Those who operate in the financial markets know well that geopolitical tensions are one of the most insidious variables to monitor. Not so much because they are difficult to identify, but because their evolution eludes any rational forecasting model. The Middle East, in this sense, continues to be the great stone guest of any serious macroeconomic analysis. And as we write these lines, at the end of January 2026, we find ourselves facing a situation that deserves the utmost attention from anyone with capital exposed to global markets.

The twelve-day war between Israel and Iran, fought in June 2025, represented a historic turning point. For the first time since the founding of the Islamic Republic, two sworn enemies faced each other directly on the battlefield, no longer hiding behind their respective regional pawns. Israel bombed Iranian nuclear facilities; Iran responded with hundreds of ballistic missiles and suicide drones. The United States intervened on Israel's side, in turn striking three Iranian nuclear sites. After twelve days of fighting, a fragile ceasefire halted hostilities. But halting the fighting, as we will see, does not mean the problems have been solved.

Iran in Collapse: The Economic Fuse of Protests

To understand what is happening today, we need to look inside Iran, where the situation has deteriorated with astonishing speed. The rial, the national currency, hit a record low of 1.45 million to the dollar at the end of December, losing over 40% of its value compared to pre-war levels. Inflation is galloping at 42.5% annually. Ordinary Iranians can no longer afford basic necessities like bread, rice, and cooking oil.

The protests erupted on December 28, 2025, starting in Tehran's Grand Bazaar, the beating heart of Iranian commerce and a traditional bastion of the regime. This was a powerful warning: when bazaars close their shops in protest, it means the social contract between the regime and the merchant class has been strained. Within a few days, the demonstrations spread to all 31 provinces of the country, involving at least 185 cities, according to estimates by human rights organizations.

The regime's response was brutal. The internet blackout imposed on January 8 completely cut off the country from the outside world, preventing not only communications but also ATMs, commercial transactions, and even the operation of hospitals and pharmacies. Under the cover of this digital blackout, security forces conducted what many international observers called a veritable massacre. Estimates of the death toll vary widely, from 2,000 to 20,000 according to sources, making these protests potentially among the bloodiest in the history of the Islamic Republic.

The Game of Powers: Washington, Jerusalem, and Tehran

The current dynamic is that of a chess game being played simultaneously on multiple levels. President Trump, upon returning to the White House, initially responded to the protests with bellicose tones, threatening American intervention if Iran continued killing protesters. He called Khamenei a sick criminal and promised that America was ready for action. Then, after diplomatic pressure from the Gulf countries, he toned down his rhetoric while maintaining military pressure.

In the last few hours, the situation has accelerated significantly. The aircraft carrier USS Abraham Lincoln and its battle group have arrived in Middle Eastern waters, as officially confirmed. The group includes three Arleigh Burke-class destroyers equipped with Tomahawk missiles, capable of striking targets deep inside Iranian territory. Trump himself, returning from the World Economic Forum in Davos, declared that a massive American fleet is heading for the Persian Gulf.

On the Israeli front, Prime Minister Netanyahu declared that Israel had eliminated the Iranian nuclear threat last June, but also made it clear that any attempt to rebuild its nuclear program would be met with the same force. Turkish Foreign Minister Hakan Fidan publicly warned that Israel was looking for an opportunity to attack Iran again. A particularly interesting piece of information emerged from the Washington Post: before the protests erupted, Israel and Iran exchanged messages through a Russian intermediary, assuring each other that they would not launch preemptive strikes. This indirect diplomatic channel suggests that both sides are aware of the risks of uncontrolled escalation.

Because the current peace is just a pause

The current state of non-belligerence is structurally unstable for reasons that go far beyond the current situation. On the one hand, Israel considers Iran an existential threat. For a people shaped by the memory of the Holocaust, Iranian declarations about the destruction of the Jewish state are not empty rhetoric but promises to be taken deadly seriously. On the other hand, Iran believes that possessing nuclear weapons is the only way to guarantee itself against American or Israeli aggression, and considers its regional influence through Hezbollah, Iraqi militias, and the Houthis a vital component of its national security.

