The long and the short of it in Iran

Markets rarely move in a straight line during geopolitical crises, but they do follow patterns. At the outset of the conflict, the Trump administration positioned military action against Iran as a short, targeted operation: degrade nuclear and missile capabilities and accelerate regime change in the region. Yet as we have passed the three-week mark, the timeline — and the endgame — is coming under increasing scrutiny. 

Monday March 23 brought word that the US and Iran have had “productive” talks, with President Trump saying he is “very intent on making a deal.” The US also announced it would hold off on bombing Iranian power plants. It’s too soon to know how this will play out, but it underscores the element of fluidity in what may look like an intractable situation.   

Recent history — think Iraq invades Kuwait in 1990 all the way to the 12-day 2025 Iran War — suggests week four of a conflict — roughly where we are headed now — may mark the point of peak uncertainty. Markets have digested the initial headlines, and the first repricing has happened, but investors have little visibility on how long this may last or the potential escalation risk.

That uncertainty is compounded by a familiar feature of recent geopolitical shocks: conflicts can feel both longer and shorter than expected. And this pattern has precedent — from the Gulf War, to Iraq, and, more recently, Ukraine, early worst-case scenarios do not always materialize, while underlying disruptions in energy prices, supply chains and confidence often persist for longer than markets first assume. The recent financial market volatility feels worrisome but has remained generally subdued, so far.

So, if markets tend to follow a familiar playbook in the initial stages of conflict, what’s different with Iran, and which signals matter most for what comes next?

The changing face of war

Much like we have seen with Russia’s invasion of Ukraine, this conflict is being shaped less by large-scale ground deployment and more by airpower, missiles, and low-cost, high-volume drone warfare. 

Iran’s Shahed-type drone systems — used extensively so far in this war — have helped reset the economics of conflict. These are cheap to produce and expensive to intercept, which has forced adversaries to expend missiles that can cost many multiples of the incoming threat. In response, the US has started to deploy its own low-cost one-way attack drones — the first time the country has done so — demonstrating how quickly this technology is moving into the center of modern warfare.

We believe the broader point is structural. Mass, attrition and cost efficiency matter as much as precision or technological sophistication. Defense spending no longer simply concerns aircrafts and traditional missile systems but increasingly focuses on electronic warfare, short-range air defense, counter-drone solutions, resilient communications and space-based intelligence. 

Timing is everything

While there is no magic to the four-week general rule, the next 10 days’ actions will tell us much. We expect upcoming US Navy operations, known as a deliberate freedom of navigation exercise in the Strait of Hormuz, the current supply chain chokepoint, to demonstrate whether or not freedom of access to the strait and resulting oil flows is achieved.   

In addition, possibly other, more significant actions may be planned, like taking the strait by force or occupying Kharg Island further to the northwest, that will then pressure the remnants of the Iranian regime and re-open important sea and supply lines. In the meantime, and particularly if these upcoming anticipated operations do not succeed, there will be certain countries and regions which will be most negatively affected by the supply chain disruptions and current and potential heightened future oil price surge; namely, the Gulf Cooperation Council (GCC) nations, Southeast Asia, India, and, to a lesser extent, Europe and the UK.  

What does this mean for investors?

We do not believe that this is 1973 or 1979 — when the entire global economy was rocked to the core by events in the Middle East. Certainly, some regions will be affected in the short and possibly medium term, but ongoing military operations and more resilient supply chain management may dent the longer-term effects.  

When warfare changes, so too does the direction of government spending — and this can create durable investable themes. First, modernization in defense and security can continue to provide multi‑year tailwinds. NATO members are on track for a significant step-up in spending, with every country in the alliance achieving the 2% of GDP benchmark in 2025 according to recent estimates, alongside new frameworks guiding budgets higher into the 2030s. In this environment, we believe beneficiaries are likely to include those companies operating in air and missile defense, drone countermeasures, surveillance and satellite communications. 

Second, energy is likely a near term hedge but remains a key variable, with markets continuing to rise or fall depending on developments in the Strait of Hormuz. It cannot remain closed indefinitely. We expect that oil price spikes will prove temporary once shipping lanes reopen and inventories are deployed. Liquefied natural gas (LNG) markets are more vulnerable, however, given their reliance on specialized infrastructure and longer restart times; any extension to the disruption would meaningfully affect net energy importers in Asia and Europe.