Mapping the Fallout of the Israel–Iran Escalation
The Israel–Iran conflict, reignited on June 13, 2025, has escalated into one of the most intense regional confrontations in recent years. Triggered by Israeli airstrikes on Iranian nuclear and military sites under “Operation Rising Lion,” the offensive has targeted over 100 strategic facilities, including uranium enrichment plants at Natanz, Fordow, and Isfahan, as well as missile bases in Tabriz and Kermanshah, and IRGC leadership hubs in Tehran and Mashhad. The attacks have killed between 224 and 406 Iranians, including top military figures such as Hossein Salami, Mohammad Bagheri, and Amir Ali Hajizadeh, along with scientists and dozens of civilians. Over 1,200–1,481 Iranians have been injured.
Iran’s retaliation—through mass missile and drone barrages—has hit Tel Aviv, Haifa, Rehovot, Bat Yam, and Jerusalem, killing at least 23–24 Israelis and injuring 500–1,000. Explosions have rocked oil refineries, command centers, power stations, and even apartment blocks. The intensity of the fighting has led to full airspace closures over Israel, Iran, Iraq, and Jordan, grounding flights, rerouting cargo, and prompting multiple governments to issue emergency advisories.
The economic fallout has been swift. Oil prices surged 7–13% to reach $75–76 per barrel, triggering inflation fears. Global airlines and cruise operators canceled Middle Eastern routes, pushing travel stocks into decline and dampening summer tourism expectations. Maritime trade through the Strait of Hormuz and Red Sea faces major delays, with some shipping costs increasing by up to 50%, especially on Asia–Europe lanes. Defense and energy stocks surged as investors rotated out of consumer-facing sectors into safer or strategically aligned assets.
With casualties rising and critical infrastructure damaged, the conflict risks spilling into a broader regional war. Iran may escalate further using proxy forces like Hezbollah or the Houthis, or conduct asymmetric warfare in the Gulf. Israel has vowed to continue striking “until Iran’s strategic capacity is neutralized.” Meanwhile, Qatar, Oman, Turkey, the EU, and the G7 are attempting to broker de-escalation, though Iran has thus far refused ceasefire talks amid ongoing bombardments.
Unless there is immediate international intervention, the conflict is likely to intensify. Potential next stages include sustained Iranian missile waves, Israeli counter-operations deeper into Iranian territory, and proxy engagement across Lebanon, Syria, Iraq, and maritime zones. This sustained instability threatens not only to reshape regional power dynamics but to cascade into the global economy via prolonged supply disruptions, inflationary pressure, and realignments in defense and energy policy.
Base Case Scenario: Prolonged Contained Conflict
Probability: 55%
In the base case, the conflict remains intense but geographically limited over the next 4–8 weeks. Israel continues precision strikes against Iranian infrastructure, while Iran launches phased retaliatory attacks using ballistic missiles, drones, and proxies like Hezbollah and the Popular Mobilization Forces in Iraq. However, full-scale war involving direct ground invasion or widespread U.S. intervention is avoided.
The Strait of Hormuz and Red Sea remain high-risk zones, disrupting commercial shipping lanes and causing persistent freight delays and elevated insurance costs. Oil prices stabilize in the $80/barrel range, pressuring inflation globally but stopping short of a crisis. Civilian aviation and tourism across the Middle East continue to suffer, especially in Israel, Jordan, and Egypt. Meanwhile, regional diplomacy stalls as both sides remain entrenched, and U.S. and EU mediators fail to produce a breakthrough in the near term.
This scenario allows for limited strategic objectives to be achieved on both sides but at the cost of sustained market volatility, geopolitical fragmentation, and long-term regional militarization.
Upside Scenario: De-escalation via Mediation
Probability: 25%
In this more optimistic outcome, sustained pressure from the United States, European Union, and Gulf states leads to a diplomatic breakthrough within the next two weeks. Iran, facing internal economic pressure and international isolation, accepts a ceasefire offer brokered by Qatar, Oman, or Turkey. In parallel, Israel halts further strikes in exchange for security guarantees or a verified pause in Iran’s missile deployments and nuclear development.
Oil markets respond quickly to the truce, with prices retreating toward $70–72 per barrel. Freight operations through the Red Sea and Hormuz begin to normalize, easing shipping bottlenecks and inflationary concerns. Airline routes reopen, and travel advisories are lifted across affected regions. Market sentiment improves, with defense stocks plateauing and capital returning to tourism, consumer, and growth-oriented sectors.
Although structural tensions between Israel and Iran remain unresolved, the crisis is contained through diplomacy and a credible enforcement mechanism. This scenario provides temporary economic and security relief while preserving the fragile architecture of regional peace-building.
Downside Scenario: Regional War and Systemic Shock
Probability: 20%
The worst-case scenario sees the conflict rapidly spiral into a full regional war. Iran, reeling from leadership decapitation and infrastructure loss, escalates dramatically by launching large-scale missile barrages and greenlighting full proxy engagement across Lebanon, Syria, Iraq, and Yemen. Hezbollah begins cross-border incursions into northern Israel, while Houthi forces target tankers and infrastructure in the Red Sea. Israeli retaliation expands into Lebanon and Syria. The U.S. is drawn in militarily following attacks on its Gulf assets or Iraqi bases.
Oil prices spike above $90, potentially reaching $100/barrel, triggering a global energy shock and worsening inflation. European and Asian economies—heavily reliant on Middle Eastern energy—struggle to respond, increasing the risk of a mild global recession. Equity markets plunge, with travel, consumer, and retail sectors leading the downturn, while defense and commodities see gains. Global supply chains fracture as carriers abandon MENA routes and reroute via Africa or South Asia, adding weeks to delivery times.
The tourism industry across the broader region collapses for at least 12 months, eliminating key income streams for Egypt, UAE, Jordan, and Cyprus. Military budgets rise across the Middle East, locking governments into long-term arms procurement cycles and deprioritizing social spending. This scenario resets regional security architecture and redefines investor risk calculations for years.
