The Iranian military has been decimated by three weeks of US and Israeli relentless airstrikes. The air force is crippled and the navy is largely destroyed.
Tehran’s stubbornness shows no signs of abating.
Iranian forces launched a barrage of missiles at Israel over the weekend. They struck near a nuclear site, and threatened to close the Strait of Hormuz, the most important energy route in the world.
Global markets hold their breath as the clock ticks towards President Trump’s deadline of 7:44 pm Eastern time.
The oil price has risen beyond crisis levels, the airlines are scrambling for ways to offset rising fuel prices, and equities are swaying from Tokyo to London under the pressure of increasing tensions.
Policymakers are concerned that a single mistake could spark not only a war in a particular region, but also a worldwide economic crisis.
Every headline coming out of the Gulf is a possible trigger for chaos.
Brent crude is now trading above $120 per barrel, the highest level since 2022. Futures markets are pricing in weeks worth of volatility.
The major airlines have been rerouting flights to avoid the Iranian and Iraqi skies, which has increased jet fuel costs and demand.
The shipping insurers raised their premiums on tankers that cross the Persian Gulf. This has led to a rise in freight rates.
The stock markets have been in a tailspin.
MSCI World Index lost almost 4% over two sessions while S&P 500 is sunk by energy volatility.
The dollar, gold and Treasuries with longer maturities are preferred by investors who have pulled back from emerging market investments.
Oil and transportation costs are putting renewed pressure on central banks that were previously wary about inflation.
Economists have warned that an extended disruption of the Strait of Hormuz – the conduit for almost one fifth of the global oil trade – could undermine fragile trade deals and disrupt the uneven recovery of the global economy.
What was the trigger for Trump’s 48 hour ultimatum?
After one of the worst weekends in the war, the deadline was set. Iranian missiles penetrated Israeli air defenses and hit the cities of Arad, Dimona and injured around 100 people.
In its most devastating missile strike since the beginning of war, the IRGC claimed to have targeted Israeli military bases in Dimona Arad Eilat Beersheba Kiryat Gat and Dimona.
Dimona is located adjacent to Israel’s secretive nuclear research facility. Iran claimed the attacks were in retaliation to an Israeli attack against the Natanz complex for uranium enrichment. Israel denied hitting Natanz.
Trump replied on Truth Social in a matter of hours. Trump threatened to demolish Iran’s “various energy plants” starting with the largest one first if Tehran failed to fully open the Strait of Hormuz in 48 hours.
This came only one day after the president said that he would consider “winding down'” the war, a move which shook both governments and markets.
Iran escalated its response
Tehran didn’t comply, and issued counter-threats instead.
The IRGC said, “If you strike power, we’ll strike it,” threatening that they would target any country in the region supplying electrical energy to US bases.
Iran’s military went even further and issued their most alarming declaration of the war. If power plants were struck, they would “completely close the Strait of Hormuz, which will remain closed until all of our power plants destroyed are rebuilt”. This was the first time that Iran had explicitly threatened a permanent, total closure.
Iran’s Foreign Minister took a public stance that was different, stating on X, that the Strait is “not closed,” and that insurers are hesitant to send ships through the Strait because they fear war. Not because Iran has blocked them. Washington should “try respect.”
The Iranians can use this framing to save face by claiming that the Strait of Hormuz was not technically closed, without having to concede anything.
Israel also launched what they described as “a wide-scale attack against the Iranian terror regime’s infrastructure” on Monday, while time was running out.
The negotiations are on, but we’re nowhere near an agreement
There is an unspoken diplomatic path behind the ultimatums. Kushner, Witkoff and Egypt are in the early stages of internal discussion on how a possible deal could look. Qatar and Egypt will be passing messages from Washington to Tehran.
Iran is interested in talking, but only on strict terms. The Iranians want compensation, a guarantee that the war won’t resume and a ceasefire.
The US want the opposite.
Permanent missile restrictions and an open Strait.
There hasn’t been any direct communication between the two governments in recent days.
Last week a direct communication channel was temporarily re-activated between Witkoff, the US Secretary of State, and Iranian Foreign Ministry Araghchi. Both sides disagree on who started it and Araghchi has publicly denied any exchange.
US officials describe Araghchi now as more like a “fax” machine than a real negotiator. They are also still trying to determine who is in charge of the decision making process at Tehran following the death of Khamenei, along with the ouster of the majority of Iran’s military and political leaders.
If you don’t know who is able to sign a contract, then it will be impossible for you to negotiate.
What will happen if the war continues to escalate?
Economic pressure is growing and real.
The market could react quickly if the situation escalates.
The IEA said Monday that energy crises are now more severe than oil shocks of the 1970s. It warned that over 40 sites in nine countries have been severely damaged.
Brent crude oil is over $112 per barrel.
Fitch analysts said that a closure of the Strait of Hormuz for six months could maintain Brent at around $120 per barrel.
BofA also raised its Brent 2026 forecast, highlighting how rapidly the disruption is affecting pricing models.
More than 3,000 ships remain stuck in the Gulf. Trump faces a political threat from rising gasoline prices in the United States, eight months before midterm elections.
Pressure will extend beyond the energy sector.
European fuel prices for airlines have more than doubled and Asian jet-fuel prices are almost 80% higher since the strike began. Carriers are now rerouting flights around Middle Eastern airspace, warning about increased fares and lower earnings.
This is already affecting equities. Global stock markets are falling as investors become more nervous about oil price volatility, and S&P 500 has been under pressure due to inflationary fears fueled by energy.
If the situation escalates for a long time, the cost of fuel and shipping insurance will rise, and trade routes may be disrupted. This could cause consumer spending to fall, as well as force central banks to make a tougher choice between fighting against inflation or supporting growth.
Tonight, three scenarios will be on the table
Iran comes up with a formula to save face — claim that the Strait of Hormuz was never closed formally — some ships start moving, Trump declares victory and talks commence.
Trump delays or softens the threat as he did with previous ultimatums and the crisis continues without resolution.
The US could strike Iranian power plants. Iran can follow through with its promise to permanently shut down Hormuz and attack Gulf energy infrastructure. A war, which is already one of the most devastating energy crises in the past 50 years, will get even worse.
US Marines have just left for the Gulf and the Pentagon is asking Congress for $200 billion more to continue the war.
Tonight, the clock is ticking.
This article Markets are on Alert as Trump’s 48 hour Iran deadline expires Tonight appeared first on the ICD
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