Middle East is back from the brink, or is it? The situation has been fluid since Israel launched its attack on Israel on the 13th of June. Iran immediately responded by launching a missile barrage in Israel. Israel managed to achieve air superiority amazingly fast, and thereafter, was able to hammer Tehran with cost-efficient air bombardment, while Iran was forced to deplete its precious missile stockpile, Danske Bank’s FX analysts report.
Middle East escalation to divert the attention from the Russian-Ukraine conflict
“For a few days, it really looked like the conflict could spiral out of control as on the 22nd of June the US joined Israel and struck the Iranian nuclear sites, including the heavily fortified Fordo plant. Iran’s response to the US attack, however, turned out much softer than feared. On 23rd of June, Iran attacked the largest US base in the region, the one in Qatar. But as the attack was pre-warned and there were no casualties, the US rightly interpreted Iran’s move as de-escalatory, and President Trump soon announced a ceasefire that would also involve Israel. The oil market immediately priced out the geopolitical risk premium.”
“So, from a situation where the whole world was afraid that Iran could go as far as closing the Strait of Hormuz, to a situation where a fragile truce prevails. As Israel has already accused Iran of violating the ceasefire, we are not yet fully convinced that the danger is over. Israeli PM Netanyahu (but also Trump) has hinted that he wants to topple the Islamic regime, and if that is the case, their job is not yet finished. To prepare for a potential re-escalation, please read our Research Global: What if Iran closes the Strait of Hormuz? 22 June.”
“Apart from Middle East, we also discuss EU-China trade tensions that seem to be on the rise again. Tensions are also on the rise in the South China Sea. There is no progress in Ukraine peace talks and we have updated our scenarios accordingly to reflect a higher probability that the war will drag on. The more the situation escalates in Middle East, the attention is diverted away from the continued Russian aggression towards Ukraine.”
