It has now been almost two weeks since the United States and Israel launched a major coordinated assault on Iran in the early hours of 28 February 2026. Since our initial scenario analysis, the situation on the ground has shifted considerably, enough to warrant an updated assessment and a clearer picture of what investors should be watching.
Iran Has a New Supreme Leader
Following the killing of Supreme Leader Ayatollah Ali Khamenei in the opening strikes, Iran moved quickly to establish an interim leadership council. Mojtaba Khamenei, son of the late Supreme Leader, has since been elevated to lead the country. This points to regime continuity rather than collapse, the outcome that would most rapidly de-escalate the conflict.
The War Has Spread Geographically
Iranian forces have continued daily missile and drone strikes against US military bases and allied infrastructure across the Gulf, including Kuwait, Bahrain, Saudi Arabia, and the UAE. Iran has also targeted commercial shipping and oil facilities near the Strait of Hormuz, and has formally warned that vessels belonging to the US, Israel, or their allies could be treated as legitimate military targets.
Meanwhile, the US and Israel have continued large-scale air operations across Iran. Iran’s ability to retaliate appears to have diminished compared with the first days of the conflict, with observers noting a significant reduction in missile and drone launches.
The Strait of Hormuz Remains the Key Flashpoint
The most consequential economic development has been the near-paralysis of tanker traffic through the Strait of Hormuz, the narrow waterway through which roughly 20% of the world’s oil supply normally flows. Iranian threats and attacks on shipping have caused many vessels to remain outside the strait. Shipping costs and insurance premiums have surged as a result.
Crude oil prices briefly surged to US$120 per barrel before retreating to the US$80-85 range as markets began to reassess how prolonged the disruption might prove. As of 11 March 2026, WTI crude was trading at approximately US$88 per barrel.
The International Energy Agency has announced its largest-ever release of emergency oil reserves, 400 million barrels, equivalent to roughly 20 days of normal Strait of Hormuz traffic. This is expected to act as a ceiling on how high oil prices can rise, rather than a mechanism for bringing them back down.
Western governments are also considering plans to escort commercial vessels through the Strait. The US military has already destroyed Iranian vessels in the region. Nevertheless, tanker traffic through the Strait remains negligible, and pressure on oil prices persists.
How Have Financial Markets Responded?
Equity markets have reacted with heightened volatility rather than outright panic. Global equities are down approximately 4% since the conflict began, a significant move, but not the kind of sharp sell-off that would suggest investors believe this is the start of a prolonged global crisis.
This is broadly consistent with how markets have behaved during past geopolitical conflicts. History shows that equity markets tend to fall sharply in the early stages of a conflict, driven by uncertainty and rising energy costs, before stabilising once the scope and duration of hostilities becomes clearer.
The single most important variable for markets remains oil. If prices stay above US$100 per barrel for a sustained period, the economic consequences become significantly more serious: higher transport and manufacturing costs would act as a drag on global growth, slow corporate earnings, and likely delay interest rate cuts by major central banks. Conversely, if the Strait of Hormuz reopens and oil retreats, equity markets are expected to recover as investors refocus on economic fundamentals.
The Two Paths From Here
As we outlined in our initial analysis, the conflict is likely to resolve along one of several broad paths. Given what has changed since then, the two most relevant scenarios for investors to monitor are now as follows.
Path 1: De-escalation (Still the Most Likely Outcome)
Iran’s military capacity continues to weaken under sustained US-Israeli air operations. Both sides find grounds to declare limited objectives achieved. Attacks on shipping gradually subside, and tanker traffic through the Strait resumes. Under this scenario, oil prices would likely retreat toward US$70–80 per barrel, inflation pressures would ease, and financial markets would stabilise.
US domestic politics may reinforce this outcome. American petrol prices have already risen roughly 12% in the past week. With mid-term elections approaching, the Trump administration faces a powerful incentive to bring the conflict to a swift conclusion, a prolonged war risks handing the opposition both economic and political ammunition.
The good news is that the US has precedent here. During the so-called Tanker Wars of the late 1980s, the US Navy, joined by European allies, successfully re-opened the Strait of Hormuz through sustained armed naval patrols. A similar effort is now being considered.
Path 2: Prolonged Disruption (The Risk Scenario)
In a more severe outcome, Iran escalates its attacks on Gulf infrastructure or manages to sustain the blockade of the Strait of Hormuz for an extended period. This would significantly reduce oil exports from the Gulf and could push prices back above US$120 per barrel, triggering a broader global economic shock. Higher energy costs would feed through into inflation across transport, manufacturing, and household electricity, potentially forcing central banks to keep interest rates higher for longer.
The key triggers to watch for this scenario are: any reports of Iran attempting to lay mines in the Strait; further activation of Iranian-backed proxy forces such as Hezbollah or the Houthis; and whether Gulf oil infrastructure, including pipelines and export terminals, comes under sustained attack.
What Should Investors Be Watching?
With the situation still evolving rapidly, we would caution against making significant portfolio changes based purely on day-to-day developments. That said, there are three specific signals worth monitoring closely.
- Strait of Hormuz activity. Any credible reports of Iran attempting to lay mines in the waterway would be a significant escalation signal, pointing toward the more severe scenario. This is arguably the single most important variable for oil prices and markets right now.
- Iran’s proxy forces. If Hezbollah begins firing rockets into Israel in significant numbers, or the Houthis resume anti-shipping operations in the Red Sea, the probability of a prolonged conflict rises sharply.
- Diplomatic signals. Any statements from Iran’s new leadership council indicating openness to ceasefire talks or conversely, pledging total resistance will be the clearest near-term guide to where this is heading. Back-channel contact through Oman appears to be ongoing.
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