Iran's long-feared retaliation for Israel's attack on its consulate in Syria has occurred. For the first time, the country launched from its territory a drone and missile attack.
However, thanks to Israel's missile defense system and the help of the United States, the United Kingdom, France, and Jordan, only the latter reached the intended target.
Now, the big question is how and when Israel will respond to the overnight bombardment.
Although several members of the Israeli cabinet advocated immediate retaliation at the time of Iran's attack, Netanyahu opposed this idea.
Of course, there will be some kind of response, but it is unlikely to be so severe as to provoke a major war in the region. Quite simply, no one wants that.
Iranian authorities themselves have stated that they have no plans for further operations unless they are forced to respond to further aggression. So, for now, we can take a breather.
The bad news is that peace in the Middle East is still a long way off. As a result, market volatility will persist, especially in oil and gold prices.
This could lead to a correction in the S&P 500 Index and a rally in the VIX.
How likely is the worst-case scenario?
Iran and Israel could strike again, but a full-scale war seems unlikely. No country, neither China, Russia, nor the European Union, has an interest in such a conflict.
If common sense fails and tensions reach their peak, the global economy could suffer. Iran has huge oil reserves and any disruption to its supply could send prices soaring.
The same would happen if Tehran tried to block the Strait of Hormuz, a vital passage through which a fifth of the world's oil passes daily.
How to prevent disaster?
French President Macron, following recent developments, called for tougher sanctions against Iran and its isolation, believing this could bring peace to the region.
David Bassanese, the chief economist at Betashares, also suggested that if Iran continues its escalation, the U.S. and its allies could face "new pressure to re-impose sanctions."
How will these developments affect the markets?
As long as the probability of the worst-case scenario remains low, it is unlikely that oil prices will soon exceed $100 per barrel or that gold prices will rise above $2,500.
On the other hand, any further deterioration could lead to significant volatility in the markets, as the movement in cryptocurrencies last weekend demonstrated.
