Good morning! We are nearing the 3 weeks mark in the Iran war and during the night we witnessed massive escalation. Yesterday Israel targeted Iranian gas facilities. Hours later Iran targeted gas facilities and refineries in Qatar, Saudi Arabia and others, including the Saudi port on the Red Sea.
Iran is not afraid to escalate, understanding it can impose unbearable costs on the economy. So for the time being the costs are capped at the Strait of Hormuz closure, which is not much of a cup to be honest.
The situation remains dire so let's take a look at the markets to give us the updated forecast.
Iran Tracker
#1 The Ceasefire
The ceasefire chances decreased significantly since yesterday, settling for now at 33% for the ceasefire by the end of April.
The almost 10c fall is the result of the energy infrastructure targeting. While both sides seem to have established a red line moving forward, the escalatory sequence nonetheless impacted ceasefire chances.
#2 The Strait Of Hormuz
The Strait of Hormuz continues to be effectively closed and this reality is slowly getting through to the markets.
Traders sharply updated their fair value assessment as chances of 20+ ships going through the strait in a single day by the end of the month fell by more than 10c. Combined with no change in escort prospects, traders must be increasingly looking for a performative escort, rather than a sustained operation bringing back a significant portion of traffic:
In the meantime the spread between different oil origins continue to widen. However, all types experience a dramatic rise, with WTI (US crude) being on the lower-end, also on the news of potential export restrictions. That being said, it dod little to curb short-term price increase expectations:
#3 Boots On The Ground
Yesterday's escalations also had an impact on US forces on the ground chances.
Traders fully understand that the longer the conflict takes, the higher the chances are for some US forces on the ground. Polymarket also did a great service adding end of April strike to the market, showing that traders see the deployment happening relatively soon.
However, traders don't necessarily think the first deployment must be Kharg Island:
#4 Iranian Regime Fall
The escalatory mood also had some impact on the regime change market with chances of that happening dipped 1c to 43%.
It might seem counterintuitive, but all the recent escalations and possible US forces deployment coincides with increased missile and drone launches from Iranian side. And nothing speaks regime resilience better than increasing attacks 3 weeks into one of the most devastating air campaigns in history.
#5 Next Supreme Leader
Lastly, the one market that experienced shocking stability is Iran leader by the end of the year.
Mojtaba Khamenei's chances are flat for the week, despite Larijani's assassination. It's been over a week since his confirmation as the Supreme Leader of Iran and the consensus now is that he will be protected.
Wrap up
Situation remains extremely volatile, however it is starting to become clear that we are in for longer. Prediction markets have almost fully priced in a prolonged conflict, now we are waiting for traditional markets to reflect that reality. You should also start to think on how a global energy supply shock affects your job, family and country. Per what we see on the markets, we are entering uncharted waters, full of chaos and uncertainty.
Make sure to follow prediction markets live to get fresh information on the conflict. Stay strong and 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.