The ongoing conflict between Israel and Iran has been characterised as a pivotal moment in regional security, often described as the "big one". According to TS Lombard, a more nuanced perspective is needed, one that emphasises the process of attrition rather than the pursuit of clear-cut outcomes.

As the situation evolves, it becomes evident that the volatility of the conflict will have significant implications for oil markets and broader geopolitical dynamics. At the heart of the analysis lies the recognition that the potential outcomes of the conflict are starkly divided.

Possible outcomes

On one end of the spectrum is the possibility of a violent Iranian defeat, which could lead to substantial disruptions in global oil supply. Such a scenario raises concerns about the security of the Strait of Hormuz, a critical chokepoint for oil transportation, and the potential for retaliatory strikes on GCC oil facilities and tankers. The ramifications of a chaotic Iranian collapse could be catastrophic, with the regime resorting to desperate measures that threaten regional stability.

On the other end of the spectrum is a scenario of peaceful Iranian capitulation, where Tehran agrees to abandon its nuclear ambitions in exchange for concessions. This outcome is fraught with challenges, including deep-seated regime infighting and a pervasive lack of trust in the US as a reliable negotiating partner.

The legacy of the 2015 Joint Comprehensive Plan of Action has left a significant trust deficit, complicating any potential diplomatic resolution.

In the immediate term, the conflict is likely to result in continued military degradation and heightened social tensions on both sides. Iran's operational goal appears to be one of survival, viewing the ability to withstand Israeli aggression as a form of victory. This perspective underscores the complexity of the situation, as definitive outcomes remain elusive.

More volatility

As the conflict unfolds, TS Lombard says market participants should brace for frequent volatility in oil prices, driven by shifting narratives and developments on the ground.

The stakes are high, and the path forward will require careful navigation of the intricate dynamics at play. In this environment, understanding the process of attrition may prove more valuable than fixating on binary outcomes, as the region grapples with the profound implications of this enduring conflict.