From Gunboat Diplomacy to Kinetic Risk: Re‑rating the U.S.–Iran Scenario
Tehran’s power projection, Gulf chokepoints, and rare earths converge into one decision point for Washington. The result: a higher probability of U.S.–Iran conflict than consensus pricing implies.
Markets are still trading U.S.–Iran risk as if it were mostly about oil. The administration is looking at power projection, chokepoints, allies, and critical minerals—a much more combustible mix.”
The Trump administration has continued its America‑First global posture, and Iran has once again moved to the center of the agenda.
Tensions have escalated sharply. President Trump ordered a second U.S. carrier strike group (CSG) toward the region in what is officially framed as a “show of force,” even as reporting points to active planning for potential strikes. This comes alongside more than a hundred C‑17 transport flights moving personnel and equipment from the United States into Europe and the Middle East—the largest buildup since Desert Storm by multiple estimates. The hardware publicly acknowledged in theater is largely defensive: Patriot batteries, THAAD, and anti‑drone systems aimed at hardening U.S. bases that sit within range of Iranian missiles and UAVs should diplomacy fail.
For markets and investing, the risks around a U.S.–Iranian conflict that reaches a meaningful kinetic scale are straightforward but powerful. Oil prices could spike; shipping through the Strait of Hormuz—which carries roughly a fifth of global oil and LNG trade—could be disrupted; and inflation could push higher via fuel, food, and transport costs, lifting risk premia across assets. That’s a classic risk‑off cocktail consistent with major geopolitical conflict and its knock‑on effects. The task for investors is not to debate whether it would be “bad” for markets—that part is easy—but to estimate how likely such a conflict actually is.
In my process for assessing major event risk, I start with a default 50/50 probability. At scale, the number of moving parts makes it foolish to begin with “definitely” or “no way” as a base case. Starting at even odds disciplines the analysis and helps control for mental skew—our own political priors and emotional reactions—which can be dangerous when evaluating multivariable, high‑impact scenarios.
From this author’s perspective, the probability of at least limited U.S. kinetic strikes on Iran over the coming weeks to months is comfortably above a coin flip—on the order of 65–70%. That is a high‑conviction view that stops short of declaring war “inevitable.” It reflects the reality that there are still potential off‑ramps via diplomacy and back‑channel bargaining, but that the weight of incentives and positioning is now tilted toward action. Notably, some outside energy experts are already publicly putting the odds of a U.S. attack in the mid‑70s, and prediction markets are trading in a similar range, which means this is no longer a fringe scenario in professional circles.
Before diving into the reasoning, it’s important to be explicit about perspective. I am an American, and I generally advocate for the interests of my home country above all others. In my view, it would be naïve not to. That is not an argument that states should be indifferent to the rest of the world; rather, it recognizes that most actors are fundamentally self‑interested. The rhetoric of global concern is often just that; when push comes to shove, whether we are talking about individuals, corporations, or states, self‑preservation dominates. Our sympathetic nervous system hard‑wires us for fight‑or‑flight. True for the U.S., true for Iran, true for all of us.
From a U.S.—and broadly NATO—perspective, Iran presents a cluster of acute problems policymakers want to address:
• Nuclear program and potential weaponization
• Preventing Iran from achieving either an actual nuclear weapon or a rapid “breakout” capacity remains a declared red line for Washington and its European partners.
• Ballistic missiles, drones, and delivery systems
• Iran now fields one of the region’s largest missile and UAV arsenals, which U.S. officials increasingly see as key enablers of regional coercion and a potential nuclear delivery platform.
• Terrorism and proxy networks
• Iran is characterized in U.S. policy as a “foremost state sponsor of terrorism,” funding and arming Hezbollah, Iraqi militias, the Houthis, and others targeting U.S., Israeli, and Gulf interests.
• Broader regional destabilization
• Tehran and its proxies have been tied to strikes on shipping, missile and drone attacks on Israel and Gulf states, and sustained threats to U.S. forces in Iraq, Syria, and the wider region.
• Cyber operations and illicit finance
• Sanctions‑evasion networks, cyber activity, and a “shadow fleet” moving sanctioned oil undermine U.S. and European sanctions regimes and expand Iran’s ability to project influence despite pressure.
If you are in Washington or Tel Aviv, none of this is acceptable. But the desire to constrain Tehran’s power projection goes well beyond the U.S. and Israel.
Saudi Arabia and Iran have spent decades locked in ideological and geopolitical competition via proxies in Yemen, Lebanon, Syria, and elsewhere—a long‑running contest for regional leadership that has periodically brought the region close to direct confrontation. Bahrain’s relationship with Iran is particularly poor: Manama has severed diplomatic ties multiple times, accused Tehran of subversion, and hosts the U.S. Fifth Fleet, making it both a frontline ally and a potential target. The UAE has its own disputes with Iran over Gulf islands and regional posture, even while sustaining significant trade flows and pursuing recent rapprochement efforts. Israel and Iran, meanwhile, are in an ongoing shadow war that spans airstrikes, cyber operations, and proxy clashes from Syria and Lebanon outward.
