It's Tuesday and the news coming from the Middle East are hardly optimistic. The Strait of Hormuz has been officially declared closed and the US embassy in Riyadh was hit by Iran. Please keep in mind that we couldn't confirm the authenticity of the cover photo before publishing the article.
Additionally we have first reports of Israel army invading Southern Lebanon while the Lebanese government looks ready to declare Hezbollah illegal. However, the main point of interest is still US-Iran conflict.
Iran Tracker
#1 The Ceasefire
The market is still looking for a quick ceasefire, however they are no longer as optimistic about March.
Several comments from both the US and Israel indicate that both are ready for weeks of fighting. At the same time Iran is not responding to any ceasefire attempts as they believe they can impose more costs on the US.
We are as much in the dark as yesterday.
#2 The Strait Of Hormuz
Contrary to the name, this market is more about the effect of a closure, rather than a declaration.
For it to resolve to Yes, a 7-day moving average of traffic through the Strait must decrease by at least 80%. However a definitive declaration combined with insurers denying coverage makes traders more confident that the Strait will be effectively closed.
#3 Boots On The Ground
Trump and Hegseth didn't rule out sending US forces to Iran, briefly spiking the market Yes price to ca. 70c, however trades remain cautious as many expect a ceasefire by end of June.
In reality, Trump cannot limit his options as the situation is dynamic. But a 40% chance of US forces in Iran by the end of the year is a sign that at least some traders don't see a quick resolution.
#4 Iranian Regime Fall
The initial bullishness on the Iran regime falling is slowly subduing.
The market started to realize that IRGC is a resilient and entrenched organization as we continue to see sizable strikes from Iran despite a wide array of leaders being eliminated in the initial days of the conflict. Pretty soon, trades will need to think about possible off-ramps - then some markets might get violently repriced...
#5 Next Supreme Leader
With the regime still standing, trades also aligned on the next Supreme Leader of Iran.
For now, Alireza Arafi is the main contender as he was named the interim Supreme Leader. However, he is closely tracked by other strong contenders, deeply connected through family ties with two previous leaders.
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.