This article takes no position on who is right, who started what, or how the conflict should end. Those are political questions. What follows is a strictly quantitative analysis: what the data says about the range of outcomes, what historical precedent tells us about resolution timelines, what the oil and gold markets are currently pricing in, and what happens to each of those variables under different scenarios.
The 2026 Iran war began on February 28 with US and Israeli strikes. As of April 3, it is now in its 34th day. The Strait of Hormuz has been declared closed by Iran since March 2. Ceasefire talks are ongoing through intermediaries but no agreement has been reached. The following analysis treats this situation the way any quantitative analyst should treat an open-ended geopolitical event: as a probability distribution across outcomes, each with different market implications.
What the Current Situation Actually Looks Like in Numbers
Before modeling scenarios, the baseline data is worth stating precisely. The Strait of Hormuz carries approximately 20 million barrels of oil per day in normal conditions, representing roughly 20% of global seaborne oil supply. The Congressional Research Service reports that 27% of the world’s maritime trade in crude oil and petroleum products transits the strait. Qatar exports approximately 80 million tonnes per annum of LNG through it — about 19% of global LNG supply — and has declared force majeure on all contracts.
As of mid-March, oil production from Kuwait, Iraq, Saudi Arabia, and the UAE had collectively dropped by at least 10 million barrels per day. Goldman Sachs estimated the conflict’s war risk premium at approximately $14 per barrel as of March 3, corresponding to its model’s output for a full four-week strait closure with partial pipeline offsets. Brent crude peaked near $166 on March 19 before declining on ceasefire speculation, then rose back toward $114 as negotiations stalled. The Dallas Federal Reserve’s model estimates that a one-quarter closure of the strait raises the WTI average to $98 per barrel and reduces annualized global GDP growth by 2.9 percentage points in the affected quarter.
For gold: the metal rose from approximately $2,624 at the start of 2025 to $5,589 in January 2026, a 113% rally driven by a combination of central bank accumulation, dollar weakness, rate cuts, and escalating geopolitical risk. After the war began on February 28, gold initially rose further on safe-haven demand, then sold off sharply in mid-March as rising inflation from the oil shock made rate cuts less likely, strengthening the dollar and removing one of gold’s key supports. The March 19 crash produced a single-session decline exceeding $400. Gold is currently trading near $4,493, roughly 19.6% below the January all-time high.
The Scenario Tree: Five Distinct Outcomes
Any honest probability analysis must begin by defining the outcome space. The Iran conflict currently has five structurally distinct resolution paths, each with different implications for oil, gold, inflation, and monetary policy. These are not political predictions — they are the set of scenarios that Bayesian analysis must assign probability mass to, regardless of which the analyst personally expects.
Scenario A: Near-term ceasefire, partial strait reopening (within 2–4 weeks). Pakistan has positioned itself as a mediator. Iran has confirmed receipt of the US 15-point proposal and is reviewing it. Iran’s President Pezeshkian has reportedly warned that without a ceasefire, Iran’s economy could collapse within three to four weeks. Former Foreign Minister Zarif has published a negotiated settlement framework in Foreign Affairs — a signal that some faction of the Iranian leadership is looking for an exit. A ceasefire under this scenario would likely involve partial strait reopening and some face-saving arrangement on nuclear issues. Oil prices would fall sharply from current levels as the risk premium deflates. Gold would likely fall further as the safe-haven premium unwinds and the inflation signal from high oil weakens. This scenario benefits risk assets broadly.
Scenario B: Prolonged stalemate, strait partially reopened by US military action (4–12 weeks). Trump has threatened to seize control of the strait and has begun moving additional forces to the region. The US launched a military campaign on March 19 specifically to open the strait. Under this scenario, the strait is partially reopened through military pressure rather than diplomatic agreement, allowing some shipping to resume at elevated insurance costs. The conflict continues but energy market disruption diminishes. Oil prices remain elevated but stop rising. Gold behavior is mixed — inflation expectations decline somewhat but geopolitical uncertainty persists.
