On 28 February 2026, the US and Israel began conducting a series of co-ordinated military strikes across Iran, leading to the death of Iranian Supreme Leader Ayatollah Khamenei, along with multiple other high-ranking members of the Iranian regime and military chain of command. In response, Iran has launched a series of retaliatory strikes, targeting US military bases and assets across the region, including in Bahrain, Qatar, Kuwait, Iraq, and the UAE.
This Special Report summarises our analysis and assessment of the macro-economic, market, and investment implications of these developments. We are clearly deep within the fog-of-war, with significant near-term uncertainty around the situation on the ground. Using our constraints-based framework, we map out the fulcrum actors, key constraints, and signposts to monitor, consider the most likely near-term scenarios, and outline our thoughts on the near-term and long-term implications for the region.
As with all political and geo-political developments, we conducted a disciplined constraints-based analysis to help us determine the most likely courses of actions that each policymaker might take, enabling us to understand the key constraints, fulcrum actors, and signposts for investors to watch. Based on our analysis:
Oil prices, lack of boots on the ground, and the bond market are Trump’s key constraints
With the US mid-term elections only 8 months away, US President Trump is vulnerable to a sustained spike in oil and gasoline prices that would further damage his already weak standing in the polls. While a short-term spike could be navigated if he achieves lasting regime change, we suspect that the Trump Administration’s tolerance for elevated oil prices will be limited and would fade rapidly if, for example, disruptions to the Strait of Hormuz last into the Northern Summer. Ultimately, this may be the constraint that alters Trump’s calculus the most – and could see him change tack from full regime change to negotiating with a ‘refreshed’ Iranian regime a la Venezuela. We expect Trump will ultimately bow to the constraint of elevated oil prices, particularly if any disruption to the Strait of Hormuz lasts into the Northern Summer, dangerously close to the US mid-term elections.
Meanwhile, without any substantive build-up or mobilisation of Army or Marine ground assets, the US is limited to conducting a purely aerial campaign to pursue its objectives. History has shown that it is extremely difficult to foment lasting regime change via an aerial campaign alone. In fact, the last externally compelled regime change was Iraq in 2003, which required the commitment of close to half a million US ‘boots on the ground’. Without this, the US is reliant on a domestic Iranian popular uprising to be united and competent enough to overthrow the existing regime. We expect the US will do all it can to support this via further air strikes, intelligence sharing, logistical support, advice etc. However, should the opposition fail (or look like they are about to fail), we would expect the US to ‘pull up stumps’ and revert to negotiating a deal with the existing regime.
As Liberation Day last year showed, if bond markets disapprove of Trump’s actions, they will push bond yields higher, ultimately threatening a US recession. This constraint has punished Trump before, and we expect he will respect it if it raises its ire again.
The US and the Iranian opposition/people are the fulcrum actors that will determine the future of Iran
Over the coming days and weeks, the US military will dictate the immediate next steps depending on how much further it wishes to push and in how it responds to any Iranian attempt to meaningfully disrupt the Strait of Hormuz.
Ultimately though, the Iranian opposition/people will hold the fate of Iran and the Middle East in their hands. As we noted, without boots on the ground, any lasting regime change in Iran is practically reliant on the domestic populace. If such a regime change is achieved, we could see a rapid cessation of hostilities across the board. On the contrary, a prolonged period of civil unrest could increase uncertainty further. It is unclear as yet how unified, co-ordinated, and capable any Iranian opposition is, though we expect that both the US and Israel will expend enormous resources to support domestic efforts to overthrow the existing regime via military strikes and/or other means.
Key signposts to monitor
In general, geo-political shocks rarely have a sustained negative impact on economies and markets, as investors move quickly past the initial uncertainty and re-engage with the prevailing macro and market environment. In this regard, geo-political risk premia across markets had already risen in recent weeks amid a well-signalled military build-up; oil prices are up 20% year-to-date, and US bond yields have fallen 30 basis points from recent highs and defensive sectors have outperformed cyclicals. Prediction markets had been placing a greater than 60% chance that the US would strike Iran by March. As a result, markets had largely anticipated the escalation and are therefore unlikely to be taken by complete surprise. However, at the headline equity level, with global equity indices at all-time highs, equity markets are vulnerable in the short-term.
More broadly, we also retain our constructive macro outlook. We continue to view global fiscal and monetary policy as supportive for markets, and would expect even further policy easing should this conflict extend or expand. In other words, we retain our longstanding bias to lean into geo-politically induced market weakness as an opportunity to deploy into growth assets. That said, it is clear that we are deep in the fog of war, with significant uncertainty on the ground as to what might happen next (though we can make best efforts analysis as we have above). Depending on how the situation plays out, this fog could clear in days or could last for a prolonged period.
We are preparing for potentially significant near-term volatility, for which we believe our well-diversified, multi-asset client portfolios are well-placed to navigate. While oil prices could spike in the near-term, we believe a sustained, economy-damaging level of oil prices (e.g. exceeding USD 100 per barrel) is unlikely, given the constraint that would place on the Trump Administration. In the interim, a flight to safe-haven assets (such as government bonds and currencies like the USD, JPY, and CHF) is likely, which should provide a cushion and liquidity for multi-asset portfolios to deploy into opportunities that may emerge.
We have spent the last two years developing frameworks for navigating the changing world environment, which we have written about extensively in our February 2025 Observation Piece ‘The New Great Game’. These frameworks have served us well through various geo-political shocks, including in April 2025 and June 2025, and we believe will also serve us through this period.
More broadly, two key investment beliefs drive our views: we invest for the long-term, and we trust discipline and diversification to beat impulsive or reactive trading. As long-term investors, we do not fear short-term volatility. History and recent experience have shown us that periods of market dislocation often present attractive opportunities for astute investors with the liquidity and conviction to seize them.
In this particular case, there is a brighter scenario that we also cannot rule out: it is a real possibility that Iran emerges from this with a different policy backdrop which is more conducive to co-operation and opening up of the economy to the globe. Supported by Iran’s large, educated, and young population, as well as one of the largest oil reserves in the world, this ‘Rapprochement d’Persia’ scenario could be immensely positive for the Iranian and global economy. So, while we remain very alive to near-term risks, we should also not lose sight of the possible longer-term silver lining to recent events.
On 28 February 2026, The US and Israel launched a series of co-ordinated attacks on Iran, leading to the death of Iranian Supreme Leader Ayatollah Khamenei, along with multiple other high-ranking members of the Iranian regime and military chain of command. In response, Iran has launched a series of retaliatory strikes, targeting US military bases and assets across the region, including in Bahrain, Qatar, Kuwait, Iraq, and the UAE. Both sides are currently locked in an ongoing series of strikes and counter-strikes.
Based on our constraints-based analysis, oil prices, lack of boots on the ground, and the bond market are the key constraints that are likely to moderate or limit the extent of further conflict. In considering the near-term outlook, the US military and the Iranian opposition/people are the fulcrum actors that will determine the fate of Iran and the broader Middle East.
Key signposts to monitor over coming days and weeks are conditions in the Strait of Hormuz, signs of regime change in Iran and/or de-escalation and re-negotiation from the surviving regime, oil prices, and dynamics within US Treasury and global equity markets that might signal an opportunity to deploy capital.
We retain our longstanding bias to lean into any potential geo-politically induced market weakness as an opportunity to deploy into growth assets. We also retain our broadly constructive macro outlook and our current tactical positioning. We will continue to carefully monitor the environment and stand ready to make changes to our tactical positioning as and if our assessments change.
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