Based on decision-tree analysis of the US-Iran conflict, we assess that war risks remain unresolved with significant uncertainty in conflict trajectory. The core assumption is that if the US addresses Hormuz Strait navigation issues through concessions, it would effectively acknowledge a restructuring of Middle Eastern geopolitical order, dealing substantial blows to both presidential credibility and the petrodollar system. The US may further strengthen military deployments in the region, using intensified force to gain negotiating leverage, with potential ground operations remaining possible.
One scenario involves enhanced US ground forces delivering more effective strikes against Iranian territory. After high-intensity attrition among US-Israel-Iran parties, negotiations could resume through third-party mediation. As the world's cost benchmark and global interest rate equivalent, oil represents a current US vulnerability, giving Iran motivation to elevate prices for better negotiation outcomes.
Alternatively, prolonged stalemate in US-Iran tensions might lead to large-scale US amphibious operations, potentially evolving into "Iraq War" or "Vietnam War" patterns. The former could achieve limited Hormuz Strait navigation with oil prices carrying a security premium above baseline levels. The latter, amid high US deficits and elevated bond yields, might inflict more destructive impacts on global capital markets.
Who benefits from prolonged conflict? Resource-rich nations like Russia and Canada gain direct advantages. Hormuz Strait navigation challenges combined with Middle Eastern energy infrastructure damage will long impair the region's export capacity. Elevated price benchmarks for oil and coal will rapidly improve current account balances and fiscal conditions for Russia, Canada, Australia, and Norway.
Israel stands to gain significantly from regional order restructuring. Current US-Israel-Iran tensions have affected most Persian Gulf nations, substantially undermining the 2023 China-mediated regional harmony. As a net natural gas exporter with minimal Hormuz Strait dependence for trade, Israel maintains relative economic resilience. Post-conflict, Israel's regional influence may strengthen further.
China and ASEAN will play stabilizing roles in global supply chains. China's resilient industrial system and proactive energy security strategy provide adequate coal and clean energy capacity to offset oil supply constraints, supporting sustained export performance. The conflict will reshape not only crude supplies but also global petroleum product flows, shipping routes, and storage systems. Singapore, Malaysia, and Thailand—with their transshipment, refining, blending, storage, and regional trade functions—may benefit from supply chain reorganization.
The US and Iran face primary long-term costs from prolonged conflict. Iran bears explicit national capacity depletion, requiring extended recovery for industrial output and energy infrastructure regardless of outcomes. For the US, the issue isn't warfare capability but sustainability and stakes—ongoing military expenditures, economic stagnation, and anti-war sentiment amid high deficits, elevated rates, and political divisions would weaken international standing and influence.
Market implications operate on three levels: Short-term: Safe-haven sentiment dominates while conflict resolution remains unclear, with potential liquidity pressures prompting US concessions.
Medium-term: Inflation impacts on fundamentals and monetary policy require monitoring, making Fed and PBOC rate cuts more conditional.
Long-term: Beyond fiscal deficits, global attention will shift to "security deficits," boosting investment in energy, food, supply chain, defense, and cybersecurity infrastructure.
Three conflict evolution scenarios exist following Iran's March 2 Hormuz Strait blockade. First, interim arrangements through mediators could produce limited navigation restoration with suspended US strikes, creating high-intensity stalemate. Second, unresolved core disputes might maintain Iranian deterrence through strait control and proxies while the US prepares limited amphibious operations. Third, failed negotiations could trigger broader US military escalation.
Current 5,000 marine deployments appear insufficient for mainland invasion but might target strategic islands like Qeshm (strait control) or Kharg (oil export hub). However, even successful limited operations risk escalation through Iranian retaliatory strikes and continued mining.
Large-scale ground warfare would require 2-4 months preparation, potentially following two patterns: "Iraq War" rapid victory with subsequent insurgency, initially spiking then stabilizing oil prices; or "Vietnam War" protracted stalemate with sustained energy price inflation and risk asset pressures.
Resource exporters gain most directly from prolonged conflict. Russia benefits from Urals crude premium over Brent, potentially generating $70 billion annual revenue gains. Canada and Norway see export advantages, while Australia faces mixed impacts as major LNG/coal exporter but net oil importer.
Israel gains from regional power shifts, with gas export capacity and diversified oil imports reducing Hormuz vulnerability. China's energy diversification and ASEAN's refining hubs provide supply chain stabilization benefits.
Medium-term focus shifts to inflation transmission to monetary policy, potentially delaying Fed rate cuts and limiting PBOC easing scope. Long-term considerations highlight unresolved US debt problems and rising "security deficit" priorities, favoring investments in energy autonomy, defense, and resilient supply chains.
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