What Pythagoras’ theorem can teach us about the Fed

All Insights

Currently reading

US-Israel offensive against Iran: Possible scenarios and economic implications

Investment Insights • Macro

2 min read

US-Israel offensive against Iran: Possible scenarios and economic implications

Over the weekend, the US and Israel launched coordinated strikes on Iran, with President Donald Trump stating that the objective was to prevent Iran from obtaining a nuclear weapon. The operation followed months of intelligence coordination and was reportedly triggered by information on the location of parts of Iran’s senior leadership in Tehran. The strikes targeted air defences and military infrastructure to reduce Iran’s retaliatory capacity and weaken the regime. In this note EFG’s CIO office provides a summary of events so far and a scenario analysis regarding possible outcomes.

CIO Office

CIO Office

Iran has since retaliated with drone and missile attacks on US military installations in Bahrain, Kuwait, Qatar and the UAE as well as Israel and has sought to reduce traffic through the Strait of Hormuz, a key energy chokepoint through which about 20% of global oil supply passes. While tanker transits declined sharply in the hours after the attacks, Iran is unlikely to have the military capability to fully block the Strait.

Market reactions have so far been muted, as most markets were closed over the weekend, but the strikes have reignited fears of a disruption of traffic through the Strait of Hormuz and a further rise in energy prices, on top of the roughly 20% increase in oil prices already seen in 2026. Maritime traffic through the Strait had virtually halted by Sunday as insurers withdrew coverage and raised fees, and rerouting via the Red Sea would offset only a limited share of normal volumes. If Gulf energy infrastructure remains intact and tanker flows resume, energy prices should moderate, also supported by additional OPEC+ supply coming online from 1 April.

Given the information as at the date of this report, we envisage three possible scenarios, which are outlined in the table below. 

Middle East War Scenario Analysis (as at 01 March 2026)

Scenario 1 (25%) Scenario 2 (65%) Scenario 3 (10%)

Iran

US and Israel strike and take out leadership. A chaotic few months ensues in terms of Iranian politics as it is not clear what will replace the current regime. The Strait of Hormuz become militarised, protected by a large US naval and military presence that tries to ensure it remains open. There is no deal on nuclear proliferation.

The US and Israel strike but fails to fully take out leadership. The current regime continues a series of military actions, and possibly terrorist actions around the world. There is a short-term ceasefire ahead of the end of the month. Trump claims victory and the status quo continues.

A new Iranian leadership is announced that is acceptable to the US and other Gulf states, and more open to negotiation. The US and Iran conclude ceasefire negotiations successfully, and within a few months a new nuclear deal is announced and an agreement is reached to curtail Iran's ballistic missile program.

Political backdrop

Trump does not want an extended war. The longer the war goes on, the more the US is pulled into it. MAGA and the Republican Party doesn't like the fact Trump has taken the US into this war. The additional considerations are that Trump's popularity is on a significant downtrend due to Epstein, cost of living (energy prices), tariffs, and other Trump-driven initiatives. March 31st is the Trump-Xi summit and likely some form of ceasefire/deal should be concluded by then. 

Trump does not want an extended war. The longer the war goes on, the more the US is pulled into it. MAGA and the Republican Party doesn't like the fact Trump has taken the US into this war. The additional considerations are that Trump's popularity is on a significant downtrend due to Epstein, cost of living (energy prices), tariffs, and other Trump-driven initiatives. March 31st is the Trump-Xi summit and likely some form of ceasefire/deal should be concluded by then. 

Trump does not want an extended war. The longer the war goes on, the more the US is pulled into it. MAGA and the Republican Party doesn't like the fact Trump has taken the US into this war. The additional considerations are that Trump's popularity is on a significant downtrend due to Epstein, cost of living (energy prices), tariffs, and other Trump-driven initiatives. March 31st is the Trump-Xi summit and likely some form of ceasefire/deal should be concluded by then. 

Financial markets

Limited impact beyond initial period in which risk is elevated. Market correction of 5-10%. A large part of the attack was already priced in. Credit spreads, including emerging markets, widen and remain elevated for the next few months.

Limited impact beyond initial period in which risk is elevated. Market correction of 3-5%. A large part of the attack was already priced in. Mild credit spread widening, with focus primarily on GCC credits.

Limited impact beyond initial period in which risk is elevated. Markets up 5%. Cyclicals rebound significantly. Credit spreads tighten back to same levels as they were in Q4 2025.

Oil price

Oil price has already increased by about 20% since the beginning of the year. In the short-term, we see a 7-10% increase. The oil price remains elevated for a further few months.

Oil price has already increased by about 20% since the beginning of the year. In the short-term, we see a 7-10% increase. The oil price corrects 10% on no further escalation and increased OPEC+ supply.

Oil price has already increased by about 20% since the beginning of the year. In the short-term, we see a 7-10% increase. The oil price drops by 25% on positive news and increased OPEC+ supply.

