Why Trump Can't Afford to Intervene in the Dollar Affairs

Volatility wise, Thursday was a relatively quiet day in the forex market. USD/JPY extended its losses but the greenback recovered against euro, sterling and other major currencies. The rallies in the Australian and New Zealand dollars were the strongest with both currencies experiencing their biggest one-day rally in 3 weeks against USD. While there were no US economic reports released, the rebound in stocks supported the steadier price action. Better than expected Chinese trade also helped fuel the recovery in AUD and NZD.

The big story of the day was President Trump's comments on USD. In a series of tweets, he said, "As your President, one would think that I would be thrilled with our very strong dollar. I am not! The Fed's high interest rate level, in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers like Caterpillar, Boeing, John Deere, our car companies, & others, to compete on a level playing field. With substantial Fed Cuts (there is no inflation) and no quantitative tightening, the dollar will make it possible for our companies to win against any competition. We have the greatest companies in the world, there is nobody even close, but unfortunately the same cannot be said about our Federal Reserve. They have called it wrong at every step of the way, and we are still winning. Can you imagine what would happen if they actually called it right?"

Investors are worried that by expressing a preference for a weaker dollar, President Trump is hinting that he could order the Treasury to intervene in the currency. This would be similar to his actions last week where he called China a currency manipulator on twitter and a day later, the Treasury made the label official. Could President Trump devalue the dollar? Certainly. Just last month he said he "could do that in two seconds if I wanted," but any intervention could backfire.

President Trump will argue that by devaluing the dollar, he's making US exporters cheaper and foreign profits of American companies more valuable in USD terms.

But dollar intervention is a bad idea because it drives up prices, creates more volatility in the markets and makes the Fed's job more difficult. If Trump's primary goal is to pressure the Fed to cut interest rates further, he's accomplished that by escalating the trade war with China. Markets collapsed, global growth will slow and investors are looking for two more rate cuts this year.

If Trump devalues USD, stronger foreign profits could be offset by lower stock valuations and weaker demand at home.

Also intervention rarely works if it is not coordinated with the central bank. If the Fed sterilizes the intervention, the impact could be limited. If stocks crash, investors will flock to the safety of US dollars anyway.

If intervention move is aimed at leveling the playing field with China, the US can't afford to intervene because China has deeper pockets. The Chinese government has $3 trillion in reserves to prevent the currency from weakening. US intervention on the other hand is funded by the Exchange Stabilization Fund, which has a buying power of USD 100 billion. Trump could allocate more funds but that would require the approval of Congress.

Judging from the price action in the dollar today and the move in US stocks, investors are not worried about intervention risk. They feel that the chance is low because it is unprecedented and dangerous but Trump likes to buck convention and could find ways to push this through.

Time to mend Saudi-Iranian relationship

The young Muslims often ask their seniors the reasons behind Saudi-Iranian animosity. The seniors very conveniently let the youngster to refer to internet, because they themselves have been brain washed by the dishonest western media. One of the outcomes of this constant brain washing is the perception drilled into the minds of Arabs, “Iran is a bigger threat than Israel”.

Let one begin analysis from the recent history spread over nearly half a century. Immediately after Islamic Revolution in Iran, Arab monarchs were made to believe that Iran is their number one enemy, which wants to dethrone them. United States emerged as the biggest enemy of Iran, as it failed to contain Islamic Revolution in Iran and also faced a few humiliating defeats. Having faced some worst defeats the United States, which was solely dependent on Arab oil prompted Iraq to attach Iran. In this war, spread over nearly a decade, Saudi-Iraqi petrodollars were used but all in vain, which also initiated an era of economic sanctions on Iran. Iranians must have lost hundreds and thousands of soldiers and civilian in that war, but economic sanctions gave them the courage to keep their economy afloat as well as face all sorts of external aggression, but they lost their substantial share in global oil trade.

