What’s going to happen in the Middle East? This is a question on many people’s minds.

Over the weekend, U.S. forces killed Iranian general Qasem Soleimani at the Baghdad airport. Soleimani was the leader of Iran’s Quds force, which is responsible for many of Iran’s extraterritorial military and clandestine operations.

This was a military action made for television. It was a high-tech attack using a drone to fire the shots. It involved Iran, a potential nuclear power that has been a source of unrest since 1979. The attack occurred in Iraq, where the U.S. presence is controversial among Iraqis and many Americans.

Then, last night news broke that Iran launched more than a dozen ballistic missiles at two military bases with U.S. assets in Iraq. Reports of damage and casualties were conflicting overnight, but according to the Pentagon, it appears there were no U.S. casualties.

All is well! Missiles launched from Iran at two military bases located in Iraq. Assessment of casualties & damages taking place now. So far, so good! We have the most powerful and well equipped military anywhere in the world, by far! I will be making a statement tomorrow morning.

— Donald J. Trump (@realDonaldTrump) January 8, 2020

Then, at 11 am ET this morning, the President addressed the nation, warning Iran against further attacks.

Where Do We Go From Here?

So what does this all mean?

Many of you know about my military background. I was in the Army for nine years — two of which I spent in Iraq as a Military Intelligence Analyst during Operation Iraqi Freedom. Part of my job was to think about potential threats on the battlefield and work with a team to come up with a plan that put our troops in the best position for success.

Here’s one thing we know for certain: Newscasters will have content for weeks. Much of it will be speculation. But we don’t need to flip through the various news networks to figure out what will happen next. I believe the oil market will tell us all we need to know.

For now, oil is telling us this will not be a significant military event.

The chart below shows crude oil futures. Oil has been moving higher since October. But that trend seems to be reversing.

The stochastics indicator is shown at the bottom of the chart. As you can see, it recently turned bearish. Dashed lines highlight similar market conditions where an uptrend ended as stochastics turned down. The uptrend is defined with Bollinger Bands. This indicator does a nice job highlighting trends in futures.

[Update: I shared the chart above with my premium readers early this morning. Since then, oil prices have cratered, falling below $60 per barrel.]

The Takeaway

Iran’s oil production is not significant in the grand scheme of things. But if the country threatens the Strait of Hormuz, that would cause a spike in oil prices. Much of Asia’s oil moves through that narrow waterway, and Iranian military action would threaten the flow of that oil. That would cause a price spike.

A sustained uptrend in oil would indicate there is a likelihood of escalation in the Middle East. I’ll be watching that instead of listening to commentators on CNN and other news channels.

While I don’t expect an escalation in the conflict, there is significant sentiment leaning in that direction. My trade recommendation for my premium Income Trader service this morning could benefit from that sentiment.

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