War in the Middle East – implications for markets and macro in World Economy News 03/03/2026 The coordinated attacks on Iranian military, nuclear, and leadership sites, including the reported killing of Supreme Leader Ayatollah Khamenei, represent a profound shock to Iran’s political system and a fundamental rupture in what had still looked, only a few days ago, like an ongoing diplomatic process. A third round of nuclear talks in Geneva had just concluded with the Omani mediator reporting “significant progress”. Washington apparently disagreed. The stated US objective has evolved well beyond nuclear containment. US President Donald Trump’s direct address to the Iranian people, “take over your government, it will be yours to take”, alongside Israeli Prime Minister Benjamin Netanyahu’s framing of “removing an existential threat,” makes regime change the explicit goal. That is a significant, legally contested, and historically dangerous step. Middle Eastern history offers little encouragement for the proposition that civilian populations seize orderly control once leadership structures collapse. Power vacuums tend to produce civil war, hardline consolidation, or prolonged fragmentation; sometimes all three. Contrary to the attacks on Iran last summer, Tehran didn’t wait long with its response. Firing back within four hours, hitting Israel, US bases in Bahrain, Kuwait, and Qatar, and civilian infrastructure across the Gulf, shows contingency plans were already on the shelf. Needless to say, this remains a fast-moving environment. From a market perspective, two rather abstract general scenarios could evolve from here. Two general scenarios that matter for markets From here, the possible military and geopolitical scenarios could fill a book and also seem to change by the day. For financial markets, the branching point is simpler and more brutal: does this end in days, or does it become a forever war that involves an entire region? Scenario 1: Four to seven days, then internal Iranian uncertainty US and Israeli strikes exhaust fixed military targets quickly, operational tempo drops, and a de-facto ceasefire emerges within the week. Iranian retaliation stays bound, damaging enough to be politically useful domestically, but not enough to draw a decisive US counter-escalation. The Strait of Hormuz sees harassment but no serious disruption, partly because Tehran’s own oil exports to China depend on it. The regime either survives in weakened form or fractures into a messy internal transition. For markets, this is the June 2025 playbook: an initial oil spike, which fades as Hormuz disruption fears ease. A temporary war premium, with no lasting macro implications. Scenario 2: Iranian retaliation forces Trump’s hand – the forever war President Trump already said on Sunday evening that the war could last up to four or five weeks. Iranian retaliation, which has hit 10 countries so far, does not point to any imminent de-escalation. In this more severe scenario, strikes continue past fixed military targets into infrastructure and mobile assets, lowering operational tempo but extending the timeline indefinitely. Iran, backed into a corner with regime survival in question, escalates asymmetric economic warfare with sustained harassment of tanker traffic, activation of Houthi attacks on Red Sea shipping, and attempts to disrupt the Strait of Hormuz. Even partial disruption to a chokepoint handling 20 million barrels per day of oil and over 100 bcm of LNG an