Description: The US and Iran restarted the exchange of aerial attacks threatening the existence and the success prospects of the Memorandum of Understanding (MoU) signed in Jun. The US CENTCOM announced that it conducted more than 170 aerial attacks striking targets in Iran’s ports of Chabahar and Bandar Abbas, hitting several bridges and electric transmission stations, causing widespread blackouts. Missile hits were also reported in the nuclear plant in Bushehr, where the IAEA has continuously warned that there was a high probability of nuclear disaster. Iran responded by targeting American military capabilities in Kuwait, Qatar and Bahrein, hitting a military communications station. Iran reported 14 casualties from the US attacks with approximately 70 other people injured from debris while the US and other Gulf countries intercepted most of the Iranian missiles and drones while no casualties were inflicted. President Trump while attending the NATO Summit in Ankara stated that although the MoU was effectively invalidated, both sides could continue negotiating. He reiterated threats of escalation in case Iran didn’t stop targeting ships in the Strait of Hormuz. Since the signing of the MoU on 17 Jun, both countries have compromised the interim agreement, disagreeing over key issues, such as the unfreezing of Iran’s foreign assets, free of navigation in the Strait of Hormuz and Iran’s nuclear file.
Impact: The latest round of escalation is highly likely an operational manifestation of political and diplomatic disagreements and while it likely compromises the success prospect of the MoU it is unlikely to lead towards repeated escalation or return to full – on warfare confrontation. Backchannel mediated talks are highly likely to continue alongside repeated aerial skirmished within the next week or two, while both Iran and the US are likely to ramp up hostile public rhetoric. The high level of distrust and hostility is likely to persist in the mid to long – term between the two countries in spite of diplomatic efforts, while both countries are likely to reiterate towards mediated negotiations in the short – term. Reengagement was planned after the burial of the former Supreme Leader Khamenei, but it’s likely that negotiations could be temporarily postponed due to the latest exchange of attacks. Market volatility and fluctuations are likely to persist in the mid to long – term due to the inconsistency of the conflict’s developments, affecting major industries and accentuating the need for industrial diversification.