Brent crude futures topped $116.50 a barrel early Wednesday after a WSJ report said the Trump administration is preparing for a brief military campaign against Iran after the midterm elections.
Trump said at a rally last week, "We may do another little Epic Fury."
Signals were mixed by early afternoon, as oil and yields pared back their gains after Iranian Foreign Minister Abbas Araghchi said on X that Iran continues to give diplomacy a chance to succeed.
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The mixed messaging keeps oil whipsawing on headlines like a penny stock, but Brent and WTI both trade in triple-digit territory, and the refining crisis is far from over ahead of the Northern Hemisphere winter. EU NatGas prices climbed above 100 euros per megawatt-hour earlier today.
To clarify what may come next in the Gulf conflict after the midterms, Jefferies hosted Atlantic Council Middle East specialist and former US intelligence official Jonathan Panikoff for a discussion with analysts Aniket Shah and Lloyd Byrne.
The conversation centered on the increasing likelihood that a renewed US military campaign against Iran could begin next Wednesday, just one day after the midterm elections.
Panikoff assigned roughly a 55% probability to escalation, compared with a 25% chance of a diplomatic exit. Election-related sensitivity to higher gasoline prices and Iranian retaliation could ease after the vote, giving Washington greater latitude to act.
The summary of the conversation is as follows:
1. Post-midterm escalation is the base case, with the U.S. positioning for an intense campaign.
Escalation is more likely after the midterms, when sensitivity to Iranian retaliation and higher gasoline prices diminishes. Panikoff puts the odds of escalation at ~55%, versus ~25% for an off-ramp and ~10% for muddling through. The U.S. military buildup is the clearest indicator: a third carrier group could temporarily join two others in the region, while longer-range bombers could be deployed closer to a strike decision. Roughly 3,000 targets are reportedly prepared. He anticipates several weeks of intense strikes, after which Trump could declare Iran sufficiently degraded and exit.
2. Iranian retaliation could extend to Gulf infrastructure, particularly if a U.S. campaign lasts several weeks.
A limited U.S. strike (1–2 days) would cause less Iranian retaliation than a 1–3 week campaign. In addition to direct attacks on U.S. assets, Iran may attack Gulf energy and other infrastructure, in order to create political pressure on the U.S. from Gulf governments to end the campaign. Iraqi proxies and the Houthis are a vehicle through which Iran can create broader regional disruption. The Houthis are resourceful, making use of dual-use technology, and are able to assemble Iranian components locally.
3. Iran has rebuilt key capabilities, making unlikely that a single military campaign will lead to a permanent solution.
Iran's drone capability is back to 100% or above pre-war levels and ballistic missile stocks are ~65-75% and growing faster than expected, while the U.S. and its partners have limited defense capacities. Iran has moved its nuclear assets into harder-to-hit locations. Israel may decide to adopt a "mow the grass" strategy, involving recurring military action. While some Israelis foresee regime collapse within six months under sustained pressure, Panikoff sees 4-7 years as more realistic. Diplomacy is stalled over the summer MOU, despite Qatari/Pakistani mediation.
4. Low-intensity conflict may become the new normal, reshaping Gulf security and U.S. priorities.
Gulf governments are preparing for conflict lasting 2, 4, 7 or even 10 years, rather than a return to the pre-war environment. If Washington steps back, Gulf states could accommodate Tehran, particularly given insufficient defenses. Weaker Gulf participation could also undermine maximum-pressure sanctions. A prolonged blockade would consume U.S. military capacity otherwise available for China, Taiwan and the Indo-Pacific.
5. Investment implications: prolonged instability leaves energy and shipping exposed while reinforcing defense requirements.
Crude may be near pre-war levels, but diesel/jet fuel remain disrupted, escort missions continue and Iran is hitting roughly 3-5% of maritime traffic with drones nightly. Lower reserves, stronger Chinese demand, a tough winter and reduced U.S. SPR releases could tighten energy markets. Gulf infrastructure attacks could amplify oil/refining risks, while maritime disruption could pressure tanker availability, freight and insurance. Iran's rebuilding, Houthi activity and limited Patriot/THAAD-type capacity also point to sustained demand for air/missile defense and interceptors.