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Iran tensions

Red flag for vengeance -- anger over US strike on Iran general grows

Limited options for retaliation help markets shrug off heightened risk

TOKYO/NEW YORK -- The American killing of Iranian Gen. Qassem Soleimani has poured oil on simmering tensions in the Middle East, heightening the risk of armed conflict.

U.S. President Donald Trump said he made the call to "stop a war," but looks to have decided on gut instinct rather than via thorough analysis. The option was the most extreme presented by American military officials, only on the list "to make other possibilities appear more palatable," The New York Times reported.

Democrats condemned the move by the Republican president. Sen. Elizabeth Warren, running for the Democratic Party's nomination, suggested Sunday that he may have ordered the strike now to distract attention from his own impeachment trial, set to begin as early as mid-January.

The Trump administration said it killed Soleimani because he posed an "imminent threat" to the U.S. But it has not provided further details.

Trump has slammed past American presidents for becoming entangled in the Middle East and has pledged to pull the U.S. out.

Soleimani was revered as a hero among Shiite Muslims in Iran and Iraq for battling against the Sunni Islamic State terrorists. Mourners flooded the streets of the Iranian city of Ahwaz as the commander's body arrived from Baghdad, in a scene reminiscent of the Iranian Revolution four decades ago.

Soleimani's devotees also turned up in Baghdad, Karbala and Qom, beating their heads and chests in grief. All of these cities have shrines honoring Shiite leaders and their families, making them holy sites for followers of that branch of Islam.

A red flag symbolizing vengeance, rooting back to the seventh-century martyrdom of the Prophet Muhammad's grandson and his family, was raised in Qom following Soleimani's killing. The strike has intensified anti-U.S. sentiment, and the Iranian government appears to be using the incident to strengthen its grip.

Shiite anger has spread beyond Iran. The Iraq War, through which the U.S. toppled then-President Saddam Hussein in 2003, shattered Iraqi national identity. That the commander of the Quds Force, an elite Iranian military and intelligence unit, was operating in Iraq and killed there by the U.S. highlights the level of dysfunction in Iraq. Turmoil in the country could grow with the inflow of fighters and weapons from Iran.

Iran's Revolutionary Guard, the military force that encompasses the Quds Force, has also sometimes interacted with the Shiite militia Hezbollah in southern Lebanon, and the Houthi movement fighting Saudi-led forces in Yemen. The broad range of operations led to the emerge of a "Shia crescent" from Lebanon on the Mediterranean Sea to Iran on the Persian Gulf.

The Quds Force is named after the Arabic term for Jerusalem. Israel, which has annexed East Jerusalem, could become a key target as tensions rise.

Despite heightened global tension, U.S. stocks showed surprising resilience Monday amid geopolitical worries.

Iranian policemen mourn Gen. Qassem Soleimani, head of the elite Quds Force, in Tehran on Jan. 4.   © Reuters

The Dow Jones Industrial Average closed 68 points higher at 28,703, in contrast to the pounding in Asian markets earlier, which saw key Japanese and Indian indexes fall around 2%.

"The Mullahs may be fanatics, but that doesn't mean they are crazy," wrote Ed Yardeni, president and chief investment strategist of Yardeni Research, predicting that the options for retaliation will be limited "facing a U.S. president who seems willing to respond disproportionately to any further instigation."

Yardeni wrote that "it is unlikely that oil prices will soar to levels that will cause yet another global recession, as has happened in the past when chaos spread in the Middle East."

Higher oil prices, Yardeni said, would "stimulate even more oil production by U.S. frackers."

Markets in Asia rebounded on Tuesday morning after a Monday drop.

History shows that past U.S.-Iran tensions have offered buying opportunities. When then-President George W. Bush called Iran, Iraq and North Korea an "axis of evil" in his 2002 State of the Union address, the Dow Jones average fell more than 2% right after -- but within a month, it had risen by more than 5%.

When the U.S. military began bombing Iraq in 2003, the stock market held strong from immediately after the raids.

"Geopolitical crises tend to create buying opportunities in the stock market as long as they don't trigger a recession," wrote Yardeni, who maintained an optimistic and bullish outlook.

But Moody's senior analyst Alexander Perjessy wrote in a note to clients Monday that a lasting conflict "would have wide-ranging implications through broad economic and financial shock that significantly worsen operating and financing conditions."

Additional reporting by Ryo Nakamura in Washington.

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