Precious metals/FX

Gold rallies to the peak again (5600), the CHF stays strong, particularly against the EUR and GBP and mild strength against the USD.

Gold stays in the current range, driven by demand disruption vs geopolitical action. March is typically the worst month seasonally for gold. We expect mild appreciation in the USD against the GBP and EUR.

The gold price drops to 4500 and other industrial metals reflect significantly higher beta. The USD resumes its downtrend.
Iran

  • Scenario 1 (25%)

    US and Israel strike and take out leadership. A chaotic few months ensues in terms of Iranian politics as it is not clear what will replace the current regime. The Strait of Hormuz become militarised, protected by a large US naval and military presence that tries to ensure it remains open. There is no deal on nuclear proliferation.

  • Scenario 2 (65%)

    The US and Israel strike but fails to fully take out leadership. The current regime continues a series of military actions, and possibly terrorist actions around the world. There is a short-term ceasefire ahead of the end of the month. Trump claims victory and the status quo continues.

  • Scenario 3 (10%)

    A new Iranian leadership is announced that is acceptable to the US and other Gulf states, and more open to negotiation. The US and Iran conclude ceasefire negotiations successfully, and within a few months a new nuclear deal is announced and an agreement is reached to curtail Iran's ballistic missile program.

Political backdrop

  • Scenario 1 (25%)

    Trump does not want an extended war. The longer the war goes on, the more the US is pulled into it. MAGA and the Republican Party doesn't like the fact Trump has taken the US into this war. The additional considerations are that Trump's popularity is on a significant downtrend due to Epstein, cost of living (energy prices), tariffs, and other Trump-driven initiatives. March 31st is the Trump-Xi summit and likely some form of ceasefire/deal should be concluded by then. 

  • Scenario 2 (65%)

    Trump does not want an extended war. The longer the war goes on, the more the US is pulled into it. MAGA and the Republican Party doesn't like the fact Trump has taken the US into this war. The additional considerations are that Trump's popularity is on a significant downtrend due to Epstein, cost of living (energy prices), tariffs, and other Trump-driven initiatives. March 31st is the Trump-Xi summit and likely some form of ceasefire/deal should be concluded by then. 

  • Scenario 3 (10%)

    Trump does not want an extended war. The longer the war goes on, the more the US is pulled into it. MAGA and the Republican Party doesn't like the fact Trump has taken the US into this war. The additional considerations are that Trump's popularity is on a significant downtrend due to Epstein, cost of living (energy prices), tariffs, and other Trump-driven initiatives. March 31st is the Trump-Xi summit and likely some form of ceasefire/deal should be concluded by then. 

Financial markets

  • Scenario 1 (25%)

    Limited impact beyond initial period in which risk is elevated. Market correction of 5-10%. A large part of the attack was already priced in. Credit spreads, including emerging markets, widen and remain elevated for the next few months.

  • Scenario 2 (65%)

    Limited impact beyond initial period in which risk is elevated. Market correction of 3-5%. A large part of the attack was already priced in. Mild credit spread widening, with focus primarily on GCC credits.

  • Scenario 3 (10%)

    Limited impact beyond initial period in which risk is elevated. Markets up 5%. Cyclicals rebound significantly. Credit spreads tighten back to same levels as they were in Q4 2025.

Oil price

  • Scenario 1 (25%)

    Oil price has already increased by about 20% since the beginning of the year. In the short-term, we see a 7-10% increase. The oil price remains elevated for a further few months.

  • Scenario 2 (65%)

    Oil price has already increased by about 20% since the beginning of the year. In the short-term, we see a 7-10% increase. The oil price corrects 10% on no further escalation and increased OPEC+ supply.

  • Scenario 3 (10%)

    Oil price has already increased by about 20% since the beginning of the year. In the short-term, we see a 7-10% increase. The oil price drops by 25% on positive news and increased OPEC+ supply.

Precious metals/FX

  • Scenario 1 (25%)

    Gold rallies to the peak again (5600), the CHF stays strong, particularly against the EUR and GBP and mild strength against the USD.

  • Scenario 2 (65%)

    Gold stays in the current range, driven by demand disruption vs geopolitical action. March is typically the worst month seasonally for gold. We expect mild appreciation in the USD against the GBP and EUR.

  • Scenario 3 (10%)

    The gold price drops to 4500 and other industrial metals reflect significantly higher beta. The USD resumes its downtrend.

Source: EFG. Based on EFG’s analysis, as at the date of this document. The information contained in the above Scenario Analysis is not intended to predict actual results, which may differ substantially from those reflected in the information, nor is it intended to be a complete analysis of every material fact. Hypothetical performance analysis (including all scenario analyses contained herein) are based on certain assumptions with respect to significant factors that might not reflect what actually might happen. You should understand these assumptions and evaluate whether they are appropriate for their purposes.

Required

Required

Required

Required

Required

Required

Required

Please note you can manage your subscriptions by visiting the Preferences link in the emails you receive from us.

Required