The next target was Iraq, which proved an easy prey. Not only many of strategic oil installations were destroyed, the attempts to fragment it, left it too feeble. Over the years Israel has emerged the biggest buyer of stolen Iraqi oil. Now the target is Saudi Arabia. Since most of the Saudi oil is produced from fields located in area having Shia population, Sunni-Shia rivalry is being fueled. This has started decades ago after Hibzullah came to rescue Muslims living in Lebanon. The second phase of this proxy was fought in Syria and third phase is going on in Yemen and Bahrain, all the three countries having Shia population.

Anyone who does not accept this theory must scan the newspapers filled with accusations that Iranian and Houthis have attacked the tankers; dishonest western media is playing a key role in spreading disinformation. This is helping United States to sell billions of dollars arms to Saudi Arabia; United States has also previously sold huge arms by promoting ‘Iranian Phantom’.   Now most of the Arabs believe Iran is a bigger threat as compared to Israel.

Having fallen prey of western propaganda machine, Saudis are fighting US proxy war with Iran. Over the years they have been made to believe that keeping Iran out of oil trade, is bringing huge petro dollars to Saudi Arabia, which have enjoyed the status of ‘largest oil producing country’. However, most of the Saudi petro dollars are going back to United States, being the payment for the purchase of arms. Despite having tons of arms, Donald Trump says, “Saudis can’t survive if we take our hands off”. It is on record that soon after attacks on oil tankers; United States posted its soldiers in Saudi Arabia for the safety of Royal family.

This raises a question; does Saudi Arabia pay to the United States to defend its territory?  Even a person with ordinary wit knows ‘nothing comes free’. Despite buying billions of dollars arms every year, Saudi Arab has been neither successful in building its own army, navy and air force nor missile batteries that can help in combating Iran. Therefore, the monarchy is forced to depend on United States, which still consider its biggest enemy it savior. It must revisit history and see fate of Shah of Iran, Anwar Sadat of Egypt and Saddam Hussein of Iraq, to mention a few names.

It is an opportune moment for both Iran and Saudi Arabia to restore friendly relation, bid farewell to proxy wars and identify their real enemies. Hike in crude oil price has benefited United States, which has attained the status of biggest oil country. However, it goes without saying that many of US oil companies can go broke if oil prices fall below US$50/barrel. It is the time to save oil produced by Muslim countries, which its enemies are buying at huge discount.

Saudi Arab must pay attention to the offer made by Heshmatollah Falahatpisheh, a member of the Majlis National Security and Foreign Policy Committee of Iran. He has suggested that Arab countries in the Persian Gulf region must try to deescalate tension in the region, a move which Iran welcomes.

“We should move towards de-escalation. Tension is a reality in Iran’s foreign policy. Iran has many enemies that naturally cause tension. This situation should be managed. This is the opposite of Trump’s policy of increasing tension,” he told ISNA in an interview.

He noted, “Certain countries have adopted a different stance which shows a kind of green light to deescalate tension in the region. These countries have reached the conclusion that insecurity in the region harms them.”

Earlier, Abdullah al-Muallemi, the Saudi envoy to the United Nations, had said that Saudi Arabia seeks “diplomatic interactions” with Iran. “Saudi Arabia does not want war with Iran, neither in Yemen and nor anywhere else,” the Mehr news agency quoted him as saying.

Mohammad Javad Jamali Nobandegani, the deputy chairman of the Majlis National Security and Foreign Policy Committee, has said that Saudi Arabia can be a “strategic partner” of Iran if it abandons following the United States.

“If Saudi Arabia abandons animosity and stops blindly obeying America it can have a good strategic partner like the Islamic Republic, which will be to the benefit of all regional countries and Muslims”, Jamali Nobandegani told ISNA.

He added that Iran has always “extended hands of friendship to its neighbors”, citing Qatar as an example in which Iran opened its arms to the country when it was surrounded from land, sea and air by Saudi Arabia and the United Arab Emirates.

“Iran has always announced that it has no fundamental problem with its neighbors and extends hands of friendship to them. As a powerful country in the Persian Gulf region, we are ready to be a safe harbor for our neighbors,” he noted.

