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Iran’s Navy Runs Anti-U.S. Ship Exercises. Just for Show or for Real?

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Iran and the U.S. have engaged in round after round of hostage taking, sabotage, cyberwarfare, sanctions, negotiations and attempts at normalization since the Islamic Revolution of 1979. The latest development, an important one, was Trump’s termination of the Joint Comprehensive Plan of Action, JCPOA, the nuclear constraint deal hammered out in 2015 by Iran, the U.S., the U.K., the EU, Germany, France, Russia and China.

The U.S. provided hundreds of billions of dollars of cash, gold and other financial relief to Iran in exchange for a release of U.S. hostages and Iran’s agreement to mothball its nuclear enrichment activities for 10 years. Obama’s hope was that 10 years would be enough time for a friendly evolution in Iran’s government so that if enrichment resumed in 2025, Iran would be an “acceptable” nuclear state in the manner of India or Israel.

Trump rightly criticized the JCPOA because its hope for a reasonable regime in Iran was wishful thinking and because Iran could use its payoff money to fund terrorism, which it has in Sinai, Gaza, Lebanon, Yemen and elsewhere. Trump ended the JCPOA on May 8, 2018, and instituted a campaign of “maximum pressure” involving economic sanctions, account freezes and secondary boycotts by the U.S. of European and other companies that continued business as usual with Iran.

The Iran response has not been to negotiate or reconcile. Instead, Iran has commenced naval drills in the Persian Gulf that could both facilitate attacks on the U.S. Navy and close the Straits of Hormuz and cut off Gulf oil from the world. This latest military escalation is reported in this article.

The question for investors is motive. If these Iranian naval drills are solely to boost domestic morale, they should be watched closely but not otherwise impeded. But if Iran is taking the first steps toward an attack on U.S. forces or closing the straits, then the U.S. and its Gulf allies may be close to a shooting war with Iran.

The situation is highly uncertain. One more reason to partially reallocate from equities to cash and gold until the dust clears.

Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.

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