With the Middle East crisis in its second week, high-intensity conflict continues across the region, with no meaningful sign of de-escalation from the US, Israel, or Iran.
In addition to the threat to life and physical assets, international financial markets are grappling with uncertainty around the endgame, volatility in energy prices, and growing concerns around the potential impact on cost of living, inflation, and transportation costs should the conflict be prolonged. In this fluid and far-reaching crisis, whereby global trade, logistics, and travel routes are heavily disrupted, scenario planning is a must for organisations looking to navigate the complexity and plan ahead.
Looking forwards, the selection of Mojtaba Khamenei as the new Supreme Leader by Iran’s Assembly of Experts on 8 March heralds the expectation of continuity vis-à-vis a hardline approach and ideological rigidity, as indicated by his first public statement on 12 March. Iranian officials, who have rejected calls for a ceasefire and indicated there is no space for diplomacy, have continued to strike a defiant tone, doubling down on rhetoric that points to a prolonged conflict aimed at maximising the economic consequences for the US and its allies. While it remains unclear how long the US can sustain the conflict – particularly given limited domestic appetite for a prolonged war – Washington has indicated a range of objectives and appears likely to be maintaining strategic ambiguity. Based on comments from military commanders in the local Israeli media, Israel would appear to be preparing for a month-long campaign at a minimum. In response to expanding hostilities and the threats to the regional shipping industry, as part of efforts to protect and escort international shipping, the EU and France have announced separate plans to expand naval deployments in the Mediterranean, Red Sea and potentially the Strait of Hormuz.
Below three possible conflict scenarios and their potential impact on commercial outcomes are set out.
Scenario 1:
Significant escalation
At present, conflict developments appear to be moving at a trajectory consistent with this scenario, with various elements already having materialised.
The US-Israeli campaign intensifies to accelerate degradation of Iran’s military capabilities, alongside which Israel leverages the opportunity to advance its broader regional security goals, including in Lebanon, while ethno-national groups exploit localised insecurity or governance gaps. Iran’s retaliation escalates against Israel, US assets in the region, as well as against critical infrastructure such as ports and airports and direct targeting of other western countries that may get drawn into the conflict. As US and Israeli operations erode Iran’s air defences and ballistic missile infrastructure, Tehran sustains and relies upon the strategic deployment of its stockpile of attack drones and short-range missiles to target US and Israeli military assets and financial institutions in the region, as well as critical infrastructure in the Gulf, such as water desalination plants, energy installations, ports and commercial hubs. Iran also enforces a prolonged closure of the Strait of Hormuz. Pressure on Gulf states mounts, leaving them with a difficult choice between deepening their involvement in the conflict or increasing pressure on the US to bring it to a resolution. The Houthis become increasingly active in the Red Sea and Horn of Africa, while Hezbollah expands the conflict to the eastern Mediterranean. Under mounting pressure, NATO members move beyond defensive and maritime protection roles towards limited offensive participation, contributing air and naval strikes against Iranian and proxy networks as the conflict expands.
Under this scenario, sea mines and navigational interference in the Strait of Hormuz continue to deter passage of commercial traffic, causing further disruptions for businesses, shipping and energy markets. Alongside this, war-risk insurance and freight rates spike further for Gulf, Red Sea and eastern Mediterranean routes, with more carriers diverting via the Cape of Good Hope, while aviation faces widespread airspace closures and rerouting around Iran, Iraq, Israel, and parts of the Gulf. In addition to damage to Gulf states’ critical infrastructure, which severely impacts commercial activity and civilian life, companies operating in the region face cost increases, prolonged business interruption, and cash-flow pressure. Iran-aligned malicious cyber actors likely continue to target US and Israeli multinational corporations embedded in global supply chains with the aim of causing disruption, with a focus on the healthcare, technology, and financial services industries.
Scenario 2:
Protracted conflict but contained regional instability
There is a likelihood of this scenario materialising in the coming weeks following a period of sustained and escalated conflict.
The conflict evolves into a protracted or longer-term campaign marked by intermittent airstrikes, missile exchanges, and cyber operations. Israel and the US remain broadly aligned on eroding Iranian military capabilities and political leadership, with ongoing attacks against sensitive government and defence infrastructure. Despite Israeli and US efforts, however, the Iranian regime remains intact, and decentralised Iranian military units remain capable of launching ballistic missile strikes on Israel, US military assets, and commercial operations across the region. Critical and commercial infrastructure in the Gulf continues to come under fire, including shipping lanes, energy facilities and urban centres, although damage remains contained. Warfare becomes increasingly asymmetric and retaliative as all parties grapple with declining missile stockpiles and the ability to manufacture expensive weaponry at speed. Amid increasingly open-ended conflict, key stakeholders try to overcome strategic chokeholds, but the risk of retaliation from Iran remains prominent. Proxy conflicts continue along multiple fronts, particularly in Lebanon, Iraq and Jordan, driven by Iranian-aligned armed groups, but these remain limited in scale and contained geographically.
Under this scenario, Iran’s increasing reliance on asymmetric tactics, such as cyberattacks, sabotage against critical regional infrastructure, and navigational interference in the Strait of Hormuz, causes further disruptions for businesses, shipping and energy markets. Despite efforts to secure critical shipping lanes and erode Iran’s naval capabilities, commercial shipping operators and regional ports continue to face a threat of Iranian attack or interference and prolonged closure or intermittent disruptions in the Strait of Hormuz, which disrupts global fuel supply and sustains high commodity prices. Disruptions to shipping more broadly drives rising freight costs and maritime insurance, raising import costs globally. Against this backdrop, attacks on civilian infrastructure may prompt some foreign entities and governments to continue to halt operations and evacuate staff and citizens.
Scenario 3:
Conflict de-escalation
There is a lower likelihood of this scenario materialising in the coming weeks.
The US announces it will cease direct involvement, claiming it has achieved its objectives, including eliminating key leadership figures and degrading Iran’s nuclear infrastructure and ballistic missile capabilities. Under pressure from Washington, Israel scales back and halts its strikes, while Iran, reeling from damage to civilian and military infrastructure and adjusting to new leadership, is unable to sustain the intensity of military operations. Frequency of airstrikes declines, but tensions remain high as a fragile ceasefire takes hold. Uncertainty surrounds the posture of Iran’s new leadership, and Tehran remains wary of Israel’s intentions, particularly as the US de-escalation curtails prospects for regime change – Israel’s primary objective. Gulf states welcome the pause, but remain cautious, aware that recent events exposed their vulnerability to rapid escalation and unsure whether they could again become targets. Sustained mistrust, deterrence signalling, and sporadic security incidents, such as drone strikes or heightened military exercises in the Gulf, increase the risk of renewed conflict.
Under this scenario, regional trade and logistics gradually resume (although shipping and aviation costs are likely to remain elevated as insurers maintain partial war-risk surcharges for Gulf and eastern Mediterranean routes) while energy markets and prices ease as the Strait of Hormuz reopens and supply flows normalise. Equity markets recover selectively with energy, aviation, ports, logistics, and tourism companies viewed with some caution due to persistent security and insurance concerns, and Gulf economic activity stabilises.
We will be closely monitoring developments in the region. Please reach out to our experts if your organisation is impacted by any of the issues discussed in this article.
