Initial Observations
Tensions in the Middle East flared as the United States conducted targeted airstrikes on Iran. The
strikes targeted 3 nuclear research sites—Fordow, Natanz, and Isfahan which were carried out using the B-2 Spirit bomber, a long-range stealth aircraft capable of delivering deep-penetrating ordnance.
The Fordow facility, in particular, is significant as it houses Iran’s deeply buried nuclear enrichment infrastructure, which required the use of the US’s military arsenal, one of the few weapons in the world capable of breaching such heavily fortified sites.
In the hours that followed, reports emerged that
Iran’s parliament had voted to block the Straits of Hormuz, though the ultimate decision rests with Iran’s executive leadership. A full blockade remains unlikely, but the potential for disruption, particularly via small-scale attacks on oil tankers or increased harassment in the straits cannot be dismissed.
The
intervention of US signals a more strategic phase in the conflict. Trump has since declared on social media that "mission accomplished" and called for de-escalation, but he has also made clear that any retaliation by Iran against US assets would trigger a significantly harsher response.
Key Risks to Monitor
The Straits of Hormuz remain a critical choke point for global energy markets, with roughly 30% of seaborne crude oil and 20% of liquefied natural gas passing through this passage. Any escalation that threatens shipping lanes would have material implications for energy prices and risk sentiment.
Market reaction has been relatively contained thus far. Oil prices briefly spiked above USD USD 80 per barrel but have since settled lower, reflecting market scepticism over the likelihood of a sustained disruption.
It is also worth noting a key mitigating factor to the risk of a blockade in the Straits of Hormuz blockade. S
audi Arabia has developed the East-West Crude Oil Pipeline, providing an alternative route that bypasses the Straits. While this pipeline is not a perfect substitute, it does offer a critical backup in the event of severe disruption. Additionally,
Iran itself relies heavily on the Straits of Hormuz for its own oil exports.
For now, the situation remains fluid. The key factors to monitor will be
Iran’s decision on whether to attempt a blockade of the Straits of Hormuz and
the scale and location of any Iranian retaliation against US bases. The trajectory of this conflict will likely shape market direction in the coming weeks, with headline sensitivity expected to remain high.
What's Next?
The current base case remains that a full-scale ground invasion is unlikely. While some form of Iranian retaliation is expected—most likely targeting US military bases in the region—the conflict is anticipated to remain contained to aerial strikes, missile exchanges, or limited special operations.
Several key constraints will also limit the scale of the conflict. Chief among them is the growing political fatigue within the US over sustained military entanglements. There is little public appetite for another protracted conflict in the Middle East, particularly among President Trump’s voter base.
This is especially relevant in the context of the midterm elections next year, where domestic political interests are likely to take precedence over any prolonged overseas engagement.