After the June war, Iran lost much of its network of regional allies. Hezbollah in Lebanon was decapitated and militarily weakened. The Assad regime in Syria collapsed. Iraqi militias are increasingly integrated into the local political system and therefore less willing to take risks. Iran itself suffered the first direct attack on its soil by Israel in its history. This erosion of the so-called Axis of Resistance has paradoxically made Iran more vulnerable and potentially more dangerous: a regime on the ropes could be tempted to make desperate moves.

The implications for investors

For those operating in financial markets, this situation requires a particularly careful approach to risk management. During the Twelve-Day War, markets showed surprising resilience: the S&P 500 recorded modest declines, and oil prices, after an initial spike, stabilized thanks to the spare capacity of OPEC, and particularly Saudi Arabia. But this relatively benign scenario may not be repeated in the event of a new conflict.

Goldman Sachs analysts have estimated that a disruption in Iranian oil exports, amounting to approximately 1.75 million barrels per day, would push Brent crude above $90 a barrel, with a return to $60 only during 2026 as supply recovers. In the extreme case of a closure of the Strait of Hormuz, even temporarily, prices could exceed $100, with significant inflationary consequences for the global economy. The Dallas Fed has calculated that even in the most severe scenario, the impact on US inflation would be in the order of 0.8-1.3 percentage points, a manageable but not negligible effect.

From a sectoral perspective, an escalation would obviously benefit the energy and raw materials sectors, while penalizing discretionary consumption, already under pressure from tariffs. The technology, healthcare, and financial sectors would be relatively less exposed to direct energy price dynamics. For fixed income, oil-importing markets may see their central banks more inclined to cut rates to support growth rather than tighten monetary policy to counter imported inflation.

Three scenarios to monitor

Looking ahead, we can identify three main paths along which this crisis could evolve. The first, and probably the most likely in the short term, is that Israel decides to strike Iran again as soon as it detects signs of a resurgence of its nuclear program. Israeli intelligence services constantly monitor Iranian facilities and have demonstrated significant penetration capabilities. In this scenario, America would likely provide logistical and intelligence support, Iran would respond with missiles on Israel and by activating its remaining regional allies, and oil prices would rise sharply.

The second scenario envisions the collapse of the Iranian regime. The current protests represent the most serious challenge to the Islamic Republic since the Mahsa Amini protests of 2022-23, and perhaps since the Green Revolution of 2009. Khamenei is 86 years old and, according to intelligence sources, has taken refuge in an underground bunker, delegating day-to-day operations to his son Masoud. Some analysts believe the regime will not survive 2026 with its power intact, although the form of change could range from an orderly transition to a chaotic civil war. A disintegrating Iran would pose enormous risks to the security of nuclear materials and regional stability.

The third scenario, less likely but not impossible, involves a diplomatic success. Saudi Arabia, Qatar, Oman, and Turkey are holding talks with both Israel and Iran. Trump himself stated in Davos that Iran is willing to negotiate and that the door is open. An agreement would require Iran to limit its nuclear program in exchange for sanctions relief and security guarantees, along the lines of the 2015 Joint Comprehensive Plan of Action (JCPOA), which Trump abandoned in 2018. The deep mistrust between the parties makes this outcome unlikely, but diplomacy remains on the table.

Operational conclusions

The conflict between Israel and Iran isn't over, it's just been paused. The root causes of the conflict are still present: Iran considers nuclear weapons essential to its survival, Israel considers a nuclear Iran an existential threat, and neither side trusts the other enough to reach a lasting compromise. Adding to this already volatile equation are now the internal protests that are shaking the very foundations of the Tehran regime, making the Iranian leadership simultaneously weaker and potentially more unpredictable.

For investors, this means maintaining prudent exposure to the sectors most sensitive to energy dynamics, considering oil hedging instruments if appropriate to their risk profile, and above all, avoiding being caught by surprise. American warships approaching the Gulf, the bunkers where Iranian leaders are hiding, the United Arab Emirates' refusal to grant its bases for attacks on Iran: all these are signs that everyone is preparing for the next round. The question is not whether the fighting will resume, but when and with what intensity. Being prepared for any scenario is the only sensible strategy.