As we wait to get more information on the exact damage Israeli forces inflicted on Iranian targets inside Iran last night, there are several things we would note that may prove to be market-relevant:
- It appears the attacks were calibrated and limited. The attacks appear to have focused on an Iranian Air Force installation close to the Iranian nuclear facility – and not on the Iranian nuclear facility – Isfahan (Iran’s second-largest city). If confirmed, which we believe it will be this morning, it is significant as Iranian officials threatened to counter-attack Israel and “revise its nuclear doctrine.”
- Iran has said it has “no plan for immediate retaliation against Israel.” But that does not mean nothing will happen? While that may be a relief for markets, it does not mean Iran will not instigate some sort of response against Israel – it just means they will not directly take that action. We need to watch closely for any ramped-up actions by Hezbollah against Israel and various asymmetric attacks (e.g., cyber-attacks against Israel, attacks against undersea communications cables, attacks against Israeli satellites, etc.).
- The point of the attack appears to more of a message by Israel than a determined strike at critical assets. Israeli officials are making it clear the point of the attack was “We can reach you inside Iran – which you, Iran, failed miserably to do against us” – and not seeking serious damage to Iranian assets.
- However, Israel’s strikes defied President Biden and other world leaders who had called for restraint and no attacks. This demonstrates Israeli Prime Minister Benjamin Netanyahu’s risk-tolerance level—higher than many in the markets think. We do not believe the attack will delay an expected vote in the House of Representatives on Saturday approving a large new aid package for Israel (as well as Ukraine and Taiwan).
- Israel also reportedly attacked sites in Syria and Iraq. What is not clear at this point is what those targets were, but there are reports they targeted senior Iranian Revolutionary Guard Corps commanders and Iranian-controlled militia leaders. If true and there have been serious causalities, it may further exacerbate tensions. Recall this whole series of events began when Israel killed Iran Revolutionary Guard Commander Mohammad Reza Zahedi, Brigadier General Mohammad Hadi Haj Rahimi, and five other IRGC officers in Syria last month. Zahedi and Rahimi were effectively the Iranian overseers and managers of Hezbollah operations in Syria and southern Lebanon.
We are watching events closely and will update our analysis once we have more information.
