US Iran Conflict: A Regime Overhaul

US Iran Conflict: A Regime Overhaul

Early on Saturday morning, 28 February, the US and Israel launched joint attacks on Tehran, the capital city of Iran. In the early stages of the attacks, a building occupied by Iran’s Supreme Leader, Ayatollah Ali Khamenei and many other senior officials was destroyed, leading to their deaths. In retaliation, Iran launched strikes against the US and Israel as well as neighbouring Gulf countries. Why have these events occurred, and what does it mean for markets? We unpack these themes throughout the article.

Why did the US Attack?

According to the US, Iran is a long-designated state sponsor of terrorism – a title it has held since 1984. In June 2025, the US supported Israel in an attack to neutralise Iran’s nuclear program by striking any facilities associated with the development of nuclear weapons. Moving forward to February 2026, a series of diplomatic discussions had been held between the US and Iran regarding halting the funding of terrorist organisations, dismantling their ballistic missile program and refraining from redeveloping nuclear weapons. Accepting these terms could lead to reduced sanctions on Iran, opening it up to world trade. But no agreement was met.

Parallel to the diplomatic discussions, there have been mass protests in Iran against the current regime due to ongoing economic instability. This has resulted in the government turning on its citizens with force, leading to mass casualties.

The US believed that overhauling the current regime would be the best outcome for the world and the people of Iran, which is why they moved ahead with Operation Epic Fury.

Could this Mean WWIII?

Given the information available, it is highly unlikely. Iran has close to no support from other nations (other than its regional proxies), no nuclear weapons and substantially less firepower than the US and Israel.

Despite eliminating the Supreme Leader of Iran, there is reason to believe the war will go on a little longer. Unlike Venezuela, which was largely a dictatorship governed by one man, Iran has a far more institutionalised governance structure that goes beyond the Supreme Leader. Therefore, to achieve a full regime change, the US would need to eliminate all potential successors that represent the old regime.

It is impossible to predict outcomes, however probabilistically, Iran is unlikely to surrender until they have exhausted their firepower, so hostilities are likely to continue unless a resolution is reached. Iran has threatened to bomb any oil tankers passing through the Strait of Hormuz, which facilitates ≈20% of the world’s daily petroleum and ≈20% of the world’s liquified natural gas (LNG). They attacked oil refineries in Saudi Arabia, LNG facilities in Qatar and tankers in the Gulf as a strategy to disrupt global oil markets. Iran supplies ≈3% of global oil, which is likely to be disrupted as the war continues.

How have Markets Reacted?

Oil prices rose sharply as future supply is perceived to be reduced following the destruction of oil and LNG production facilities in the world’s largest producers, along with uncertainty around oil production out of Iran due to the war. OPEC+ has announced it will increase production to stabilise prices, but there is a significant risk in execution as logistical avenues are blocked.

Initially, there was a major risk-off movement in the markets, which saw the gold price rise and the dollar strengthen. Interestingly, since the initial spikes, gold has sold off slightly but remains at higher levels; however, the dollar has continued to strengthen. Stocks that have benefited from the attack include defence companies driven by higher perceived future demand for weapons and oil companies, which benefit from higher oil prices. The S&P 500 and Russell 2000 declined as markets opened on Monday, 2 March, but closed the day relatively flat as losses reversed.

A rate cut was expected in the US, but with oil prices surging, it is unclear what impact this will have on prices. Therefore, an interest rate decision is likely to be delayed until there is a better line of sight.

In South Africa, the rand weakened from 15.95/$ on Friday to 16.30/$ around midday on Tuesday, 3 March. The FTSE/JSE All Share Capped Index closed down -1.13% on Monday, 2 March, but had declined a further -5.1% by late afternoon on Tuesday, 3 March. Initially, gold shares appeared to keep the index buoyed with a sharp rise in the gold price, but as gold fell from its peak, this led to a broad market sell-off, pushing stocks lower.

South Africa imports a lot of its inflation through oil prices and a weak currency. Therefore, with both working against us, this has created uncertainty around price stability. The SARB was expected to cut interest rates, but may now hold off its decision just like the US. The large sell off in SA stocks could be driven primarily by higher imported inflation, delayed rate cuts and a risk-off environment. This raises concerns but does not appear to be a long- or even medium-term concern, as it is unlikely the war will proceed for this long. Facilities will be rebuilt, and trade routes will open, which may reverse the movements we have seen.

What is the One Thing that Matters?

Given the facts, the war is expected to continue for a few more weeks if no diplomatic agreements are reached despite pressure from the Gulf nations. Markets will remain volatile as traders and investors attempt to forecast the future of the war. In the short term, markets will prioritise reducing risk and move towards safe-haven assets or companies poised to benefit from the war and disruption (i.e. oil and defence stocks). Naturally, these positions can reverse with a ceasefire and stabilised oil price, so trying to position into what seems favourable can be futile.

In times like these, diversification is your best friend, while looking long-term should be your guiding light. History shows that stock markets have excelled as wars have come and gone. While these events are serious, we do not see them as being different from the past; as always, we will continue to monitor markets and ensure our long-term positioning is prudent.