Middle East Situation: Tensions Rise or De-escalate?

■ The US and Israel launched another missile attack on Iran, following their strike in June of last year, potentially triggering an even more serious situation.  

■ An optimistic scenario is a repeat of the "Venezuela case," while a pessimistic scenario envisions a widening and protracted conflict. 
 
On February 28, the US and Israel jointly launched a missile strike on Iran. As of this writing, no ground troops have been confirmed. Just before this, on February 26, the US and Iran, mediated by Omani Foreign Minister Badr, held their third round of nuclear talks in Geneva, Switzerland, with reports suggesting a fourth round planned within a week. At the beginning of the week (March 2), crude oil futures prices surged in Asian markets, likely triggered by reports that the Strait of Hormuz, through which approximately 20% of global crude oil shipments pass, has been effectively blocked by the Iranian navy. On June 21 of last year, the US and Israel launched missile attacks on Iranian nuclear facilities, but Iran's retaliation was relatively limited at the time, not escalating to the point of blocking the Strait of Hormuz. Therefore, concerns in the financial markets eased after about two weeks. 

 
The more dramatic reaction in crude oil prices this time is speculated to be because the actions of the United States and Israel are seen as aimed at promoting regime change in Iran, which is different from the past. On March 1, major media outlets in both the US and Iran reported that several high-ranking military officials, including Iran's Supreme Leader, had died. Within Iran, reports indicate that influential politician Larijani has established a temporary leadership; simultaneously, US President Trump publicly called on the Iranian people to push for regime change. The risk that Iran's current leadership might adopt a different approach to retaliation than in the past cannot be ignored. The future situation remains highly uncertain, but two scenarios can be roughly envisioned at this stage. 

 
In the optimistic scenario, the current regime shifts to a pro-US stance and continues to rule Iran on this basis. This scenario draws inspiration from the US raid on Venezuela's capital in January of this year, the arrest of then-President Maduro, and the subsequent US response. Given the vacancy of several military leaders in Iran, and the fact that Iran is composed of multiple ethnic groups, maintaining domestic security may be a key factor for the US. In this scenario, the situation is expected to ease gradually. In the worst-case scenario, the current leadership might resort to nuclear force as a final means of retaliation; even if it doesn't escalate to such an extreme level, the scope of retaliation could expand to the entire Middle East, including Israel, leading to a protracted conflict. Sustained high oil prices could further push up global inflation, with Asian oil-importing countries such as China, Japan, and India likely to be the hardest hit. It is worth noting whether the situation will evolve from an initial risk-averse reaction into one that has a substantial impact on the global economic trajectory.