Ceasefire Reached but Concerns Remain

News headlines continue to be dominated by developments in the Middle East, which has involved Israel and Iran agreeing to a US brokered ceasefire following twelve days of tense hostilities.

While the ceasefire marks a significant milestone, the situation nonetheless remains volatile with both sides exchanging fire right up until the agreement came into effect. For example, at least four Israelis have been killed and 22 others injured following an attack in the southern Israeli city of Beersheba overnight, while Iranian officials say that Israeli airstrikes killed at least nine people in a northern Iranian city with damage also suffered in Tehran. AFP are also reporting that a nuclear scientist was killed in northern Iran overnight.

These developments followed the dramatic escalation yesterday evening which saw Iran launch missiles at the US Al Udeid Air Base in Qatar. This attack heightened tensions, but fortunately, no casualties were reported as Qatar’s air defence system successfully intercepted most of the missiles. Only one hit the base.

The attack was met by Trump writing:

“Iran has officially responded to our Obliteration of their Nuclear Facilities with a very weak response, which we expected, and have very effectively countered. There have been 14 missiles fired — 13 were knocked down, and 1 was ‘set free,’ because it was headed in a nonthreatening direction. I am pleased to report that NO Americans were harmed, and hardly any damage was done. Most importantly, they’ve gotten it all out of their ‘system,’ and there will, hopefully, be no further HATE. I want to thank Iran for giving us early notice, which made it possible for no lives to be lost, and nobody to be injured. Perhaps Iran can now proceed to Peace and Harmony in the Region, and I will enthusiastically encourage Israel to do the same. Thank you for your attention to this matter!

Hours later Trump issued a statement confirming that a ceasefire was on the cards. The ceasefire (which was later agreed by all parties) was set to begin at midnight 4 a.m. GMT, with Iran halting operations first and Israel following 12 hours later. After 24 hours, the war would be considered officially over.

Though the situation remains fluid, and it is unclear how the ceasefire will hold in the coming hours, there is hope across the international community that the agreement will bring some degree of de-escalation and stability.

Just a few days ago the UN Secretary-General António Guterres warned that the conflict was spiralling out of control, describing it as “a fire no one can control” and a defining moment for global security. Hence, though there are unconfirmed reports that exchanges of fire may have continued past the ceasefire, the international community is hopeful that a modicum of de-escalation will have been brought to the Middle East.

Longer term, questions remain on how Isreal and the West will try to curtail Iran’s nuclear weapons programme and the stability of Iranian Nezam regime amid what has been a highly turbulent episode in the country’s history.

While Ali Khamenei and the Nezam remains in power, it faces historically low levels of public support, with widespread dissatisfaction driven by the recent war, economic hardship and political repression. Though the ruling elite—particularly the Supreme Leader and the Islamic Revolutionary Guard Corps (IRGC)—remain unified and in control, public trust in the government has eroded significantly, and opposition voices, including those calling for a secular and democratic Iran, are gaining traction.

As markets reacted to news of the ceasefire, oil prices fell as much as 4% as supply-side concerns eased. Safe haven assets including gold also eased as did the DXY dollar index which had risen during the course of yesterday’s session as concerns remained over the prospect of escalation.

As markets continue to monitor developments in the middle east, markets will also be keeping a close eye on a string of Central Bank policy makers including Governor Bailey at  15:00 and Powell’s testimony to Congress at the same time.