Scenario C: Iranian regime collapse or leadership change (6–18 weeks). The Iranian government was under severe internal pressure before the war began — 5 million Iranians were protesting in January 2026, and the government’s response was violent. The assassination of Khamenei has removed the supreme leader who had held power since 1989. His successor has made no public appearances. Iranian parliament speaker Ghalibaf has rejected negotiations while President Pezeshkian is reportedly clashing with the IRGC over war strategy. A fragmented leadership structure facing economic collapse and continued military strikes is historically unstable. Under this scenario, the political structure of Iran changes significantly, the strait reopens, and the geopolitical premium in oil and gold unwinds substantially. This is structurally the most bullish scenario for risk assets and the most bearish for oil and gold premiums.
Scenario D: Escalation — US ground forces, broader regional conflict (ongoing). Trump has mentioned taking Iran’s oil fields. Israel has opened a ground incursion into Lebanon. Iranian missile attacks continue against Gulf states, with strikes reported on Kuwait, UAE, Saudi Arabia, and South Pars gas field infrastructure. If the conflict escalates to US ground forces or expands significantly into other Gulf states, the oil supply disruption worsens materially. Goldman Sachs analysts have mentioned a $200/barrel scenario in conversations with oil traders, though this remains an extreme tail outcome. Under this scenario, gold’s behavior becomes less predictable — the inflation shock may dominate the safe-haven bid, as occurred in March when oil-driven inflation expectations weighed on gold more than geopolitical fear supported it.
Scenario E: Nuclear dimension emerges. The IAEA reported in December 2024 that Iran was enriching uranium to levels approaching weapons-grade. The infrastructure targeted in the February 28 strikes included nuclear sites. Iran has suspended nuclear talks indefinitely. If Iran reconstituted enough capability to credibly threaten nuclear escalation — or if Israel or the US perceived such a threat — the market implications would be structurally different from all other scenarios. Gold’s historical behavior in nuclear-threat environments shows extreme upside, though the scenario is low-probability given the degree of infrastructure damage reported.
What Historical Conflicts Tell Us About Resolution Timelines
Geopolitical conflicts that involve major oil supply disruptions have a documented resolution pattern. The 1973 Yom Kippur War oil embargo lasted approximately five months before the embargo was lifted in March 1974, though the full economic effects persisted for years. The 1979 Iranian Revolution disrupted approximately 5.6 million barrels per day and took roughly two years for global supply to stabilize, though prices normalized faster as alternative sources ramped. The Iran-Iraq War’s oil market disruption from 1980 lasted the duration of the conflict — eight years — but the price impact peaked in 1980 and partially recovered by 1986 as OPEC expanded output from other members.
The most directly analogous precedent is the 1990 Gulf War. Iraq’s invasion of Kuwait in August 1990 removed approximately 4.3 million barrels per day from supply. The disruption lasted approximately seven months, from the invasion through the liberation of Kuwait in February 1991. Oil prices roughly doubled from $17/barrel before the invasion to a peak near $40/barrel in October 1990, then fell sharply back toward $20/barrel within weeks of Operation Desert Storm beginning — the classic “buy the rumor, sell the fact” pattern that also characterized the March 2026 gold selloff.
The critical difference between 1990 and 2026 is the magnitude of the disruption. The 1990 crisis removed approximately 9% of global oil supply. The current Strait of Hormuz closure, at full effect, removes approximately 20% — more than twice the 1990 disruption by percentage — while also blocking natural gas in a way that 1990 did not. Oxford Economics estimates that commodity markets have repriced for a sustained geopolitical risk premium that has no direct historical parallel in scope.
