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| Scenario Probabilities | Probability | Key Feature |
|---|---|---|
| S1: Contained Strike – Quick De-escalation |
20.00% | Ceasefire < 1 week |
| S2: Extended Air Campaign – Forced Negotiation | 25.00% | Weeks-long campaign, Hormuz open |
| S3: Hormuz Disruption – Oil Shock | 15.00% | Partial Strait closure, oil shock |
| S4: Regional Escalation – Multi-Front Proxy War | 15.00% | Multi-front proxy war, Gulf infrastructure |
| S5: Regime Change – Full Transformation | 25.00% | Regime toppled, max uncertainty, then normalize |
This is where I think we are at currently:
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| Scenario | Original | Updated | Δ | Rationale |
|---|---|---|---|---|
| S1: Contained Strike – Quick De-escalation |
20% | 5% | ↓↓ | The < 1 week ceasefire window has passed. Effectively off the board. |
| S2: Extended Air Campaign – Forced Negotiation | 25% | 25% | → | Still the most plausible exit ramp — but requires U.S. to manufacture off-ramp with whoever emerges as Iranian leadership. IRGC control complicates negotiation. |
| S3: Hormuz Disruption – Oil Shock | 15% | 28% | ↑↑ | Already exceeded the “partial closure” definition — Hormuz is shut. This scenario has effectively materialized as the current baseline. |
| S4: Regional Escalation – Multi-Front Proxy War | 15% | 20% | ↑ | Hezbollah re-engaged, Houthis back in Red Sea, Gulf infrastructure already hit. Several key features already live. |
| S5: Regime Change – Full Transformation | 25% | 18% | ↓ | Khamenei’s death helps, but the regime is showing institutional durability. IRGC in the driver’s seat means military junta is the more probable “change” outcome — not the democratic transformation this scenario implies. |
Worrisome is the shock from the Strait being effectively closed. Spoke to Parag about this today, and he educated me on other issues with closure of the strait. The oil story is not the full story.
- Approximately 33% of the world’s fertilizer supply transits Hormuz, with exports from Qatar, Saudi Arabia, the UAE, Iraq and Iran all reliant on the waterway.
- Of all urea exports, 45% come from this region. This is hitting at spring planting season — the worst possible timing for U.S. and global farmers.
- Approximately 20% of global palm oil supply transits Hormuz. The world’s largest standalone sugar refinery — in Dubai — relies on raw cane supplies through the strait. Soybean oil has hit a 2.5-year high.
- Almost half of India’s crude imports and 60% of its natural gas move through Hormuz. South Korea sources roughly 60% of its crude via the same route; Japan relies on it for close to three-quarters of its oil imports.
Key Themes
- The U.S. holds the clock. This operation has already achieved significant strategic objectives — by any reasonable measure, it’s a military success. The question isn’t capability; it’s appetite. A two-week campaign is manageable. Beyond that, the risks — political, military and economic — compound quickly.
- Washington’s calculus will come down to the “3 M’s”: munitions, markets and midterms. Stockpiles of precision munitions are finite. Markets are already flashing warning signs. And in Washington, the political clock is always running. These three constraints, not military capability, will ultimately determine when the U.S. moves toward an exit.
- Iran emerges from this conflict structurally weaker. The elimination of Khamenei, senior IRGC leadership and critical missile infrastructure materially limits Tehran’s ability to export instability. This is the core of our medium-to-long-term bullish view on the Middle East — the region’s biggest disruptor has been defanged.
- The Strait of Hormuz is effectively closed. Roughly 20-25% of global oil supply is in flux. Regional storage capacity can absorb a one- to two-week slowdown (Axios), but the clock is ticking. Every additional day of disruption narrows the margin before structural supply breaks become unavoidable.
- A quick resolution keeps global economic damage contained — but tail risk stays elevated. If this ends in the next two to three weeks, we avoid the worst outcomes. If it doesn’t, the confluence of oil price shock, inflation re-acceleration and financial market stress could hit simultaneously. The global economy has limited buffer right now.
- U.S. markets are the most insulated globally. Shipping continues to serve as a high-conviction geopolitical hedge in portfolios — asymmetric upside in a risk scenario that remains live (i.e., shipping rates increasing to nosebleed rates).