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Israeli Airstrike Targets Military Base in Iran

Israel and Iran Tensions being Played Down

This should be seen as a warning to show that Israel can strike back at a time and place at its choosing. At the same time the Iranians have blamed drones for the attack as coming from domestic actos so as to not escalate the situation further. In addition, the nuclear facilities near Isfahan were not targeted.

The Israeli attack was not a big scale and this is similiar to the retaliatory action by Iran to fire drones and missles on April 13 2024. Aside from hundred of drones and missiles launched from its own territory for the first time directly, the damage was very minor. Almost all the drones and missiles were shot down.

Thus, both retaliatory signal a message to the other side. For Israel they want to show the different capabilities in air defense between the countries.

The tensions between Israel and Iran have boiled over after the Israeli attack on the Iranian Consulate in Damascus on April 1, 2024.

Iran had tegraphed its attack and the US was informed by Iraq and Turkey. The Iranian drones were slow and could be seen easily. Thus Iran did not use its most advanced drones or missiles in the attack on Israel. This was mostly done for the domestic audience to show what Iran is capable of doing after the Israeli strike.

In the same light, the US and other allies had signalled that they would not back a retaliatory strike on Iran that would further escalate things. Thus, the limited and small scale strike on the Isfahan military base. This was played down by Iran as noted earlier.

Thus, further tensions are being played down as Iran and Israel do not want to see this escalate. Most importantly, the US has signalled that it does not a regional Middle East conflict and I am sure that had influence on both countries to tone it down. Therefore, it the retaliatory attacks and rhetoric was more for domestic consumption.

Market Implications

Expect to see Gold prices rise on the geopolitical risk. We think oil will slightly go up but fall afterwards. The impact on the market will be short-lived and over in a few days.