“All action takes place, so to speak, in a kind of twilight, which like a fog or moonlight, often tends to make things seem grotesque and larger than they really are.”
Carl von Clausewitz
Unfortunately we have to write another text about an armed conflict and its consequences. Given the cost of human lives, it seems futile or even frivolous to try to discern the impacts on markets, commodity prices, etc…
But given our impossibility, this is the part that falls to us at the moment.
First point: we wrote this text on Saturday night, Brasília time, which means that a lot is still to happen in the coming days/weeks.
The conflict
What we know so far is that the US in conjunction with Israel began a large-scale bombing program on Iranian military targets. A surprise? The action clearly does not. The US had accumulated the largest amount of military assets since 2003 in the region, including two aircraft carrier groups. It is difficult to assume that there would not already be, at least, if the ongoing negotiations failed, a military option being considered. BUT the surprise has been the range and duration of the attacks. Unlike the events of June 22, 2025 where bombings were limited to the nuclear facilities of Natanz, Fordow and Isfaham, current reports chronicle much larger scale attacks on several cities, government installations and Republican Guard targets.
Current news includes among the victims the supreme leader of the Iranian government Ayatollah Ali Khamenei. This completely changes the picture. Unlike previous attacks, the US seems much more convinced of the need for regime change, or at least people more willing to negotiate.
This is where any similarity with those who think about Venezuela’s action ends. Iran is a country of 90 million inhabitants and the Republican Guard alone has around 190 thousand soldiers. It is true that the country had been facing violent social protests, but decapitating the leadership is far from promoting any type of stability.
The answer
Also, unlike in 2025 when the Iranian response was “measured” and designed not to escalate, this time Iranian missiles and drones targeted almost all US military installations and, more importantly, Middle Eastern cities such as Dubai. This demonstrates a level of desperation on the part of the Iranian government, trying to drag the entire region into the conflict. THAT is the big risk. A conflict that spreads across a region that is not exactly known for its stability, but that accounts for around 1/3 of the world’s oil production.
The world
Unlike other actions in the region, this was an attack limited to American and Israeli forces, historical allies such as Europe seem to have been caught by surprise. (At the moment, the vigorous European response was to call a meeting to discuss the issue on MONDAY…).
On the side of Iran’s historical allies like Russia, only resigned responses.
As for countries in the region, the UAE has just declared war on Iran, and it is reasonable for others to follow suit given the desperation of Iranian actions.
The next moves
Iran’s arsenal will soon be depleted, coupled with attacks on the Iranian navy this means its ability to retaliate directly will be eliminated. With this, the USA and Israel will have complete control of both the airspace and, more importantly, the Strait of Hormuz, through which 20% of the world’s oil and natural gas flows.
There will undoubtedly be an attempt by the Iranian government to use mines and short-range missiles to interrupt the flow of hydrocarbons. The success of such an attempt is dubious, but it could certainly put the global economy in a more uncomfortable situation with oil price increases of more than USD10/barrel.
The prospect of regime change depends on popular reaction. Since the possibility of military intervention on land is not considered, it will be up to the Iranians to seek a new government, but again, the Republican Guard has more than 190,000 well-armed soldiers…
The markets’ reaction
At the moment, given the weekend, there is little indication of the markets’ initial reaction. Some secondary markets indicate oil rising 7% and the S&P falling close to 1%, but again, even if the markets were open and these were reliable quotes, it is certainly too early to be able to correctly price the risks involved.
Or what we know:
- This is NOT the same as the Venezuela crisis. An important portion of the world’s energy is concentrated in the region.
- A quick solution seems unlikely considering the lack of an alternative to alternating power.
- There is (although not the most likely scenario) the possibility of a regional escalation, given the region’s history of instability.
On the other hand, for what remains of the Iranian government, there appear to be few viable alternatives other than negotiating a peace. BUT, as Robert McNamara, US Secretary of Defense during the Vietnam War, told us, it is very difficult to have a clear view of the facts in the presence of the “Fog of War”.
