08.07.2026 - Iran War: Comeback
The Middle East conflict re-escalated overnight after Iran reportedly attacked two oil tankers transiting the Strait of Hormuz near Oman.
In response, the United States launched strikes against several targets inside Iran. Iran then retaliated with attacks on US military assets in Bahrain and Kuwait.
Speaking at the NATO summit this morning, US President Trump declared that the previous ceasefire was over and stated that negotiations with Iran were no longer possible.
Markets:
Equities: Broadly lower, led by technology stocks (-1.4%).
Bonds: yields moved higher as oil prices surged, with the US 10-year yield rising to 4.58%.
Commodities: oil prices jumped around 6%, while precious metals traded lower
Currencies: USD strengthened
Cryptos: Broad weakness - Bitcoin falling below USD 62k
Volatility: VIX moved back above 18
My View: The re-escalation is real. I have consistently argued that this conflict was far from over, and the latest developments support that view.
Financial markets had largely priced in a lasting ceasefire and the end of this conflict. Oil prices had already fallen back to pre-war levels last week, while investors increasingly assumed geopolitical risks had largely disappeared.
At the same time, I repeatedly highlighted the risk of renewed inflation should oil prices move sharply higher again. That risk is becoming increasingly relevant. Markets have already priced out any further Fed rate hikes this year, leaving markets vulnerable if energy-driven inflation returns.
The key question now is whether this is simply another short-lived escalation before a new ceasefire is negotiated, or whether the conflict is entering a more dangerous phase.
From a political perspective, President Trump is unlikely to welcome a prolonged military conflict ahead of the US midterm elections, suggesting there remains a strong incentive to contain the situation.
If this proves to be another one-day escalation, markets could stabilize relatively quickly. However, if hostilities continue to spread across the region, investors may have to price in a much more severe combination of higher inflation, rising energy prices, and slowing economic growth. In that scenario, the market impact could be significantly more severe than during the February and March escalation.
After taking profits on part of my oil exposure previously, I deliberately kept a remaining position. This morning, I increased my oil exposure again through a speculative trade based on the view that supply disruptions could intensify if tensions continue to escalate. In particular, there remains a meaningful risk that the Strait of Hormuz could once again be closed, significantly disrupting global oil flows.
The position is intended to benefit from a renewed spike in oil prices should geopolitical risks continue to deteriorate.
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