Iran also had good relationship with Saudi Arabia, the United Arab Emirates and Bahrain. However, Saudi Arabia and the UAE changed their policy toward Iran as Tehran seriously entered nuclear negotiations with the 5+1 countries – the five permanent members of the UN Security Council plus Germany – to end more than a decade of nuclear standoff with the West. Saudi Arabia was so unhappy with the negotiations that it even sent its then foreign minister Saudi al-Faisal to Vienna, the venue of the talks, in November 2014 to undermine the process of nuclear negotiations. Donald Trump has misused the frosty relationship between Iran and Saudi Arabia to sell more arms to Saudi Arabia and the UAE.

Iranian Foreign Minister, Mohammad Javad Zarif has rightly proposed non-aggression pact with regional Arab states to invalidate claims by the Trump administration that Iran is a threat to its southern Arab neighbors. 

China in defiance of US sanctions on Iran

According to a recent Bloomberg report, China is still importing oil from Iran despite re-impositions of the sanctions on the country by the United States. The energy starved Asian country imported 855,638 tons (about 209,000 barrels per day) of crude oil from Iran during June 2019.

The data adds to speculation that Beijing may risk running afoul of the US sanctions to secure crude supplies from the Islamic Republic.

All eyes are on China’s oil purchases as Donald Trump’s administration continues to clamp down on companies and individuals flouting its restrictions. 

The import-reliant Asian nation is one of the few remaining buyers of Iranian barrels, after other countries such as South Korea and Japan halted flows.

China imported about 494,000 barrels a day of Iranian crude in the first five months of this year, compared with more than 660,000 barrels a day in the same period in 2018. 

In late June, China’s Jinxi Refining and Chemical Complex received a one-million-barrel cargo of Iranian oil in the first month after the Trump administration ended waivers permitting imports of Iranian oil.

Since April when the US announced that buyers of Iranian oil should stop purchases by 1^st May 2019 or face sanctions, China has been constantly opposing Washington’s policies toward Iran and Chinese officials have repeatedly announced that they will continue purchasing oil from Iran.

In early May, Chinese Commerce Ministry announced the country’s opposition to unilateral sanctions of the US against Iran, saying that cutting Iranian oil supplies will only worsen volatility in global energy markets.

In late May, Reuters reported that Iran delivered 130,000 tons of fuel oil to China despite the US sanctions.

Later in June, Bloomberg informed that China is still importing liquefied petroleum gas (LPG) from Iran after the US imposed sanctions on the country’s oil industry.

According to ship tracking data, the Paris-based energy researcher Kpler SAS estimated that at least five supertankers loaded Iranian LPG in May and June for China.

China is Iran’s largest oil customer with imports of 475,000 barrels per day (bpd) in the first quarter of this year, according to Chinese customs data.

Can US afford an assault on Iran?

The US-Iran standoff continues to evolve quickly, yet commentaries covering tanker attacks, a downed drone, and reversed orders for airstrikes from the White House fail to explain the logic behind an intervention, if the Trump administration decides to intervene. Therefore, it is worth exploring what a war between the two would actually look like.

Ideally, the US should have learnt some lessons from Vietnam, Afghanistan and Iraq wars. Distant foreign conflicts are difficult to win, which most of the Americans are usually unwilling to think unless faced with a massive and immediate threat. Small-scale engagements accomplish little and are instead more likely to evolve into larger conflicts. Installing foreign governments are more difficult, costly, time-consuming and even deadly than leaders are likely to claim.

Backing a local proxy is often unpalatable for the country’s sense of ethics, but US adversaries often have no such misgivings. Those proxies are often an ineffective substitute for a US military presence when it comes to pursuing the US agenda. Without a substantial, long-term commitment of US forces, such wars are more likely to leave a power vacuum when the US withdraws. The outcomes are collapsed government, invasion by a neighbor, revolution that creates new and uncertain structures – or some combination of all these. In fact, the US has had a few true victories in the wars it has fought since World War II.

