War in Iran: the three scenarios at play

March 3, 2026

Raphael Olsyna-Marzys, international economist at J. Safra Sarasin Sustainable Asset Management, outlines three potential scenarios for the Iran conflict and what each could mean for growth, inflation and global markets.

The start of the war against Iran by the US and Israel wasn’t a total surprise, given weeks of military buildout and stalled diplomacy. Still, with the top Iranian leaders killed in the opening strikes, and the regime fighting for its survival, the situation remains very fluid. For this, we see three broad scenarios. Our central scenario (50% probability) envisions a relatively short, decisive campaign.

Oil settles near $75/bbl, lifting headline inflation by ~0.5pt temporarily and modestly weighing on growth. Our equity, FX, and fixed income targets hold, though volatility will spike. In the worst-case (25%), conflict drags on, damaging regional energy infrastructure. Oil surges above $100 for months, pushing many economies in recession and leading to more persistent inflation. Gold could hit $6’000; equities suffer at least a 15% drawdown. In the best-case (25%), the campaign ends within four weeks with Iran’s regime collapsing and military capacity greatly diminished. This scenario envisages minimal global economic fallout, and market moves rapidly reverse.

Air strikes by the US and Israel on Iran have significantly increased geopolitical tensions in the region, while underscoring the extreme fluidity of the situation. Developments re-main highly uncertain, with the trajectory of the conflict contingent on rapidly evolving military, financial markets and political dynamics.

In this context, we frame potential outcomes and their macroeconomic and financial-market implications for each scenario. These scenarios are not forecasts, but rather analytical constructs designed to assess a range of plausible paths. Actual developments are likely to be more complex and may not align fully with any single scenario presented below.

Scenario 1 – central case: contained conflict (50%)

In our central scenario, the conflict drags on for several weeks, with limited impact on inflation and growth.

Macro outlook

The air campaign continues for several weeks

Iranian military capabilities are sufficiently degraded, limiting their ability to sustain attacks in the region. But the regime retains some military force, including through its proxies in the region

Political considerations incentivise the U.S. administration to conclude the campaign before elevated oil prices impact the domestic driving season, and its economy more broadly

Both parties return to negotiations, although outcomes remain uncertain and geopolitical ambiguity persists

The Strait of Hormuz reopens without significant damage to regional energy infra-structure

A residual geopolitical risk premium remains, with oil prices stabilising at around $75/bbl – approximately 15% above levels at the start of the year

Headline inflation in advanced economies increases by approximately 0.5 percentage points on average after 2–3 months, with a somewhat larger impact in Europe and a more moderate effect in the US. Emerging markets experience a more pronounced increase of 1–2 percentage points

Inflationary pressures prove transitory, with limited second-round effects; the impact on core inflation is less than half of the headline increase

Most central banks maintain a pause in the near term but eventually proceed with previously anticipated rate cuts (notably the Bank of England and the Federal Re-serve)

Elevated energy prices and increased policy uncertainty exert a modest drag on global growth of around 0.2 percentage points

Asset class outlook

Fixed income

Yield curves shapes unchanged. Some of the risk-off flows will reverse and lead to moderately higher yields across currency spaces

Yield upside will be capped by uncertainty about labour market effects from AI diruption and negative news flow from private credit markets

Credit spreads should remain stable or widen only moderately

FX and gold

The US dollar should continue to trade at around current levels, with the trade-weighted DXY dollar index fluctuating within the 98-to-100 range in the near term

We also expect the euro and the Swiss franc to trade at around current levels, while gold should be supported at above $5’000 per troy ounce

Equities

Expect volatility to remain elevated until risks to oil supplies and the global economy subside (VIX>20)

Equity market drawdown to be limited to ~5%% from the pre-air-campaign levels, leaving the S&P500 above 6’500

As the military campaign is closing in, markets are set to recover. Our year-end target for the S&P 500 of 7’400 remains in place

Scenario two – worst case: prolonged regional conflict (25%)

In our worst-case scenario, the conflict esca-lates and drags on, with the oil price staying above $100/bbl for an extended period of time. Inflation increases by >2%pts and many economies fall into recession

Macro outlook

Iranian military capabilities prove more resilient than initially anticipated
The conflict broadens regionally, drawing in additional actors and preventing US dis-engagement
The Strait of Hormuz remains closed, with damage to energy infrastructure; oil prices rise above $100/bbl and remain elevated for an extended period
Headline inflation increases by at least 2 percentage points across most economies, accompanied by more pronounced second-round effects and a rise in inflation expectations
A recession becomes likely in several economies, particularly in Europe and oil-importing emerging markets
A stagflationary environment complicates the calibration of monetary policy for central banks
Economic divergence widens between net oil exporters and importers, with Europe and Japan more adversely affected than the US

Asset class outlook

Fixed income

Yields likely to drop more meaningfully as high oil prices and geopolitical uncertainty would lead markets to price a higher probability of recession

Credit spreads will likely widen materially to account for a weaker economy

FX and gold

The US dollar should rise meaningfully in this scenario, with the trade-weighted DXY dollar index climbing above 100 in the near term

A surging oil price would affect cyclical currencies most significantly, likely pushing EURUSD towards 1.15, while EURCHF may fall below 0.90, increasing the risk of FX interventions by the SNB

We see gold climbing towards $6’000 per troy ounce in this scenario and would prob-ably revise our year-end targets in this event

Equities

Expect volatility to spike (VIX>40)

Equity market to pull back by up to 15% (S&P500<6’200)

Defensive sectors and energy are set to outperform

Net oil importers to suffer most: e.g. India, Korea, Japan, euro area markets

Our S&P500 end-year target would likely need to be lowered to <7’000 as the eco-nomic fallout from sharply higher oil prices would be a major headwind to earnings in 2026

Scenario three – best case: confrontation subsides quickly (25%)

In the best-case scenario, the military confrontation subsides rapidly, and the Iranian regime gives in on its nuclear and ballistic missile programmes. There is no visible impact on the global economy.

Macro outlook

Active confrontation subsides within a few weeks
Military campaign proves highly effective in degrading Iran’s military capabilities
Missile and drone attacks cease
The Strait of Hormuz reopens promptly, with minimal damage to energy infrastructure
The Iranian regime concedes on key issues, notably nuclear and ballistic programs
President Trump declares a strategic success and withdraws the majority of US military assets from the region
Oil prices decline rapidly toward approximately $65/bbl
The overall macroeconomic impact remains limited

Asset class outlook

Fixed income

Yield curves would bear-steepen moderately as some of the risk-off flows reverse

10y bond yields will likely trade up to previous ranges. 4.25% mid-point 10y US Treas-uries, 2.8% 10-year Bunds

Yield upside will be capped by uncertainty about labour market effects from AI disruption and negative news flow from private credit markets

Credit spreads will likely tighten slightly from current levels

FX and gold

The US dollar should fall again, reversing its recent gains, with the trade-weighted DXY dollar index back at around 97 in the near -term

This scenario would also allow the euro to reclaim its recent highs and ease upward pressure on the Swiss franc, while gold would likely retrace towards $5’000 per troy ounce in the near term

Equities