A new escalation in the Middle East
Key Markets report for Monday, 29 June 2026
Geopolitical conditions seem to be deteriorating at breakneck speed. A week ago, on Monday, 22 June, my report was titled, “A breakthrough in the Middle East?” following the meeting between the U.S. and Iranian delegations for (indirect) talks in Bürgenstock, Switzerland. Although the talks got off to a rough start, including President Trump’s inevitable trash-talk and threats directed at the Iranians, it appeared that both sides wanted to deescalate hostilities and keep the situation under control.
Unfortunately, the ceasefire fell apart again over the weekend. The triggering event was related to the control of maritime traffic through the Strait of Hormuz. On Thursday, 25 June, a mysterious someone advised ships to traverse the Strait of Hormuz through the Omani corridor, bypassing Iranian control. Predictably, the Iranians saw this as an infringement of their control over the Strait of Hormuz and they attacked the errant ship, the Singapore-flagged M/V Ever Lovely.
The usual suspect sparks renewed hostilities
The “mysterious someone” who issued the routing recommendation to M/T Every Lovely is usually never mentioned in the corporate media reports but their identity isn’t secret either. Readers of this newsletter will not be surprised to learn that the routing advice was issued by a British body, the United Kingdom Maritime Trade Operations (UKMTO), a UK Ministry of Defence-operated center that provides maritime security information, advisories and routing recommendations to commercial shipping worldwide, but especially in high-risk areas like Persian Gulf and Gulf of Oman.
It may seem strange that the UK Ministry of Defence, which is not a party to the US-Iranian negotiations would issue routing advice to shipowners which clearly puts ships at risk and jeopardize the fragile ceasefire between the two belligerent sides, but that’s what happened. As a result, Iran struck M/V Ever Lovely with a drone inflicting minor damage on the ship, but potentially fatal damage on the peace process.
Whatever the case, the US in their turn accused Iran for “continued aggression against commercial shipping,” and US Central Command (CENTCOM) responded by launching airstrikes on multiple Iranian targets. Then it was Iran’s turn to respond again and they accused the US of violating the ceasefire and the UN Charter. The Islamic Revolutionary Guard Corps (IRGC) launched retaliatory strikes on US-linked military targets in the Gulf region, including sites in Bahrain and Kuwait.
This wasn’t just conduct a token retaliation - they struck eight US military targets across the region, including the Fifth Fleet headquarters in Bahrain. According to some reports, including by the Wall Street Journal, the damage inflicted by the strikes was very substantial.
There’s good news, but it may not be true
An unfortunate aspect of this renewal of hostilities is that the upcoming US-Iran talks in Switzerland may have been completely cancelled. The IRGC issued a statement that US strikes on Iran “violated Article 1 of the Islamabad Memorandum of Understanding” and “will result in a total halt of all processes.” In an unexpected positive turn, the breakdown of talks was allegedly reversed a few hours later and the talks in Switzerland were back on the table, but it remains to be seen if this is even true.
The good news was broken by Axios, by now Trump’s favorite news agency, but also one with a very blemished track record for reliability. Furthermore, the news broke about an hour before the overnight trading of US stock and commodity markets was about to open, fitting the pattern of escalating hostilities after the market close on Friday, then announcing that everything was awesome again on Sunday evening. Unsurprisingly, in spite of the exchange of fire over the weekend, which should have cast doubt about the future of maritime traffic through the Strait of Hormuz, the price of crude oil was down another 0.5% in this morning’s trading and Nasdaq was up around 1.4%. Who could ask for more? Wash, rinse, repeat…
Battleground Iraq?
But it may be that not everything is awesome. The IRGC didn’t seem to receive the memo from Axios, so the IRGC Navy command issued a warning that US military bases in the region would “experience hell in these days,” suggesting that they’re not done retaliating, and peace might really be off the table. From the Iranian point of view, the case for renewed hostilities may make good strategic sense. The US/Israeli side could be using the peace negotiations to gain time to regroup and prepare for another hurrah against Iran in the near future.
Apparently, the US has been conducting the largest logistical operation in its history over the past two months or so. The operation allegedly surpassed even the scale of Iraq war preparations in 2003, far exceeding the requirements of mere supplies replenishment. US strategic warehouses in the region are almost fully loaded and continue to be brought to their maximum capacity. The obvious implication from the Iranians’ point of view is that more war is coming. If that is the case, it makes little sense to indulge the US with peace negotiations and give them the time to prepare for the next stage of war, which could involve a ground invasion, which could be planned through Iraq.
Namely, it appears that Iraqi Prime Minister Ali al-Zaidi has launched a sort of coup d’état against certain elements within the Iraqi government. His objective is to purge and arrest government officials with close ties to the Iranian regime. Iraqi news media have claimed that the U.S. government was behind this coup d'état and that tens of Iraqi government officials, politicians, and influential figures who supported Iran have been arrested by Iraqi Special Forces and the Counter Terrorism Service (CTS), with the support of the United States.
Iranian sources denied that any such coup took place, but did send its Foreign Minister Abbas Aragchi to a high-profile, high-risk mission to Baghdad. Over the coming months, Iraq could turn into the next battleground between Iran and the US/Israeli axis. The US still has thousands of military forces stationed in Iraq. Furthermore, Iraq may be the only viable bridge head from which a ground operation into Iran could be launched. Clearly, the first step in preparing an invasion would have to be purging pro-Iranian elements from Iraq before setting stage for another Iran-Iraq war.
Thick fog of war, uncertainty
For whatever reason, the markets may be in the “don’t worry, be happy” mood as though everything is under control, the Straits of Hormuz are open like it’s 1999, and it’s clear blue skies as far as the eye can see. At the same time, war preparations seem to be going full speed ahead. Iran’s leadership almost certainly sees the current conditions as a once-in-a-lifetime, historical opportunity to bring the 120+ years of harassment by Western colonial powers to an end. Missing this opportunity could be unforgivable. Not only is Iran well prepared for war and seems to have an upper hand - they also have full support from China, Russia and even Pakistan.
In all, it seems that the deck is stacked up for war and that the Iranians have few reasons to delay the final showdown which could engulf the whole region and ultimately completely overturn the region’s security architecture, including a total eviction of US and UK military bases from the Middle East.
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Today’s trading signals
With Friday’s closing prices we have the following changes for the Key Markets portfolio:
