[ANALYSIS] US-Israeli war with Iran has entered day three, with the conflict expanding into Lebanon

OVERVIEW

The US-Israeli war with Iran has entered day three, with the conflict expanding into Lebanon.

Iranian strikes have continued across the region, with explosions reported in Kuwait, Bahrain, Dubai and Doha.
Smoke has been seen near the US embassy in Kuwait, which has instructed citizens to shelter in place.
Kuwait’s defence ministry says several US fighter aircraft came down, with crew unharmed; investigations are ongoing.
A suspected Iranian Shahed drone struck RAF Akrotiri in Cyprus, causing minimal damage.
Three US service members have been confirmed killed in action, with five seriously wounded.
Iran has stated it will not negotiate with the US.
Saudi Aramco's Ras Tanura refinery was hit, the first time Iran has directly targeted major Gulf energy infrastructure in this current three-day conflict.
Hezbollah and Israel have exchanged fire, with the IDF confirming a multi-day offensive campaign and possibly a ground operation.
IAEA Director General Grossi said they have no indication that any of Iran's nuclear installations have been damaged or hit.

Iran has launched further waves of missile and drone attacks across the region.

Missiles were launched toward Israel, with fatalities previously reported in Beit Shemesh.
Explosions reported in Doha, Bahrain, Dubai and Kuwait.
Drones intercepted over Erbil airport, where US forces are stationed.
Kuwaiti authorities report intercepting drones and responding to aerial aggression.
Reports of strikes or attempted strikes near US facilities in Kuwait.

The IRGC has described this as part of its continued retaliatory campaign.

US Central Command confirmed three US service members killed, five seriously wounded.
Kuwait reports multiple US aircraft incidents; crews survived.
Reports from Iranian media claim a US MQ-9 drone was destroyed.
US embassy personnel in Kuwait are sheltering in place.

President Trump has stated that combat operations will continue and warned that further US casualties are possible.

A Shahed drone struck RAF Akrotiri in Cyprus; minimal damage reported.
The UK has confirmed it is not participating in offensive operations but is permitting defensive use of bases.

Saudi Aramco's Ras Tanura refinery, one of the world's largest, was struck by an Iranian Shahed-136 drone early Monday morning. Saudi authorities confirmed the strike, which ignited a small fire that was quickly contained.
As a precaution, Aramco has temporarily halted operations at the 550k BPD facility while damage assessments are conducted.
Importantly, this is the first time Iran has directly targeted major Gulf energy infrastructure in this current three-day conflict

Israel has launched what it describes as an offensive campaign against Hezbollah expected to last several days and potentially weeks.

Israeli officials have signalled readiness for a potential ground operation inside Lebanon.

Fresh IDF strikes have targeted Hezbollah infrastructure and weapons storage across Lebanon.
Residents in more than 50 Lebanese towns and villages have been ordered to evacuate.
Hezbollah rockets previously targeted northern Israel, including Haifa.
At least 31 killed and 149 injured in Israeli strikes in Lebanon.

Goldman Sachs

"Our analysis indicates that a 10% increase in oil prices results in a reduction of up to 0.8pp in the level of real GDP for major oil importers, such as Türkiye, all else equal, with the most pronounced impact on sequential growth typically occurring with a lag of around 2 quarters."
"The effects of oil price changes on inflation are more uniform across countries, with a 10% increase in oil prices typically raising the level of CPI – including second-round effects – by between 0.2pp and 0.5pp, with relatively large effects in Hungary, Poland, Thailand and Türkiye. In contrast to the effects on growth, most of the impact on consumer prices feeds through relatively quickly (within 1 quarter)."

ING:

"We see prolonged military action and an aggressive response from Iran."
"If LNG/gas markets start to price in an extended period of losses to Qatari LNG supply, TTF could potentially spike to EUR 80-100/MWh ($28-35/MMBtu)."

SEB:

"Broader regional energy infrastructure opens the door to significantly higher oil prices, and could end up in a wide range between USD 100-120/b. Should the US Navy and allies fail to mount a proper defence of oil and gas facilities in the Gulf, that leaves room for even higher oil prices."

Danske Bank:

"Fed is unlikely to trigger speculations of near-term policy shifts following the rise in energy prices."
"We think the bar is high for FX intervention from the SNB, but if intervention is conducted, we believe it would merely cap the topside rather than trigger a broad reversal for the Swiss Franc."
"We should see some risk off movement with wider Schatz spreads and higher volatility and wider credit spreads, but for how long and how much is uncertain - and looking the previous moves in 2024 through 2025, then the safe-haven move has been more modest and short-lived compared to previous years."