Good morning! We are well into week 3 of the special combat operation in Iran. The third carrier strike group is on the way, as is the amphibious assault unit from east Asia.
With growing fears of a global supply shock, it is now clear that the whole confrontation hinges on the control of the Strait of Hormuz. The next few weeks will be decisive for both sides, but it is still difficult to say what will happen after that, regardless of the outcome.
But let's see how the markets changed over the weekend to look for some clues.
Iran Tracker
#1 The Ceasefire
In a week we moved from over 50% chance of a ceasefire by the end of April to only 35% chance today.
Despite almost complete lack of war footage, it became clear that before anything can end, the Strait of Hormuz issue must be resolved. Rumors from the administration also confirm that neither side is ready to begin any talks. Some issues must play out on the battlefield before diplomacy has any chance.
#2 The Strait Of Hormuz
However, traders are not optimistic about any prospect of travel through the strait in the short term. But even when we are talking about a single escort for PR purposes, the prospects remain bleak, amid not so willing allies that refuse to engage:
Despite rising, chances are still well below 50%. Mostly the effect of strike date rather than anything else. After all, the US already claimed that at this moment they are not ready to escort any ship and implied was that we must wait for the additional resources to arrive in the theater.
In the meantime, they try to manage the rise in oil price, but the risk to the upside is only getting larger:
#3 Boots On The Ground
With the marines unit on the ay from east Asia, traders started to price in higher chance of US forces entering Iran.
Initially there were rumors of US forces being necessary to secure Iranian shoreline in order to open the Strait of Hormuz. However, more recently, traders are also looking at possible deployment on the Kharg Island. The island holds symbolic value as Iran's top spot to export oil; symbolic, because Iran has other ports and infrastructure, some outside of the Persian Gulf, to export oil.
#4 Iranian Regime Fall
Amid all the chaos, the Iran regime fall market gained slightly as traders try to balance the risk of a prolonged conflict with regime's resilience.
In our view it will prove to be a shaky and volatile "balance" as each battle and each breakthrough has a potential to upend the entire conflict.
#5 Next Supreme Leader
Khamenei's chances of staying in as the Supreme Leader decreased slightly over the weekend as rumors emerged he might be critically wounded and even in Russia to undergo a surgery.
However, Iran's foreign minister dismissed these rumors, claiming that the Ayatollah is safe in Iran. What is the truth? We might not find out anytime soon, but the fact that Mojtaba Khamenei is essentially hidden form anyone's eyes at least suggests that they are protecting him. At most, it could suggest that it is the IRGC that now controls main centers of power in the country.
Wrap up
Situation remains extremely volatile so make sure to follow the markets live to get fresh information on the conflict. See you tomorrow for another Morning Brief!
This is not official investment or life advice. Do your own research. This are only my opinions and I encourage anyone to do their own research before putting any money anywhere.