In the early hours of Saturday, 28 February 2026, the US and Israel launched a major coordinated military strike on Iran. The operation, one of the most significant in the region in decades, killed Iran’s Supreme Leader Ayatollah Ali Khamenei, the Commander-in-Chief of the Islamic Revolutionary Guard Corps (IRGC), and senior security official Ali Shamkhani. Targets included nuclear facilities, ballistic missile sites, military command centres, and leadership compounds across the country.
Iran retaliated within hours, firing waves of missiles and drones at US military bases and allied nations across the region, including Bahrain, Kuwait, Qatar, the UAE, Jordan, and Saudi Arabia. The Port of Jebel Ali in Dubai was struck. Dubai International Airport suspended flights indefinitely. Iranian missiles also targeted British military bases in Cyprus. The conflict had spread well beyond Iran’s borders.
Iran has since imposed an internet blackout and declared 40 days of national mourning. Yet alongside footage of demonstrations against the US and Israel, other videos have emerged showing Iranians celebrating Khamenei’s death in cities including Tehran — a reminder that Iran’s population remains deeply divided, and the country’s political future is far from settled.
At this stage, no single outcome is certain. Situations like this rarely unfold according to a neat script. What we can do is map the most plausible scenarios and their likely impact on financial markets.
Scenario 1: Regime Collapse and Transition
Timeframe: Weeks | Oil: Falls below US$70 | Equities: Strong rally
The decapitation of Iran’s top leadership is more complete than in any previous confrontation. With Khamenei and the IRGC leadership gone, the remaining regime has lost both its symbolic authority and its military command chain. Domestic protests, already significant, could now escalate rapidly.
If a transitional government emerges and opens negotiations with the US, the geopolitical risk premium that has weighed on markets for years could evaporate quickly. Oil prices, after an initial spike, would fall sharply below US$70. Equity markets would likely rally strongly. Gold would pull back from elevated levels.
This is the best possible outcome for investors, and it is now nearly as likely as our base case.
Scenario 2: Short Conflict, Ceasefire (Our Base Case)
Timeframe: 4–6 weeks | Oil: US$80–90, then eases | Equities: -10%, then recovers
US and Israeli strikes continue for two to four weeks, further degrading Iran’s military capacity. Iran retaliates, but with diminishing effect. A ceasefire is eventually brokered, most likely through Oman or the United Nations, in exchange for Iran’s new leadership council agreeing to US demands on its nuclear programme.
Oil prices spike to the US$80-90 range in the near term but ease once it becomes clear that the Strait of Hormuz will remain open. Global share markets enter correction territory, a fall of around 10%, before recovering over the following four to six weeks. Gold remains elevated throughout. This is currently the most likely single outcome.
Scenario 3: Prolonged Conflict via Iran’s Proxy Network
Timeframe: Months | Oil: US$85–100 sustained | Equities: Ongoing pressure
For this scenario to unfold, Iran’s allied militant groups, Hezbollah in Lebanon, the Houthis in Yemen, and Iraqi militias, would all need to enter the conflict simultaneously. At present, each group is calculating its own interests carefully.
Hezbollah is weighing its own survival and facing domestic Lebanese political pressure to stay out. The Houthis have issued threats but have not yet acted. Iraqi militias have called for action but are conscious of Baghdad’s fragile political dynamics. The scenario becomes more likely, however, if the US or Israel strikes Houthi or Hezbollah territory directly.
If it does materialise, oil would remain elevated at US$85-100 for months, keeping inflation high and complicating the outlook for interest rates. Share markets would remain under sustained pressure, and safe-haven assets such as gold, US government bonds, and the US dollar would stay in strong demand. This would be the most damaging sustained outcome for investors.
Scenario 4: Strait of Hormuz Closure (Tail Risk)
Timeframe: Months | Oil: Well above US$100 | Equities: -15% to -20%
The Strait of Hormuz is the narrow waterway through which approximately 20% of the world’s oil supply passes each day. If Iran’s remaining leadership, facing total collapse, decides to attempt to close or severely disrupt it through mine-laying or attacks on Gulf oil infrastructure, the consequences for energy markets would be severe.
Oil could surge well beyond US$100 per barrel. Global share markets could fall 15–20% in a sharp sell-off. Inflation expectations would spike, making it very difficult for central banks to cut interest rates as they might otherwise wish to. Energy company shares would be among the very few to benefit.
This remains a tail risk, unlikely, but not impossible. The key trigger would be a moment when Iran’s regime concludes it has nothing to lose.
Scenario 5: Rapid Negotiated Settlement
Timeframe: Days | Oil: Returns below US$70 | Equities: Rally
Iran’s new leadership council, under overwhelming military pressure and facing domestic collapse, moves quickly to accept US demands in exchange for an immediate ceasefire. There are already tentative signs this may be in play: Iran’s Foreign Minister has publicly stated that Tehran is interested in de-escalation. Oman, a traditional back-channel mediator between Iran and the West, remains actively engaged. President Trump has acknowledged that Iranian leadership has requested talks.
If realised, markets would recover swiftly. Oil would fall back toward pre-conflict levels. Share markets would rally. This is the least probable of the five scenarios, but the diplomatic signals are worth watching closely.
What Should Investors Focus On?
With events moving this quickly, the situation does not yet warrant major changes to portfolios. What matters more right now is knowing which signals to watch.
- The Strait of Hormuz. Any credible reports of mine-laying or attempts to block the strait would be the single most important signal for oil prices and markets overall. This is the trigger most worth monitoring.
- Iran’s proxy forces. If Hezbollah begins firing rockets into Israel, or if the Houthis resume attacks on shipping in the Red Sea, the probability of a prolonged conflict rises significantly.
- Diplomatic signals from Tehran. Public statements from Iran’s new leadership council, whether indicating openness to talks or pledging total resistance, will be among the clearest near-term guides to how this unfolds.
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