In the last few years, Saudi Arabia and the UAE have experimented with de‑escalation and partial normalization with Iran, driven by economic priorities and a desire to cap immediate regional risk, with China and Iraq mediating. That process has delivered transactional benefits but has not eliminated the underlying structural instability tied to Iran’s missile forces, proxies, and nuclear program.
It is fair to say that U.S. Middle Eastern partners would not be disappointed to see Iran adopt a more global, pro‑Western, and pro‑capitalist stance—or, short of that, to see its existing power‑projection apparatus materially constrained.
For Washington, in current form, this amounts to a form of green light to address a shared problem set. U.S. strategy explicitly calls for preventing “hostile domination” of the Middle East, and Iran is clearly categorized as a hostile actor. Alongside, Washington wants to keep global shipping lanes open—especially the Strait of Hormuz. Around one‑fifth of global oil and LNG trade moves through that chokepoint, and any serious attempt by Iran to disrupt it would have meaningful macro and political consequences. If Iran is cut down to size, the Strait and associated flows are more likely to remain open and not used as leverage. That supports global oil price stability, reinforces U.S. credibility as a security guarantor, and directly serves the interests of Israel, Bahrain, Saudi Arabia, and other partners. Put bluntly, most of our regional allies would be comfortable with—and would benefit from—a materially reduced Iranian power‑projection footprint.
Against that backdrop, a 65–70% probability of at least limited U.S. kinetic engagement is a reasonable assessment.
President Trump has shown a clear preference for “solving” what he perceives as long‑ignored problems and for demonstrating resolve, as evidenced by prior strikes on Iranian nuclear and military infrastructure and his posture toward Venezuela. Publicly, he has gone so far as to say that a “change in power” in Iran would be “the best thing that could happen,” while warning Tehran over repression of protesters—a linkage that sets up internal behavior as a trigger for external punishment. From the administration’s vantage, Iran is not just a regional irritant; it is a problem for Middle Eastern neighbors and for Europe if Tehran moves closer to a nuclear weapon and credible delivery systems. A decisive move against Iran can be framed as a strategic win that showcases U.S. resolve and reinforces the value of being aligned with Washington.
The U.S. has already pushed significant assets into theater: over a hundred C‑17 loads of equipment, plus a second carrier strike group spinning up for deployment. A single CSG carries enough firepower to seriously degrade a medium‑sized state’s military infrastructure if employed aggressively; two CSGs, plus bomber and cruise‑missile capacity and layered air defense, represent overwhelming force to conduct a concentrated strike campaign on Iran’s nuclear sites, command‑and‑control, and selected IRGC assets. While Trump is a clear believer in gunboat diplomacy, he does not need two CSGs and large volumes of defensive kit merely to signal seriousness. It is also unlikely that the U.S. would be surging defensive systems into regional bases if it did not see a real risk of Iran retaliating with missiles and drones—something both U.S. and Iranian officials have essentially acknowledged. The official narrative remains “we want diplomacy,” but Tehran is not wrong to suspect that this is also about buying time to complete force positioning before any potential engagement.
Most investor commentary on Iran focuses on oil. Another, longer‑horizon consideration for Washington and its allies is Iran’s rare earth elements (REEs) and broader critical‑minerals endowment. The U.S. currently relies on China for around 70% of its rare‑earth imports, and reducing that dependence has become an explicit strategic objective. Iran claims substantial REE reserves, and while its REE sector is nascent and lacks large‑scale refining, a future in which a more open, U.S‑aligned Iran contributes significant non‑Chinese REE supply is increasingly discussed in strategy and resource‑security circles. Over a decade, that could help push U.S. reliance on Chinese rare earths into the 30–40% range when combined with other diversification efforts—a strategic prize that goes well beyond oil.
Timing also matters. Russia is a key Iranian partner, but it is already deeply engaged in Ukraine and has limited bandwidth to meaningfully support Tehran in a prolonged confrontation while sustaining its own war effort. Iran itself is under internal pressure: repeated waves of protests, a harsh crackdown that has drawn global condemnation, and the cumulative impact of sanctions and prior U.S. and Israeli strikes on selected assets. From a strictly strategic perspective in Washington, Tehran may look vulnerable and “ripe” for coercive leverage, whether that ends in a deal, limited strikes, or something more ambitious.
It will take roughly two weeks for the second CSG to be fully in theater, and C‑17 flights are still ongoing. At the current pace, the U.S. is likely to feel it has an adequate concentration of assets within the next two to four weeks. For a country ostensibly seeking a diplomatic solution, those deployments look much more like preparation for a serious kinetic option than mere bargaining leverage. On that basis, it is reasonable to assess the probability of at least limited U.S. strikes on Iran in the near term at 65–70%, with a smaller but significant tail risk that a limited strike campaign escalates into a broader conflict.
Almost everything is politicized now, and conflict between major states is no exception. The key for investors is not to let personal political preferences or desires obscure how the administration itself is likely to think about costs, benefits, and timing.
Markets do not trade your politics at the moment, if ever; they trade the behavior of decision‑makers in Washington and Tehran. The coming months will likely not be an exception.
Disclaimer: I am not a financial advisor. This content is for informational purposes only and should not be taken as investment advice.