Strait of Hormuz blockade risk rises
The risk of a prolonged blockade in the Strait of Hormuz increased after a drone attack on an oil tanker this weekend severely disrupted freedom of navigation.
Political uncertainty in Tehran is also intensifying the situation. The election of Mukhta Khamenei as Supreme Leader signals a more radical succession line, lowering expectations of diplomatic de-escalation and increasing the likelihood of disruptive actions in the Persian Gulf.
Metrics from Polymarket reflect the shift in perceived risk. The probability of the regime collapsing before 30 June has dropped to 32%, down from 50% at the start of the conflict. Meanwhile, the probability of a United States (US) ground intervention in Iran before the end of the month has climbed to 48%.
This suggests markets increasingly expect that removing the regime could prove more difficult, even as the likelihood of direct intervention rises.
Volatility surges across markets
Volatility in oil markets has surged. The CBOE Crude Oil Volatility Index (OVX) has reached levels higher than those seen during the war in Ukraine and comparable only to the COVID-19 crisis.
This volatility wave is spreading to other asset classes including equities, currencies and bond markets. Government bond yields are rising sharply as investors price in inflation risks, weaker growth prospects and widening fiscal deficits.