Airstrikes

Exploring US government’s options in a war with Iran, the most probable option is limited strikes, similar in scale to or perhaps somewhat greater than the strikes on Syria that the Trump administration ordered on Syria in 2017 and 2018. But Iran is not Syria, as it has a sophisticated air defense infrastructure and plenty of air denial capability, increasing the chance of US casualties. Further, a limited air strike probably wouldn’t accomplish anything meaningful. It might take out a handful of radar and air defense installations, sending a political signal but affecting in no real way the strategic reality on the ground. The only time US air power alone has significantly shifted the reality on the ground was in Kosovo, but Iran today is far more powerful than Serbia in 1999.

On the contrary, limited strikes may have opposite outcome. Iran’s economy is hurting and its society appears more divided as citizens continue to grow frustrated with the government. The US has imposed sanctions as a strategy to hobble the economy enough to create social pressure on Tehran, forcing the government to spend less on its defenses and funding of militias in Syria and Iraq, so far, they’ve been effective. If the US continues this tactic, over time Iran’s domestic situation would worsen, and its citizens would be more likely to blame its leadership for their problems. And that would likely intensify the divisions within the government that are already emerging, resulting in either a more Western-friendly government or one dominated by the Islamic Revolutionary Guard Corps.

Even limited US airstrikes would increase the probability of the IRGC consolidating power. If the sanctions can help create division, an attack would unite Iran’s hard-liners and reformers against the US. That unity would likely occur under the aegis of the hard-liners who have been warning all along that this day would come if Iran were foolish enough to trust the US. As the most powerful entity in the county, the IRGC would probably take over, and do so with popular support.

Use of Ground Force

Ground force is a less likely choice for the US, even with limited objectives (like eliminating specific military equipment or securing passage through the Strait of Hormuz). But it would be more likely to achieve what the US really wants, Iran to recall its foreign militias to defend the home. But when a military force is rapidly removed without a replacement ready to take its place, it creates a power vacuum and, therefore, an opportunity for others to fill the void. The pace at which Iran withdraws its militias from Syria and Iraq can alter the regional balance of power.

If any militant group occupies the space vacated by Iran, US would have to again deal with this problem, which would require reoccupying parts of Iraq while fighting Iran. This would likely entail support from Syrian and Iraqi Kurdish forces, which would again put pressure on US-Turkey relations. But the Syrian Kurds may not see a long-term alliance with the US as in its best interest after the US threatened to leave them high and dry in December 2018. They could instead seek out a political resolution with Damascus, backed by Russia that would protect them from Turkey. It is also likely that Russia may step in to back Kurdish groups such as the Syrian Democratic Forces to fight back. But that would mean the US would be depending on Russian assistance to cover its western flank, and in exchange for such cooperation Russia would likely demand US concessions in places like Ukraine. In short, going all-in with Iran would require either a large-scale US occupation or dependence on Russia in Syria and Iraq. Neither of those are appealing options for Washington.

Regime Change

If it is regime change that the US may attempt in Iran, the risks are even greater. The fallout would look much like that of the second Iraq war, but on a far greater scale. Installing a pro-American regime isn’t easy, but it can easily fail. The US would have to commit to an indefinite occupation of Iran or again risk the emergence of a power vacuum. The US would have to deal with the rest of the Middle East. In the best-case scenario, the US would install a new head of government while facing a lengthy insurgency, which would likely include the vestiges of the IRGC and its heavy weaponry. After a long, costly occupation, the US would have to withdraw, leaving Iran’s leaders to face opposition on their own. The half-life of US-installed leaders in the Middle East would not be long. Limited airstrikes or a full-scale invasion (military confrontation with Iran) would create more problems for the US rather than offering any sustainable solution.

