Iran at a Crossroads

Joint US–Israel military operation begins

At 05:15 GMT on Saturday 28th February, Israel and the United States launched coordinated strikes, beginning “major combat operations” according to US President Donald Trump, against the Iranian military to incite a regime change.
Hundreds of fighter jets and missiles hit buildings including air defence, missile facilities, and schools across Tehran, Qom, Tabriz as well as areas in Western Iran.

Iranian retaliation

Within hours after the initial strike, Iran launched missiles in multiple waves, with a senior spokesperson for the military warning that Iran would show “no leniency”.
A wave of Iranian missiles targeted northern Israel, resulting in sirens and multiple air-defence intercepts across the country.
Another wave of Iranian missiles, many of which were intercepted, targeted multiple US and allied installations across the Gulf: Al Udeid Air Base (Qatar), Al-Salem Air Base (Kuwait), Al-Dhafra Air Base (UAE), and the U.S. Fifth Fleet Headquarters (Bahrain).

Status of Iran Supreme’s Leader

In the evening of February 28th, Donald Trump tweeted that Supreme Leader Ayatollah Khamenei was dead, following the U.S.–Israeli strikes earlier in the day, and urged Iranian citizens to rise up.
While Iranian state media initially denied the news of Khamenei’s death, they later confirmed it and announced a 40-day mourning period for his death.

Immediate effects

Qatar closed its airspace as part of a regional shutdown of civil aviation following the escalation, with Doha’s Hamad International Airport suspending flights.
Iranian missiles struck luxury targets in Dubai, creating a fire at the Fairmont The Palm hotel and debris near the Burj Al Arab.
Shipping traffic through the Strait of Hormuz, through which 20% of global seaborne oil and LNG exports flow through, has halted with tanker owners suspending shipments and insurers hiking war-risk premiums.

Cordoba View

While Iran may be able to appoint a successor following Khamenei’s death, the current political instability is likely to remain, with more revolts and power surges to be seen in the coming weeks.
Crude oil futures remain elevated near multi-week highs ~$67 per barrel, with the market expecting further upside as the Strait of Hormuz disruption persists.
Prolonged tension and uncertainty between the US and Iran may also prompt US equity sell-offs, as well as the purchasing of the Japanese yen and Swiss franc to avoid holding other volatile currencies.
Gold, being a common hedge against heightened geopolitical risk, is also due to increase from its current price at $5376/oz with forecasts suggesting prices could push toward prior peaks of $5,500/oz.
As the conflict continues, defence stocks are also likely to benefit from increased military expenditure across equity markets, which we will continue to monitor alongside other financial assets as the situation develops.