Momentum for conflict expansion

Iran launched a missile and drone attack on Israel on April 13, the first such strike from its own territory, in retaliation for a suspected Israeli strike on the consular section of Iran’s embassy in Damascus earlier this month. Although an Iranian retaliatory move had been widely anticipated, the move raises tensions in the wider Middle East.

Israel’s reaction will now be crucial. The Israeli military said 99 percent of the Iranian barrage had been intercepted, but there are calls from some quarters in Israel for a robust response. There is some convincing of Israel to be done by the US, China and regional powers in the Middle East to de-escalate the situation.

Underlining the risks to the world economy of a wider conflict, Iran seized an Israel-linked cargo ship in the Strait of Hormuz, one of the world's most important energy shipping routes, on April 13, before the missile and drone attack later the same day. We expect increased volatility in financial markets in the coming days.