Cyber attacks against Iran a failed US strategy

Lately, the United States launched cyber attacks against Iranian missile control systems and a spy network after Tehran downed an American surveillance drone. It is believed US president Donald Trump authorized the US Cyber Command to carry out a retaliatory attack on Iran, shortly after the US president pledged to hit the Islamic republic with major new sanctions. The US claimed crippling of computers used to control rocket and missile launches. However, it was not clear whether the attacks were effective or not. It was suggested the US media reports were a bluff meant to affect public opinion and regain the lost reputation for the White House following the downing of its drone. The US had undertaken similar attacks in the past.

It was first in July 2010 when the United States launched a serious cyber-attack against Iran. At the time, it was said that a virus named Stuxnet was used for damaging the computer systems that controlled Iranian nuclear industry. 

On 16^th January 2011, New York Times and many other media published news about how Stuxnet malicious computer worm was jointly built by US, the Zionist regime, United Kingdom and Germany. It revealed that President George W. Bush had initially granted permission for production of Stuxnet and then they started building the virus in cooperation with the Zionist regime. 

According to the official documents, Stuxnet was built jointly by US, Germany, UK and the Zionist regime, but Germany and UK may not have been aware what function the virus will have in future. George W. Bush issued the permission for building Stuxnet and Barack Obama gave permission for using it in 2009. 

According to western and Zionist news agencies, in 2009, Stuxnet mostly infiltrated the computers via software such as USB flash drives and internet and then the virus was transferred to every other computer that became connected to an infected computer. 

At the time, the emergence of this computer worm was all over the news. On 2^nd October 2010, India Times and Daily Telegraph published some news and revealed that the Zionist regime was involved in building this virus.
What is interesting in both their reports, is that they mentioned that Stuxnet used a file named “Myrtus” to infiltrate the computers. 

Myrtus is a word with Hebrew roots that refer to the story of Esther,  the second wife of Persian king Ahasuerus (commonly identified as Xerxes) in ancient Persia. She was a Jewish woman who was under the guardianship of her cousin, Mordecai who was an advisor to king Ahasuerus and convicned the king to marry her. According to these reports, Esther was somehow considered as the queen of world Jews and the Zionist regime was inspired by this historical character to name the malware to infiltrate Iran’s systems. 

After George W. Bush and Barak Obama, the plans for launching cyber-attacks against Iran were still at work in White House. Recently, western media, specially the American ones, announced that Donald Trump has issued the permit for attacking Iranian computer systems. 

It is claimed that the permission for beginning cyber-attacks was given on Thursday right after Trump, allegedly, called off his attack against Iran in retaliation for downing US invading drone just 10 minutes before it was to be launched. Two informed sources have told Associated Press that the cyber-attacks are been approved by Trump. 

It appears that President Trump has chosen a strategy against Iran that was also tried by Bush and Obama.  According to the reports published in New York Times, contrary to the intentions of US and the Zionist regime, Stuxnet was never able to carry out its mission completely, that was the destruction of Iran’s nuclear program, it only slowed down the process of Iran’s nuclear developments. 

It seems that Trump is running a test on Iran; and, now, instead of direct military war, he has chosen to launch cyber-attacks and offered negotiations without any precondition. Currently, Trump has three big projects at hand: the Deal of the Century, Iran and North Korea. 

In dealing with North Korea, Trump also first started with direct threats, to the point that many predicted an imminent war would start, but he suddenly offered to negotiate with North Korean Supreme Leader Kim Jong-un; though these negations have not yet come to any conclusion. 

White House has also devised the Deal of the Century project for the Middle East, but the Palestinians have not agreed to abide by it. Finally, Trump has also been unsuccessful in dealing with Iran. 

By abandoning the nuclear deal with Iran and imposing sanctions on Iran, Trump burned all the bridges between the two countries and now he is wondering if he can push Tehran into submission by trying out other strategies such as cyber-attacks and economic pressure.

Israel, United States and Russia meeting at Jerusalem to combat Iran

“Tehran should not view the US decision to hold back from launching a retaliatory military strike against Iran as a sign of weakness”, said US National Security Advisor John Bolton told reporters in Jerusalem lately. 

