drone.

As aforementioned, Iran is on high alert for war, and the Israeli political schedule suggests that this war could happen soon and end before the end of January.

So, there’s a chance that Syria will try to divert the internal troubles to an external enemy, given the escalation with Iran and the pressure from the West and Turkey. Also in Lebanon, the internal pressure on Hezbollah to disarm and the fear of losing its Iranian backing could prompt preemptive action from the Shiite  organization and a repeat of the 2006 war with Israel. The Syrians could participate this time as well.

Iran war and Forex

An escalation or a full scale war with Iran will send oil prices skyrocketing. Regarding currencies, the US dollar is likely to benefit from growing fear, and so it the Japanese yen. They are the current safe haven currencies.

The Swiss franc has drifted away from the safe haven camp, but will likely return to its role. While Canada exports oil, the Canadian dollar will likely dip in this scenario, although the picture is complicated.

The big losers will be the euro (with the deepening crisis), as well, as the pound, Australian and New Zealand dollars.

For a deeper currency analysis in case of a conflict with Iran, see this article.

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