The price of gold and oil surged, to no one’s surprise, following the US killing of Qasem Soleimani, the Iranian major general who was effectively deputy to its Supreme Leader Ali Khamenei.
Stampeding out of the market may be less wise, taking account of research into the impact of assassinations published in the American Economic Journal and newly endorsed by historian Niall Ferguson.
The Jones analysis shows that assassinations within democracies do not lead to regime change. But the proportion of nations moving from autocracy to democracy rise by 13% over the next year, steadily increasing as time passes
Soleimani was in charge of his country’s Middle East proxy wars. He led its military and clandestine operations and investors are unsettled over the impact of Iran’s response to his death by drone.
According to former hedge fund manager David Murrin: “Iran is in a desperate corner trapped like a rat, so it cannot to just choose to do nothing. Whilst it cannot challenge the US in a conventional military struggle, its response will be asymmetric.
“My guess would be a delayed response attack, some months in the future for public consumption when America’s guard is down. Iran will take every step possible to make a secret nuclear breakout a reality.”
But market reaction was muted. Investors noted the Federal Reserve’s habitual readiness to use liquidity to support the US market. Iran’s relative weakness compared to the US, and lack of allies, was a factor.
The market has learned to be wary of fear. “The market consensus is going to be to fade this pretty quickly. It has seen this movie before–a spark in geopolitical tension, textbook reactions in stocks, bonds, and oil, and then the markets fade back,” Mohamed El-Erian, Allianz chief economic adviser, told CNBC.
Data further suggests that assassinations can resolve awkward situations, rather than making them worse, as anxious people are quick to assume.
Benjamin Jones and Benjamin Olken carried out research in 2007 for the American Economic Journal into 298 assassination attempts since 1875, of which 59 resulted in the death of leaders.
The research is called “Hit or Miss? The Effect of Assassinations on Institutions and War.” Historian Niall Ferguson believes the research remains relevant, noting assassinations tend to lead to democracy.
The Jones research finds assassinations produce a 25% rise in the cessation of intense hostilities but a possible rise in the intensity of smaller conflicts. On their own, they make no difference to the timing of when wars break out.
It is a moot point as to whether or not US and Iran have been involved in an undeclared war since the fall of the Shah in 1978.
But the balance of probabilities implies the Soleimani assassination is not likely to have a material impact on future conflict. Jones stresses: “Individual leaders play an important role in the initiation and cessation of conflict.” But popular dislike of an autocrat makes change – sometimes triggered by an assassination – more likely.
Weariness of the Iranian people with sanctions, as well as the rule of Khamenei is something the US has anticipated for years. Soleimani’s assassination could strengthen the trend, increasing pressure for greater democracy.
The Jones analysis shows that assassinations within democracies do not lead to regime change. But the proportion of nations moving from autocracy to democracy rise by 13% over the next year, steadily increasing as time passes.
Assassination weakens the obstinacy of autocrats as well as reducing popular fear.
According to Jones: “Our findings suggest ‘agency at the top’ with autocratic national leaders as important forces in restraining or promoting democratic change.”