The United States and Israel launched coordinated military strikes against Iran early Saturday morning in the most significant Middle East escalation in decades. Markets will react when they open Monday, and we want you to know how we are thinking about it. Our investment team has been actively preparing for this possibility, and we have a clear framework in place.
Here are three things we believe are most important for you to know:
- The most likely outcomes are manageable. We assign roughly 45% probability to scenarios where this conflict is resolved within weeks and markets recover relatively quickly. The tail risks are real, but they are not the central case. Our portfolios are diversified specifically to weather this kind of environment.
- Energy supply is the key variable, and it favors a contained outcome. The Strait of Hormuz—through which 20% of global oil flows—is the single most important factor in determining how severe the economic impact will be. The heavy U.S. naval presence in the region and OPEC’s preparations to increase emergency supply both work to limit the disruption.
- Staying invested has been the right call in every comparable event since 1990. Across five similar geopolitical shocks, equities were higher twelve months later in four out of five cases. Selling into the initial panic has historically been the most-costly decision an investor can make. Our job is to be the steady hand on the wheel—and that is exactly what we intend to be.
What Has Happened
Obviously, this is a fluid situation that will continue to evolve. At the time of this writing, we know that the United States and Israel launched coordinated military strikes against Iran early on Saturday morning. The Pentagon has designated the operation “Operation Epic Fury” and Israel has termed it “Operation Shield of Judah.” Strikes have targeted military installations, missile systems, air defenses and leadership infrastructure across multiple Iranian cities. Multiple intelligence agencies have confirmed the death of Iran’s Supreme Leader and several senior military officials.
Iran responded with retaliatory missile strikes against U.S. military installations across the Gulf region — including bases in Qatar, Bahrain, the UAE, Kuwait and Saudi Arabia — as well as strikes against Israeli territory. Several countries have closed their airspace. There are reports of Iranian naval activity near the Strait of Hormuz, though a physical closure of the waterway has not been confirmed.
This is a meaningfully different situation than the limited strikes we saw last June, which targeted three nuclear facilities and de-escalated within 12 days. Today’s operation is broader in scope, has produced a stronger Iranian response, and occurs against the backdrop of explicit calls for political change in Iran.
How We Are Thinking About This
Events like these are unsettling, and it is natural to feel concern about what they mean for your financial well-being. We want to share our framework for thinking through the range of outcomes so you can see how we are approaching this — methodically, calmly, and with the benefit of preparation.
We have been preparing for this possibility. Tensions between the United States and Iran have been elevated for months. Our investment team has maintained a detailed scenario analysis framework covering a range of potential outcomes and their market implications. What happened today falls within the range of events we have been planning for.
History provides useful context. We have studied five comparable geopolitical events since 1990 — including the Gulf War, the 2022 Russia-Ukraine conflict, and two prior rounds of Israel-Iran hostilities. The consistent pattern is that markets experience an initial shock, followed by recovery over the subsequent three to six months. The investors who fare worst in these episodes are those who sell into the initial panic. That said, each situation is unique, and we are not assuming this one will follow a simple script.
The range of outcomes is wide, but most are manageable. Our framework considers five distinct scenarios, from a quick resolution to a more prolonged regional conflict. The majority of our probability is assigned to outcomes where markets experience temporary disruption followed by recovery. The tail risks are real but represent the minority of outcomes. We lay out each scenario below.
Our Scenario Framework
We assess five possible paths from here, each with an assigned probability based on our research, historical analysis and multiple intelligence sources. These probabilities will shift as events unfold, and we will update our assessment accordingly.
Contained Strike – 20% Probability
Quick scenario overview: Limited strikes, ceasefire within one to two weeks. Markets recover quickly. Modest oil spike, equities recover within weeks.
Our thoughts: In this scenario, the military campaign is limited to a focused effort lasting less than two weeks, targeting Iran’s military capabilities. Iran responds but in a measured way, and a ceasefire is brokered through regional intermediaries. This is the pattern we saw last June and in the 2024 exchanges between Israel and Iran. Markets would experience a brief risk-off period — equities dipping, oil spiking — followed by a rapid recovery as the “buy the resolution” dynamic takes hold. There are genuine reasons to believe in this outcome. Iran’s economy is under severe strain, its regional proxy network has been significantly weakened over the past two years and the United States has indicated it has off-ramps available. However, the scope of today’s operations and the loss of Iran’s Supreme Leader make a quick resolution less certain than in prior episodes.
Extended Air Campaign – 25% Probability
Quick scenario overview: Weeks-long U.S./Israeli air campaign. Hormuz remains open. Negotiated resolution. Oil moderately higher, equities down mid-single digits, elevated volatility.
Our thoughts: This is what appears to be unfolding now: a sustained air campaign lasting several weeks, aimed at systematically degrading Iran’s military infrastructure. Iran retaliates with its missile arsenal and activates remaining proxy capabilities, but the Strait of Hormuz remains open, and the conflict does not expand beyond the Iran-U.S./Israel axis.
