Iran Abandons Nuclear Deal as Killing Fallout Widens
Hezbollah supporters hold pictures of Qassem Soleimani, an Iranian commander, as Hassan Nasrallah, leader of Hezbollah, delivers a televised speech, in Beirut, Lebanon, on Sunday, Jan. 5, 2020. (Photographer: Hasan Shaaban/Bloomberg)

Iran Abandons Nuclear Deal as Killing Fallout Widens

(Bloomberg) -- Fallout widened from last week’s killing of a top Iranian military commander by a U.S. drone in Baghdad, as Iraq’s parliament voted to expel U.S. troops from the country and Iran said it would no longer abide by any limits on its enrichment of uranium.

Iran no longer considers itself bound by the 2015 nuclear agreement negotiated with the U.S. and other world powers, its government said on Sunday, according to the semi-official Fars news organization. U.S. President Donald Trump pulled the U.S. out of the pact in 2018.

Iraq’s parliament, which denounced the drone strike early Friday as a violation of the nation’s sovereignty, asked the government to revoke its 2014 request for foreign military intervention to beat back Islamic State, which had conquered large chunks of the country.

The developments led Trump to double down late Sunday on his tactics. Speaking to reporters aboard Air Force One, Trump repeated a threat to strike Iranian cultural sites if U.S. citizens or sites are struck in retaliation for the U.S. killing of Iranian general Qassem Soleimani. He also sent a warning to Iraq, saying that U.S. troops won’t leave the nation without billions in payment for a base there -- or, they’d leave and Trump would apply sanctions to the country, which is an ally.

Iran Abandons Nuclear Deal as Killing Fallout Widens

“We have a very extraordinarily expensive air base that’s there. It cost billions of dollars to build, long before my time. We’re not leaving unless they pay us back for it,“ Trump told reporters as he returned to Washington from Florida. “If they do ask us to leave, if we don’t do it in a very friendly basis, we will charge them sanctions like they’ve never seen before ever. It’ll make Iranian sanctions look somewhat tame.”

Trump’s Iraq threat is his latest effort to ratchet up warnings against any counter-attack in the aftermath of Soleimani’s death. Earlier, a Lebanese proxy nurtured by Soleimani, vowed to attack U.S. soldiers and bases as Gulf Arab states tried to head off the kind of retribution that would plunge the combustible region into a broad military confrontation.

Absorbing the weekend’s events, the yen strengthened and gold rallied to a six-year high as geopolitical tension sent investors in search of safe havens. U.S. stock futures and Asian equities declined while brent crude oil rose above $70 a barrel. On Sunday, all major Middle East equity gauges fell, and the cost of insuring Saudi Arabia’s debt against default spiked.

NATO ambassadors will meet in Brussels on Monday to discuss the situation in the Middle East at the request of Secretary General Jens Stoltenberg, Reuters reported late Sunday.

“Confidence has been shaken between Iraq and the U.S.,” outgoing Iraqi Prime Minister Adel Abdul-Mahdi said in a speech to an emergency session of parliament convened on Sunday to discuss a response to Soleimani’s killing. All 172 legislators present voted for the solution, but almost 160 mainly Sunni and Kurdish parliamentarians didn’t show up for the vote.

Iran Abandons Nuclear Deal as Killing Fallout Widens

“The United States is disappointed by the action taken today in the Iraqi Council of Representatives,” State Department spokeswoman Morgan Ortagus said in an emailed statement.

“While we await further clarification on the legal nature and impact of today’s resolution, we strongly urge Iraqi leaders to reconsider to the importance of the ongoing economic and security relationship between the two countries.”

The U.S.-led coalition against Islamic State said Sunday it has suspended training and operations against the jihadi group in Iraq, with resources redirected to protecting Iraqi bases that host coalition troops.

Soleimani was as revered at home as he was reviled in some quarters abroad, and thousands of Iranians, some shouting “Death to America” and “Death to Israel,” poured into the streets to pay tribute after his body was flown back home. His death dealt yet another blow to world powers’ crumbling nuclear deal with Iran. Sunday’s action looked like the historic deal’s death-knell.

Hassan Nasrallah, the leader of Iran’s Lebanese ally, Hezbollah, said the conflict had entered a “new phase” and the price of Soleimani’s death should be the end of the U.S. military presence across the region. Tehran’s allies could respond anywhere in the Middle East, Nasrallah said.

“The just punishment is the following: the American military presence in our region, the American military bases, the military ships and every American soldier and officer,” he said.

Iran Abandons Nuclear Deal as Killing Fallout Widens

A U.S. withdrawal from Iraq would close a chapter that began with the 2003 invasion to topple Saddam Hussein. The proposed pullout came hours after Trump said the U.S. had identified 52 Iranian sites it would hit if Tehran retaliates. Trump said, without providing any evidence, that he approved the strike because Soleimani was plotting “imminent and sinister attacks” against American diplomats and military personnel.

The president’s tough talk undercut his assertion a day earlier that the U.S. hadn’t launched the attack near Baghdad airport on Thursday to “start a war.” It also seemed to reverse the efforts of Pompeo, who in the previous two days had repeatedly reaffirmed that the U.S. remains committed to defusing tensions with Iran as he talked with officials across the Middle East and Russia. On Sunday, Pompeo told ABC TV that any attacks against Iran would involve “lawful” targets.

Gulf states that are possible targets for Iranian reprisal urged calm as the prospect of a new conflict in the world’s top energy-exporting region loomed. Tehran’s capacity for retaliation may be crimped, however, by the dire condition of the Iranian economy, which has been clobbered by American sanctions reimposed after Trump withdrew from the landmark nuclear accord in 2018.

There was some immediate fallout, however. Rockets slammed into Baghdad’s Green Zone, which contains the U.S. Embassy, on Saturday and Sunday.

Balancing Act

“Investors who were hoping for lower geopolitical tension in the Middle East, North Africa region in 2020 got their hopes dashed on the second day of the year,” said Mohammed Ali Yasin, chief strategy officer at Abu Dhabi-based Al Dhabi Capital Ltd. “2020 will continue to be a year of high geopolitical tensions in our region.”

Soleimani’s killing has set off a flurry of diplomacy, with European allies urging Trump to ease tensions with Tehran and warning of the risks of tit-for-tat reprisals. Turkey and Russia have both spoken with Iranian officials to discuss developments.

The U.K. repeated its call for de-escalation and the EU expressed concern about the increasing tensions in Iraq, including the killing of Soleimani.

©2020 Bloomberg L.P.

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