Key Calls:

• Khamenei’s death changes the game. The death of only the second Supreme Leader in the history of the Islamic Republic creates a generational opening for transformation, but it also raises the risk of internal instability—like what we’ve seen in Libya, only on a larger scale, since 2011.
• Diplomacy is in the back seat. This is no longer about creating leverage to get back to the negotiating table—it is an effort to permanently weaken Iran’s ability to project power across the region, prevent it from acquiring a nuclear weapon, and hasten regime change at home.
• This is not Iraq. There is no ground invasion, no nation-building plan, and no attempt to “own” Iran’s political future. Washington has preserved the option to declare “mission accomplished” quickly and leave the next phase to Iranians themselves.
• This will last at least a few more days, and how long it goes could come down to who starts running out of weapons first. The U.S. and Israel are racing to destroy Iran’s missile and drone stockpiles before Tehran can inflict more damage—and before their own supplies run too low.  Iran is trying to respond while maintaining some capability for future deterrence. So the question of what the military calls “magazine depth” looms large.
• Regime collapse or irreversible degradation is more likely than regime survival (65% likelihood). The Islamic Republic will never be the same, if it survives at all—but collapse will likely be messy, not orderly. The regime—which killed thousands of protesters in January—still has all the guns.
• Short-term disruption will be significant. The regional instability—with attacks on civilian and infrastructure targets in the Gulf and Israel, regional airspace shut down, and the Strait of Hormuz effectively closed—will have massive implications in the short term and could influence things like insurance prices for a bit longer. Yet the decision by OPEC+ to raise outputs should ease pressure on energy supplies.
• In the medium to long term, we remain bullish about the Middle East. Iran has been the single greatest obstacle to the region’s effort to become a global hub of finance, technology, tourism, and travel. With Iran less able to export instability abroad—either because it remains mired in internal struggle or a more congenial regime takes charge—the Middle East will thrive and integrate further.

Since the 12-day war last June, we have repeatedly described the situation as a “pause, not a peace”—assessing that the conflict would resume. That pause has ended decisively with an unprecedented U.S.-Israeli joint air campaign—striking hundreds of sites across multiple cities—and the confirmed death of Supreme Leader Ayatollah Ali Khamenei and numerous senior leaders. Details are still emerging, and some operational assessments may evolve. But the strategic implications are becoming clear.

• How we got here: this was strategic opportunism. The timing of the strikes reflects both diplomatic deadlock and operational momentum. Despite diplomatic talks last week, Washington and Tehran still remained at an impasse over Iran’s nuclear program, ballistic missile production, and regional proxies. Tehran calculated it could slow-roll talks and exploit the U.S. Administration’s aversion to getting bogged down overseas.
• But the clock was ticking for Washington—the U.S. military could not sustain indefinitely the massive posture it had built up over the past few weeks—so it was a case of “use it or lose it.” The U.S. and Israel saw a narrow window of opportunity to take advantage of a brittle regime weakened by the decimation of its proxy network since October 7th, the 12-day war, and January’s wave of mass protests.
   

The scope and objectives of this campaign are fundamentally different compared to the U.S. attack on Iranian nuclear facilities last June and the recent operation in Venezuela. 

• First, the target set has been broad, including Iranian leadership, command and control, nuclear sites, ballistic missile facilities, air defense, and naval assets.
• Second, the U.S. and Israel have been explicit that their core goal is regime change. This is an attempt to alter the strategic balance in the Middle East and less about forcing movement at the negotiating table.
• The immediate international response has been largely predictable, with some economies declaring full support for the U.S. and Israel’s operation, and others responding more tepidly—not least because the campaign lacked international authority, outreach, and explanation. Yet Iran’s allies are few and have little ability to provide help. Iran’s counterattacks have provoked condemnation and potential future intervention by European economies to defend their interests in the region. But if the conflict drags on, the lack of international buy-in may prove costly for the U.S.
• Iran, meanwhile, has so far responded differently than it did in June. Instead of a careful and calibrated response, Tehran is targeting U.S. assets and facilities across the region—attacking sites in Israel, the UAE, Saudi Arabia, Kuwait, Oman, Jordan, Iraq, Qatar, and Bahrain—as well as hitting civilian areas and critical infrastructure.
• So far, the damage has been limited. But Iran’s quick retaliation underscores that the regime is desperate, knows diplomacy has likely run its course, and sees force as its only remaining leverage.
• For businesses, expect some assumptions to change; low-cost Iranian drones penetrating Gulf airspace challenge assumptions about the safety and insulation of commercial hubs like Dubai and Doha—raising potential near-term implications for insurance pricing, sovereign risk, property valuations, aviation, and energy infrastructure

Where do we see this going? Leaders in the U.S. and Israel are betting the strikes will be the tipping point for a regime at its most vulnerable point since 1979—and they are likely correct.

• The U.S. and Israel’s plan is to strip the Iranian regime’s ability to project power at home and across the region—and then let the Iranian people take it from there. That framing fits the Administration’s “no forever wars” approach.
• Washinton will also have other incentives to wind this down. The U.S. military will keep a close watch on its stockpiles, which are not infinite. Other foreign policy goals will matter too. For example, U.S. President Trump will not want a war in the Middle East to distract from his scheduled trip to China at the end of the month.

Generally, we see three plausible scenarios for the days and weeks ahead:

Scenario #1: Regime effectively collapses (65%). For over four decades, the Islamic Republic has ruled by fear, not inspiration. The U.S. and Israeli strikes will effectively neuter the regime and severely limit its ability to threaten the region. But past air campaigns with similar regime change aims, such as Kosovo in 1999 (lasting 78 days) and Libya in 2011 (lasting 7 months), showed that trying to bring down a regime can take time—and create chaos.