Bolton spoke after a historic trilateral meeting with his Russian and Israeli counterparts, Nikolai Patrushev and Meir Ben-Shabbat, about regional security. Prime Minister Benjamin Netanyahu headed the Israeli delegations at the talks.

Bolton repeated twice to reporters that Iran "should not mistake restraint as a sign of weakness." Iran must halt its pursuit of nuclear weapons and “all options are on the table” until it does, Bolton told reporters.

“They should give up their pursuit of deliverable nuclear weapons. They should make that strategic step, they have not done it yet,” Bolton said.

Prior to the meeting, Bolton said, “US President Donald Trump has held the door open for real negotiations, to completely and verifiably eliminate Iran’s nuclear weapons program, it's pursuit of ballistic missile delivery systems, its support of international terrorism and its other maligning behavior worldwide.”
Bolton noted that other top US officials - Secretary of State Mike Pompeo and US envoy on Iran Brian Hook - were also in the region to discuss Iran with Arab leaders.
“As we speak, US diplomats are surging across the Middle East seeking a path to peace,” Bolton said. “In response Iran’s silence is deafening,” he added.
"Iran’s provocations, which also include threats to and acts upon American personnel and assets in the Middle East, are the external manifestations of the essential threat Iran poses, namely its continued pursuit of deliverable nuclear weapons,” Bolton said.
“There is simply no evidence that Iran has made the strategic decision to renounce nuclear weapons and open realistic discussion to demonstrate that decision,” he added.
“In just a few days - perhaps by the weekend - Iran has threatened to exceed the key limits possessed by the inadequate 2015 nuclear deal, exposing once again the fatal deficiencies of that failed agreement,” Bolton said.
“All around the Middle East, we see Iran as the source of belligerence and aggression,” he said, giving as examples its support of Hezbollah in Lebanon, its assistance to the regime of Syrian President Bashar Assad, the arming of militia groups in Iraq, the weaponizing of the Houthis in Yemen, its support of terrorist activities against US forces in Afghanistan and its threat to oil supplies.
Bolton said that the trilateral meeting was taking place at a “particularly critical moment.” The US envoy also spoke glowingly of Netanyahu’s leadership and the role he plays in maintaining Israeli security.
The trilateral meeting, Bolton said to Netanyahu, “is a tribute to your leadership and a recognition of the central role that Israel does and must play in securing international peace and security.”
He added that, “through your strong relationships with both [Russian] President [Vladimir] Putin and President Trump, there is a substantially greater prospect for coordination of our perspective policies in order to achieve a secure and lasting peace in the region.”
The trilateral talks will include discussions in particular on Iran’s military presence in Syria. Israel and Russia are at odds over that presence, with Israel pushing for Iran to be ousted from Syria. Moscow holds that Israeli security is important but believes that the Assad regime has a right to open its doors to Iran.

Patrushev pledged his support to the joint battle against terrorism, which his country is waging alongside Israel and the US, particularly against ISIS.
“It is extremely important to guarantee Israel’s security,” he said, recalling that there are two million Russians living in Israel.
But he said that it is also important to respect other regional powers, hinting at Iran and noting that, “if we ignore them, we won’t achieve results.”
Russia is opposed to Israeli sovereignty over the Golan Heights, and Patrushev hinted at that opposition in his remarks. “There should be a peaceful, prosperous and sovereign Syria,” he said.
Netanyahu said the trilateral meeting showed that there was “a wider basis for cooperation between the three of us than many believe. This summit represents a real opportunity to help advance that stability in our region, particularly in Syria.”
“Israel has acted hundreds of times to prevent Iran from entrenching itself militarily in Syria,” Netanyahu said, adding that, “Israel will continue to prevent Iran from using neighboring territory as platforms to attack us and Israel will respond forcibly to any such attacks,” he said.
Netanyahu thanked Russia for working out a deconfliction mechanism with Israel, which allows it to operate in Syria without the risk of harming Russian forces in Syria.
“All three of us [Israel, Russia and the US] would like to see a peaceful, stable and secure Syria,” Netanyahu said.
“We also have a common objective to achieve that goal... that no foreign forces that arrived in Syria after 2011 remain in Syria,” Netanyahu said. He counts Iran as one of those foreign forces. Russia believes that Iran is not included in that list, because it is there at the request of the Assad regime.
“We think there are ways to achieve that common goal. I believe the outcome that I have just described - the departure of all foreign forces from Syria, who entered after 2011 - will be good for Russia, good for the US, good for Israel and good for Syria,” Netanyahu said.
Ben-Shabbat stood behind Netanyahu, saying that regional stability could not be obtained without stopping Iran.

