On Saturday, a rebel-held Damascus suburb was reportedly hit with a chemical attack. The aftermath of this attack may decide where global financial markets will go in the near future. On Tuesday the U.S., U.K. and French leaders held a teleconference where they agreed that a response was warranted.
Short of publicly blaming the Assad regime in Syria and promising a military strike on its strongholds, the three countries all but made clear that an attack may be coming.
In what might be interpreted as a clear indication that an escalation in Syria was imminent, U.S. President Trump tweeted late Wednesday: "Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and ‘smart!' You shouldn't be partners with a Gas Killing Animal who kills his people and enjoys it!"
Ahead of the announcement, President Trump canceled a scheduled trip to South America to focus on the fallout from the Syrian gas attack. Syria and Russia, for their part, have denied carrying out the attack and have called for independent analysts to verify the source of the nerve agent. While it is difficult to make an absolute assertion of who was behind the chemical attack on the civilians in Eastern Ghouta, a military response from at least the U.S. is practically guaranteed at this point.
Following the attack, President Trump tweeted: "Many dead, including women and children, in mindless CHEMICAL attack in Syria. Area of atrocity is in lockdown and encircled by Syrian Army, making it completely inaccessible to outside world. President Putin, Russia and Iran are responsible for backing Animal Assad. Big price to pay. Open area immediately for medical help and verification. Another humanitarian disaster for no reason whatsoever. SICK!"
With such strong wording in the aforementioned tweets, Trump has nearly painted himself into a corner and will be forced to attack Assad now. The question now is how big of an attack we may expect? While a dozen Tomahawk missiles aimed at strategic installations of the Syrian military would send a message to Assad, I predict Trump will go bigger. Trump may attack military headquarters in Damascus or other strategic buildings. The attack would come late at night, minimizing casualties while giving the photo op the next morning necessary to convince the world of Trump's resolve. While angering the Russians and escalating the fighting is in no one's interest, Trump has had Iran in his crosshair since President Obama was still in office. Can Trump separate the two allies? Maybe.
The Iran nuclear deal is very much in play in Washington in recent weeks and all signs point to Trump unilaterally pulling the U.S. out of it. The deal requires Trump to either sign off on Iran's cooperation or ask the Congress to do so on May 12. A Republican House would almost definitely not "certify" Iran's progress and therefore allow the U.S. to reinstate sanctions on Iran, those that have been removed as part of the deal. What will this mean?
Crude oil, currently trading at near four-year highs would spike, pushing oil north of $70. This would mean higher energy costs for many countries, including energy-dependent Turkey. This would further strain developing markets already bearing the burden of increased U.S. interest rates and the weakness in their currencies as a result. While the increase in more shale-gas production would take some time, it would eventually kick in, lowering crude prices after some time, but in the interim period many financial markets would be hit hard.
Turkey's current mini currency crisis stems from the uncertainty on its borders. Wars in Syria, a complete Iranian takeover of Iraq and a Russian presence in both the north of Turkey in Crimea and in the south in Syria have left Turkey surrounded by chaos. Chaos is rarely good for business and this means hesitant investors. Obviously, those who can see through the chaos to stability will bet early and be rewarded while those gun-shy in the face of adversity will lose out, as always.
In the coming weeks, President Trump's domestic woes - investigations by special counsel Mueller and arrests of Trump's associates - will most probably speed up. Whether they will ultimately hurt the President himself is a long-shot. Trump will almost definitely serve out his full term and may even be reelected. Internationally, Iran and Syria will leave President Trump very much preoccupied and the trade wars may be put off for some time. Whatever happens, uncertainty will take over global financial markets and this is a serious problem. Should the uncertainty spook enough people, we may be looking at a Great Recession-esque turmoil and that would spell disaster for investors.
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