• With Khamenei confirmed dead, succession dynamics become the central variable. His removal eliminates the system’s ultimate arbiter and increases the likelihood of internal fragmentation.
• The U.S. and Israel will maintain the military pressure—expect a campaign to go on for days, if not weeks—but then declare mission accomplished, arguing they have fundamentally weakened the regime and its ability to project power. They would then say to the Iranian people: “over to you.”
• The trajectory beyond that point becomes highly uncertain. Given its military and economic dominance, elements of the Iranian Revolutionary Guard Corps (IRGC) could move to assert control and install a military-led government. Opposition groups might try to coalesce and siphon support from within the security services, but the military will maintain the advantage as the ones with the guns.
• The near-term likely outcome in this scenario is an Iran that is less able to threaten its neighbors but remains mired in instability at home. Libya remains mired in instability 15 years after that regime’s downfall, in which no political group can maintain control and outside powers compete for influence in-country. There is a substantial risk Iran ends up the same way. How long that persists is anyone’s guess—although given Iran’s isolation in the world and disconnection from the global economy, its internal instability may not have substantial global impacts so long as it cannot project power abroad or spark refugee flows

Scenario #2: Regime clings to power and threatens the region (25%). Even with Khamenei killed, redundancy and dispersed power in the system could allow the regime to survive. And its abundant missile and drone stockpiles means it could pose a persistent threat for years. 

• Tehran may continue to try to raise the costs for the U.S. and Israel by escalating its barrage of strikes across the region. During the 12-day war, Iran fired an estimated 550 ballistic missiles at Israel, and open-source estimates indicate Iran has since rebuilt its stockpile to pre-war levels—about 2,000 missiles. Many were targeted in the opening strikes on Saturday, but it’s not clear how many missiles  (as well as missile launchers) remain.
• If Iran can keep up its strikes, U.S. and Israeli stocks of munitions and air defense interceptors will be strained. The U.S. has deployed additional THAAD batteries to the region to bolster Israel’s defenses, but supply of interceptor missiles is finite and comes with opportunity costs—potentially reducing preparedness elsewhere, like in the Indo-Pacific.
• In this case, Washington and Israel may opt to wind things down, framing the operation as a success for degrading Tehran’s missile and nuclear threats, weakening the regime, and vowing to strike again if Iran rebuilds. But the gamble on immediate regime change doesn’t pay off—the regime stays intact. The worst case in this instance would be akin to Iraq after Operation Desert Storm in 1991, when Saddam Hussein was defeated by the U.S. but then crushed the Iraqi opposition upon America’s departure.

Scenario #3: Regime further escalates war in the region (10%). Iran has already hit civilian targets across the region; its other major option for escalation is targeting oil infrastructure. We see this as unlikely at present, but it is the most plausible path for other regional economies, especially Saudi Arabia and the UAE, to be drawn in—a wildcard with more actors, more miscalculation risk, and a greater chance of spiral. 

• Iran could threaten to use naval mines, fast attack craft, or drones against oil tankers in the Strait of Hormuz—where about 20% of global oil transits—as it did in the 1980s during its war with Iraq.
• An even sharper escalation would be to directly target Gulf oil facilities, echoing the 2019 drone attack on a Saudi plant by Iran’s Houthi proxies. That facility was only offline for about two weeks, but disruptions to oil fields, processing facilities, or export terminals could trigger a significant price spike.
• Tehran knows the U.S. will be wary of high oil prices ahead of fall midterms and expects Washington would be responsive to Gulf pressure. But there is no love lost between the Gulf states and Iran, and its strikes on civilian targets are only hardening regional positions against Tehran—and may give them reason to get involved in the conflict. 

Whichever way this unfolds, as we have been assessing for months, 2026 will be a year of fundamental change for Iran—and for the region.

What we're watching

• Whether Iran’s retaliatory strikes (and their relatively limited damage thus far) signal deliberate restraint (in order to control escalation or preserve their stockpiles to maintain deterrence) or a sign that that it’s running out of gas—and what happens if an Iranian attack is successful and does substantial damage, such as hitting a leadership target or causing mass casualties;
• Whether Iran’s proxies—including the Houthis and Hezbollah—and IRGC units overseas have the capacity and willingness to join the fight, opening additional fronts. We doubt this is the case, however, it warrants close attention;
• Signs that the strikes are creating fissures between what remains of the clerical leadership and the security services—a potential precursor to an IRGC or military takeover;
• How U.S. and Israeli defenses hold up and how long munitions stocks last—key constraints on Jerusalem and Washington’s ability to maintain its operational tempo;
• Whether the diffuse political opposition inside Iran and prominent exiled leaders abroad show signs of organizing;
• Whether the Europeans act, as France, Germany, and the UK have said they’re prepared to do, and how far they are willing to go given questionable appetite to be seen as a player in the conflict. 
• Whether Gulf states retaliate against Iran for its attacks against them—Iran has brought this war to them, and the Gulf countries have the capability to respond;
• Whether the current conflict softens the sharpening Saudi-UAE rivalry in the Red Sea region and paves the way for cooperation in hotspots like Sudan and Yemen;
• What happens if the best case scenario unfolds, and with time Iran stabilizes and comes in from the cold. Prior to 1979, Iran was a regional powerhouse with global influence—and a vital U.S. energy and military ally. The entire structure of the Middle East and global energy markets have developed with Iran on the outside as a source of instability. If Iran’s full economic, technological, social, and political potential were unleashed and integrated into the region, it would create profound opportunities;
• And beyond the Middle East: how China, Russia, and North Korea respond. Their inability to prevent an attack on Iran—and their relatively muted reactions and unwillingness to do anything to help Iran so far—highlight the limits of the China-Russia-Iran-North Korea (CRINK) axis, with implications for geopolitical competition elsewhere. 

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