US-Iran War: What Happened and What It Means for Markets Part 2

What to Watch Next: Escalation or De-escalation？

The development of the Strait of Hormuz remains the primary factor for crude oil. A formal closure or targeted tanker strikes would trigger another leg higher in prices.

Additionally, the power vacuum in Iran introduces extreme uncertainty; whether a hardline faction consolidates control or a transitional authority emerges will determine the probability of further escalation.

Three Potential Scenarios:

1. Contained but Prolonged Conflict (Base Case): Missile exchanges continue but avoid full regional spillover. Oil remains elevated, and markets stabilize with a sustained geopolitical premium.

2. Hormuz Disruption Escalation: Direct tanker strikes or mining operations cause material supply interruptions. Oil spikes above psychological thresholds, and equity markets enter correction territory.

3. Rapid De-escalation: Backchannel diplomacy produces a ceasefire. Oil retraces sharply, and risk assets rebound aggressively.

Strategic Outlook Amid Geopolitical Tension

This is no longer a data-driven environment week; it is a sentiment and event-driven regime. In the near term, market volatility will be dictated by geopolitical headlines until a clear outcome forms.

Energy volatility, safe-haven flows, and inflation expectations will dominate asset allocation. As we noted in our previous outlook, Crude Oil, Gold, and Equity Indices will continue to provide significant opportunities amidst this uncertainty.