Greetings from Copenhagen.

The Israel–Iran (or should we say US–Iran) conflict is taking headlines overnight, as Trump returned from the G7 meeting a day early to be back in D.C.—supposedly unrelated to any ceasefire efforts—and posted on Truth Social that “Tehran must evacuate immediately.” A classic Trump maneuver: putting everything on the line and escalating rhetorically to force an outcome. But what is the outcome space, exactly?

Markets are clearly indicating a fairly high probability of a U.S. strike on Iran, and Trump saying he is “not too much in the mood to negotiate with Iran” suggests that either 1) Iran comes to the table themselves, or 2) the U.S. intervenes in some form. The U.S. has at least sent a handful of Stratotankers to Europe, giving them the logistical option to pursue scenario 2 if needed. We also know up to six B2 bombers are on standby in Diego Garcia.

However, if they fly in and destroy Fordo with B2 bombers, then what exactly is supposed to escalate from there? Iran can’t meaningfully respond. The situation already resembles a checkmate—Iran has lost. Blocking the Strait of Hormuz would amount to a regime-shift, effectively a suicide mission. The Ayatollah is likely searching for a way out, and while we’ve been vocal about long energy exposure (either via Stoxx Energy or outright crude oil), we would also look for an exit if U.S. involvement becomes a reality. A de-escalation scenario would present a sizable bear case for oil and energy.

From what we can see, everyone seems to be positioned on the long side of this conflict—whether in commodities or defensive equities—meaning the possibility of a squeeze, should the bull case fail to materialize, is high and growing.

Chart 1: The base case is some sort of escalation in the conflict