USA intervenes in Iran conflict – our three scenarios
Over the weekend, the USA bombed several Iranian nuclear and military facilities. This move marks a significant escalation in the conflict between Israel and Iran, evoking memories of the Iraq War in 2003. Will this lead to a full-scale escalation and the closure of the Strait of Hormuz? We consider this unlikely and remain constructive for global financial markets.
What happened?
Last Sunday, the USA intervened directly in the conflict by attacking Iranian nuclear facilities. According to the US government, these facilities were completely destroyed. Iran is now threatening severe consequences. So far, the market has reacted calmly to this new escalation. Both stock markets and oil prices have remained virtually unchanged today. Market participants currently do not expect further escalation, and we agree with this assessment.
How do we assess the situation?
We have been monitoring the conflict between Israel and Iran for some time and have slightly adjusted our expectations due to recent events. We see three possible scenarios for the Iran conflict:
Scenario 1 - De-escalation (probability 30%)
Iran responds with limited retaliatory strikes on US attacks. These could target US military installations in Iraq, similar to the Soleimani case in 2020. At that time, the US military was even warned in advance, resulting in no casualties. Such retaliatory strikes would likely be accepted by US President Donald Trump; a de-escalation occurs, and a ceasefire between Israel and Iran is agreed upon. The oil price drops significantly.
Scenario 2 - Prolonged conflict (probability 60%)
Similar to Scenario 1, there are several smaller retaliatory measures by Iran on US bases in the Middle East. However, Iran threatens to close the Strait of Hormuz and attempts to block ships from passing through. The USA threatens war, and mutual bombardment between Israel and Iran continues. There is no ceasefire, but the conflict remains a "hold-me-back" situation without the deployment of US ground troops. The oil supply does not collapse as the Strait of Hormuz remains navigable.
Scenario 3 - Escalation (probability 10%)
Iran attacks oil tankers and closes the Strait of Hormuz. This removes about 20% of the global oil supply, leading to a massive oil price shock. This results in a general risk-off movement and a correction in the stock markets. Iran also attacks US military bases outside Iraq (e.g., the US fleet in Bahrain). For President Trump, this crosses a red line, and US ground troops are deployed. A regime change is enforced, similar to the Iraq War in 2003.
With a high probability, the effect on global financial markets is likely to remain limited, and other factors such as corporate earnings, the economy, or monetary policy remain more important. We remain constructive and do not expect significant losses for multi-asset investors. However, the US government's erratic approach makes the situation difficult to predict, keeping the situation tense for the time being.
We expect the following effects on financial markets in the three described scenarios:
| Scenario 1 | Scenario 2 | Scenario 3 | Current | |
|---|---|---|---|---|
| S&P 500 (in %) | 5 | 2 | -10 | 0 |
| VIX | 15 | 20 | 50 | 21 |
| US 10Y (in %) | 4.3 | 4.5 | 3.5 | 4.4 |
| Credit Spread | 160 | 170 | 220 | 177 |
| Oil WTI Start (in USD) | 65 | 80 | 120 | 74 |
| Gold (in USD) | 3.400 | 3.500 | 4.000 | 3.355 |
| US rates (in %) | 4.25 | 4.25 | 3.75 | 4.25 |
How is our investment strategy performing?
The absolute performance of a multi-asset portfolio is only slightly negative even after the markets opened. Asian stocks closed positively, European stocks and US futures have also turned positive. Bonds are slightly suffering. The oil price opened higher but has already given up the gains. We are currently performing similarly to the benchmark, gaining since the beginning of the month. The overweight in emerging market equities, the underweight in European equities, and the positioning in currencies are paying off.
Relative positioning, as of 23 June 2025
What adjustments are we making?
For now, we are sticking to our allocation but will make some changes to the portfolio towards the end of the month according to our regular investment process. These adjustments are primarily based on factors other than geopolitics and will be communicated as usual in the monthly blog. We remain fundamentally constructive and do not make our portfolios more defensive based on the current situation.
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