Trump acts touching insanity

People may say, “you are nobody to comment on the acts of Donald Trump, President of United States, the sole surviving super power”. However, I am forced to say that most of his acts seem to be touching ‘insanity’, be it imposition of tariffs on goods of Chinese origin or the latest, sanctions on Iranian supreme leader and other top officials.

The mainstream media has written a lot on ongoing Sino-US trade war, purely from economic perspective. However, when it comes to Iran-US animosity, western media becomes ‘dishonest’ and tows US lines blindly.

According to a Reuters report, “US President Donald Trump has targeted Iranian Supreme Leader Ayatollah Ali Khamenei and other top Iranian officials with sanctions, taking a dramatic and unprecedented step to increase pressure on Iran after Tehran’s downing of an unmanned American drone. This, according to US Treasury Secretary Steven Mnuchin would lock billions of dollars more in Iranian assets.

John Smith, who was director of the US Treasury’s Office of Foreign Assets Control (OFAC) before joining a law firm last year, said the United States had never targeted an Iranian head of state before and that was a sign Trump was getting personal. “Generally, when you target a head of state you’re not turning back. That is when you believe all options are at an end,” Smith said.

On Monday, UN Security Council met behind closed doors at the request of the United States and its acting ambassador Jonathan Cohen said evidence showed Iran was to blame for attacks on commercial tankers in the Gulf in May and June and urged the world to tell Tehran its actions were unacceptable.

US Secretary of State Mike Pompeo also travelled on Monday to meet with Saudi leaders to build what he called a “global coalition” against the Islamic republic. Pompeo met Saudi King Salman and Crown Prince Mohammed bin Salman in Jeddah.

Although, Trump backed away from a bombing strike in retaliation for last week’s drone downing, US media reports said a US cyber attack took place against Iranian missile control systems and a spy network. However, Iranian Telecommunications Minister Mohammad Javad Azari Jahromi said no cyber attack against his country had ever succeeded.

Trump has repeatedly said he does not favour war with Iran unless it is to stop the country getting a nuclear weapon — something Iranian leaders insist they are not pursuing.

But Trump critics say his policy of "maximum pressure" — including crippling economic sanctions, abandonment of an international deal to regulate Iran's nuclear activities, and deployment of extra troops to the region — make war ever more likely.

A key Republican ally of Trump, Senator Lindsey Graham, said the president's "options are running out".

Asked if he believed the countries were nearing conflict, he replied: "I think anybody would believe that we're one step closer."

One of Trump's biggest opponents, the Democratic speaker of the House of Representatives, Nancy Pelosi, warned that "there's no appetite for wanting to go to war in our country".

Russian President Vladimir Putin, who has close relations with Iran's leadership, said US military retaliation "would be a disaster for the region".

In a televised address, President Hassan Rouhani said sanctions against Khamenei would have no practical impact because the cleric had no assets abroad.

Rouhani, a pragmatist who won two elections on promises to open Iran up to the world, described the U.S. moves as desperate and called the White House “mentally retarded” - an insult Iranian officials have used in the past about Trump but a departure from Rouhani’s own comparatively measured tone.

Rouhani and his cabinet run Iran’s day-to-day affairs, while Khamenei, in power since 1989, is Iran’s ultimate authority.

“The White House actions mean it is mentally retarded,” Rouhani said. “Tehran’s strategic patience does not mean we have fear.”