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Military strikes on Iran have created new risks for the region and the world.
Last updated: 03 March 2026
The United States and Israel this weekend carried out joint military action against the Islamic Republican of Iran. By the end of Sunday, Iran confirmed its leader, Ayatollah Khomeini, had been killed along with scores of the high command. It swiftly launched retaliatory attacks across the region as violence erupted in neighbouring states.
For the United States, the stated aim was to knock out the Iranian leadership, cripple offensive weaponry capabilities and precipitate regime change by popular uprising. But the risks of involving itself in another unpredictable conflict are monumental.
Amid the human tragedy of another conflict, currency markets awaited Monday’s open with baited breath. The reaction was swift, yet perhaps – due to a certain conditioning to chaos – it was not as bad as it might have been. It’s what comes next that could be the truly market-moving development.
A historical quagmire
There are very good reasons that explain why America previously shied away from striking Iran. The vast nation is marked by the same kind of challenging terrain and dispersed population that made Afghanistan so challenging. It has close ties with powerful organisations in neighbouring countries and is an ally to Russia and China. A hostage crisis at the height of the oil crisis was one direct cause of Jimmy Carter’s eviction from the White House and the American people have no appetite for another unending conflict in the Middle East.
For their part, some Iranians have long harboured an ideological distaste for the ‘Great Satan’ across the Atlantic. Unceremoniously killing the Iranian leader will likely lead to reprisals, whether that’s on Israel, allies in the region or the United States directly. For now, the Iranian response has been a full-fronted air assault on targets in the region. These have ranged from air bases to hotels and show little sign of stopping. At the time of writing, four American servicepeople had died along with hundreds of Iranians, many of whom were civilians.
The US and Israel seem to have calculated that a land invasion of Iran would be unacceptably costly. Yet effecting lasting, stable regime change through aerial bombardment alone seems unlikely.
What comes next?
The big question is what exactly might come next. President Trump urged the Iranian people to take to the streets and take control of government. Yet despite widespread discontent in the past couple of years, there is no guarantee they will succeed.
For example, the Iranian security apparatus is organised and sophisticated. It boasts a broad network and powerful internal backing. Without a recognised figurehead, it is true that loyalties might collapse. However, it is also possible that any popular uprisings will again be crushed and that the previous authoritarian structure will reassert itself.
It has not escaped the attention of some more cynical analysts that the military action coincides with a rather sticky period for President Trump. Ahead of mid-term elections in November that don’t look too rosy for the Republicans, there is a suspicion that Trump has gambled on decisive action in the hope it will benefit him politically. If that is true, he will not want to hand Iran the ace of controlling gas prices for long.
Oil surges
As expected, Iran quickly used its main economic weapon and closed the Strait of Hormuz. Roughly 20% of the world’s oil flows through this narrow channel daily, giving Iran outsized leverage over the flow of the world’s most vital commodity.
Major oil indexes spiked to begin the week. As the chart below shows, the price of Brent crude jumped by around 6% over the course of a single day. Some analysts have suggested it could reach $90 per barrel based on this supply chain uncertainty.
Broader financial markets have been in something of a tailspin this week. Memories of the 2022 Russian invasion of Ukraine make Europeans particularly nervous about rising commodity prices. And although the UK at last appeared to have broken the back of inflation, there are fears that the strikes which took out a major gas refinery in Qatar could add several percentage points to the headline inflation rate by the end of next year.
The currency context
Safe-haven currencies enjoyed a strong Monday as investors shunned riskier assets. The US dollar and Swiss franc looked particularly well-bid against pretty much all other currencies on the globe. The pound meanwhile fell before bouncing off multi-week lows on Monday afternoon.
Strikes on Iran had been on the cards for weeks. Although there was an element of shock to proceedings, markets had at least been given a few days to process what everything meant over the weekend.
Going forward, there is a sizeable risk that the next stage of the conflict throws up something less predictable and more negative for the global economy. Should the conflict spin out of control, or should other major powers be drawn into a larger tustle, businesses should expect a prolonged period of volatility and fundamental risks to their profit margins and bottom line. Protecting your business should now be your fundamental objective.
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