This scenario produces a more extended period of market uncertainty. Oil prices remain elevated but not at crisis levels, equities trade lower for weeks before finding a floor, and volatility stays above normal. The 2003 Iraq War provides a useful precedent: once markets concluded that the campaign was proceeding as planned and oil supply was secure, equities rallied sharply even while the military operation was still underway.
Hormuz Disruption – 15% Probability
Quick scenario overview: Iran restricts Strait of Hormuz transit. Major energy price spike. Significant oil spike, equities down meaningfully, recession risk rises.
Our thoughts: The Strait of Hormuz is the world’s most important energy chokepoint. Approximately 20% of global oil and 22% of global liquefied natural gas pass through it daily. If Iran were to deploy mines, fast attack craft, or drone swarms to restrict commercial transit—even partially, even temporarily—the impact on energy prices would be severe and immediate.
We assign this a meaningful but contained probability. Iran has threatened Hormuz closure in every conflict since the 1980s and has never fully followed through. The U.S. Navy has overwhelming force in the region specifically to deter this outcome. However, the loss of centralized Iranian command authority introduces unpredictability, and there are reports of Iranian naval activity in the area. This is the scenario we are watching most closely, because it is the one that transforms a geopolitical event into a direct economic impact on consumers through higher energy costs.
Regional Escalation – 15% Probability
Quick scenario overview: Multi-front conflict involving proxies across the Gulf region. Sustained oil elevation, broad risk-asset sell-off, credit spreads widen sharply.
Our thoughts: In this scenario, the conflict expands beyond Iran into a broader regional event: proxy groups across multiple countries become materially involved, Gulf energy infrastructure comes under direct attack, and the situation persists for months without a clear resolution. This is the most severe scenario for financial markets, producing sustained pressure on equities, a major widening of credit spreads, and an extended period of elevated oil prices.
The counterbalancing factor is that Iran’s regional proxy network is at its weakest point in decades. Hezbollah lost much of its senior leadership, Hamas is contained, and the Houthi capability has been degraded. Gulf states have strong incentives to contain rather than amplify the conflict. We view this as a genuine tail risk but not the most likely path.
Regime Change – 25% Probability
Quick scenario overview: Internal transformation in Iran. Maximum short-term uncertainty, best long-term outcome. Initial disruption followed by normalization; long-term energy supply positive.
Our thoughts: The most consequential scenario is one where the combination of external military pressure and internal fragility produces genuine political transformation in Iran. This has the widest range of near-term outcomes — peak uncertainty during the transition — but potentially the most positive long-term implications.
A normalized Iran would add meaningful oil supply to global markets and remove the structural geopolitical risk premium that has been embedded in Gulf energy prices for decades.
We assign this a higher probability than the pre-existing expert consensus, reflecting the unprecedented confluence of factors: the confirmed loss of Iran’s Supreme Leader, severe economic conditions, the largest domestic protests in a generation and explicit external policy aimed at regime change. We are also mindful of the strong counterarguments — Iran’s security apparatus remains intact, and the country’s institutional structure was designed to withstand exactly this kind of event. The outcome here is genuinely uncertain, and we will be updating our assessment as evidence accumulates in the coming days and weeks.
Perspective
The most important thing to understand is that the severity of market impact is almost entirely a function of what happens with energy supply. If the Strait of Hormuz remains open and the conflict is resolved in weeks, history strongly suggests that the equity market impact will be temporary and that patient investors will be rewarded. If energy supply is physically disrupted, the impact becomes more meaningful and more sustained.
What We Are Watching
The next several days are critical in determining which scenario path we are on. Here are the specific signposts our team is monitoring:
- Strait of Hormuz: ~20% of global oil and 22% of global LNG transit this waterway. If it remains open, the economic impact of this conflict is manageable. If disrupted, energy prices spike, and the calculus changes significantly. Heavy U.S. naval presence is currently deterring closure.
- Conflict Duration: Intelligence suggests the current phase may last approximately one week. If the campaign resolves in days, history strongly favors rapid market recovery. If it extends to a multi-week operation, markets will require more time to find a floor.
- Escalation Signals: We are monitoring for involvement of regional proxy groups, attacks on Gulf energy infrastructure and any indication of broader state-level engagement. Each of these would shift our probability estimates toward the more severe scenarios.
- Energy Supply Response: OPEC+ nations are preparing emergency production increases. Saudi Arabia and the UAE hold meaningful spare capacity. The speed and scale of this response will help determine how much of any oil price increase is sustained versus temporary.
- Diplomatic Channels Ceasefire: Negotiations through Omani, Qatari and other intermediaries would be the clearest signal of de-escalation. We are also watching for changes in rhetoric from all parties that signal willingness to find an off-ramp.
Looking Ahead
Geopolitical events are inherently uncertain, and we do not pretend to know exactly how this situation will resolve. What we can offer is a disciplined framework, a clear-eyed assessment of the range of outcomes and the commitment to keep you informed as events develop. The historical record provides genuine reason for confidence: Markets have repeatedly demonstrated the ability to absorb geopolitical shocks and recover. The investors who benefit most from that resilience are those who stay invested through the turbulence rather than reacting to the headlines.