The research on geopolitical risk and asset prices by Caldara and Iacoviello (2022, American Economic Review) provides the most rigorous quantitative framework. Their Geopolitical Risk Index (GPR) shows that GPR spikes have measurable and statistically significant effects on commodity prices, investment, and output — but that these effects decay rapidly once the event either escalates to a known state or resolves. The key finding relevant here: the market impact of geopolitical threats consistently exceeds the market impact of geopolitical acts. The current situation is unusual because it involves both simultaneously — an ongoing act and ongoing threats of escalation — which makes the standard premium-deflation pattern harder to apply.
What Markets Are Currently Pricing
Reading market prices as probability estimates requires care, but the exercise is illuminating. Brent crude at approximately $114/barrel (as of late March) relative to a pre-conflict level near $70 implies a risk premium of roughly $44/barrel. Goldman Sachs’s model translates risk premiums to closure probabilities: their estimate is that $14/barrel corresponds to a full one-month closure. A $44 premium, by linear extrapolation of that model, implies the market is pricing approximately a three-month full closure — or, more realistically, a longer partial closure weighted by probability of different durations.
Gold at $4,493 relative to a pre-war equilibrium that many analysts placed around $3,200–$3,500 implies a geopolitical and inflation premium of approximately $1,000–$1,300 per ounce. Natixis estimated the geopolitical war premium alone at approximately $750/ounce. The remaining $250–$550 represents the inflation expectations premium from oil-driven CPI pressure. This decomposition matters: if the war ends quickly, both premiums deflate simultaneously, and gold faces downward pressure from two directions at once. If the war ends but inflation from the oil shock persists, the geopolitical premium deflates but the inflation premium may not, creating a more stable floor.
The behavior of oil on March 23 is the most precise probability signal available. When Trump’s comments about productive negotiations reached the market, Brent crude fell from $114 to $102 within the session — a $12 decline. When negotiations failed to produce a ceasefire and the IRGC reaffirmed the strait closure on March 27, Brent returned to $114. This implies the market assigns approximately a $12/barrel probability-weighted value to the possibility of near-term ceasefire — consistent with Goldman Sachs’s model of roughly a 85% discount of the war premium on ceasefire, divided by a ceasefire probability of roughly 15–20% at that moment. In other words, markets were pricing approximately an 85% probability that the conflict continues and a 15% probability of near-term resolution as of late March.
The Oil-Gold-Inflation Triangle and Why It Makes Automated Strategies Difficult
The standard assumption in automated trading is that gold and oil move in the same direction during geopolitical crises — both are commodity safe havens and both are priced in dollars. The 2026 conflict has produced a more complex relationship. Gold has declined 19.6% from its January high while oil remains elevated. The mechanism is the one discussed in our previous gold analysis: when oil prices rise sharply from a supply disruption, the inflation shock they create forces central banks to hold rates higher than they otherwise would. This strengthens the dollar and raises real interest rates — both of which are bearish for gold — and these effects have, in this particular episode, outweighed gold’s safe-haven premium.
This is not unprecedented. During the 1973 oil crisis, gold initially rallied but then behaved erratically as stagflation dynamics created uncertainty about whether inflation or recession would dominate. The 1980 Iranian Revolution oil shock coincided with gold’s all-time high (in real terms) of approximately $850/ounce in January 1980, but that peak occurred before the full stagflation impact was understood — gold declined significantly through the early 1980s as the Fed tightened aggressively.
The relevant statistical observation is that during extended geopolitical supply disruptions, correlation structures between assets become unstable. An automated strategy calibrated on the assumption that gold and oil move together — or that gold always rises during geopolitical crises — will be exposed to exactly the kind of distributional shift that makes backtests from normal regimes poor predictors of crisis-period performance. The gold-oil correlation, typically positive during routine market stress, has been negative during significant portions of the current conflict. A strategy that did not account for this regime-switching behavior would have generated opposite-directional trades to what the data required.
Scenario Probabilities and Market Implications: A Summary
Assembling the above into a probability-weighted framework produces the following working estimates, derived from market prices, historical precedent, and the observable negotiating behavior of the parties involved. These are not point predictions. They are probability mass assignments across a scenario tree, consistent with the data as of April 3, 2026.
Near-term ceasefire within 4 weeks (Scenario A): approximately 20–25% probability, based on the $12/barrel market response to negotiation signals, the economic pressure on Iran’s civilian leadership, Zarif’s Foreign Affairs proposal, and Pakistan’s active mediation. Oil would likely fall toward $85–95/barrel on ceasefire. Gold would fall further, potentially toward $4,000–4,200, as both the war premium and the inflation expectations premium deflate.
Partial reopening via US military action, conflict continues (Scenario B): approximately 40–45% probability. Oil stabilizes in the $100–120 range. Gold behavior is mixed — likely sideways to lower as the inflation signal diminishes but geopolitical uncertainty persists.
Extended conflict, regime change or collapse (Scenario C): approximately 15–20% probability over a 3–6 month horizon. Economic collapse timeline cited by Pezeshkian (three to four weeks) is consistent with historical precedent of how supply disruptions interact with already-strained economies. Oil falls sharply on resolution. Gold falls substantially as all premiums deflate.
Escalation — broader regional conflict, US ground forces, oil above $150 (Scenario D): approximately 10–15% probability. Oil moves toward $150–200 range. Gold behavior in this scenario is genuinely uncertain — the historical record provides no direct comparable for this magnitude of supply disruption combined with this level of monetary policy constraint.
Nuclear dimension, extreme escalation (Scenario E): less than 5% probability given reported infrastructure damage. Gold would likely spike substantially in this scenario, though the magnitude is unmodelable from historical data.
Probability-weighted expected oil price across these scenarios: approximately $105–115/barrel, which is broadly consistent with where Brent is currently trading. This is a useful sanity check: the market is approximately rational about the central case, though tail risks in both directions remain significant.
What This Means for Quantitative Analysis in General
The Iran war is a real-time demonstration of a point that appears throughout quantitative trading research but is rarely confronted directly with live data: the past is a poor guide to the future when the statistical regime has changed. Every backtest is built on a sample of historical returns. That sample has a joint distribution with a specific mean, variance, skewness, kurtosis, and correlation structure. When a geopolitical event changes the underlying supply-demand dynamics for a major commodity, every one of those parameters shifts simultaneously.
A strategy validated entirely on 2020–2025 data has never encountered a Strait of Hormuz closure, a 20% global oil supply disruption, a $44/barrel war premium, or gold declining during an active war. Its backtest statistics — win rate, profit factor, maximum drawdown — were generated under distributional assumptions that no longer hold. This does not mean the strategy has no edge. It means the edge cannot be measured from that backtest alone, and any risk parameters derived from it will systematically underestimate exposure during the current regime.
The appropriate analytical response is not to avoid trading during geopolitical crises. It is to explicitly account for the possibility that the current regime differs from the calibration regime, to test whether the strategy’s statistical properties remain consistent across sub-periods that include previous stress events, and to size positions based on the simulated distribution of outcomes — including the tail scenarios — rather than the observed historical mean.
Monte Carlo simulation, applied to a strategy’s backtest trade sequence, cannot generate the specific trade outcomes that would have occurred during a Strait of Hormuz closure — because those trades are not in the historical sample. What it can do is reveal whether the strategy’s performance is highly sequence-dependent, whether the maximum drawdown observed historically is a realistic estimate of drawdown under adverse conditions, and whether the return distribution has the statistical properties of a genuine edge or of favorable sequencing during a specific regime. Those questions remain answerable, and answering them before deploying capital into a regime-shifted market is the minimum standard of quantitative rigor.
The Iran war is not, from a quantitative standpoint, primarily a question of who wins or what happens next. It is a question of which statistical regime the market is operating in, how long that regime is likely to persist, and whether the models being used to make trading decisions were built for it.
Tags: iran, Iran war, monte carlo analysis