The latest and largest Israel-Iran war is well underway. It will not be over soon. This special report focuses on the state of war in the Middle East and, more importantly, what happens next. The significance of this war for investors and portfolio allocations is clear.

You know the headline version of this war. On June 13 (Tel Aviv time), Israel launched a massive preemptive strike on Iran called Rising Lion using missiles, fighter jets, drones, electronic warfare, and targeted assassinations. Prior Israeli attacks in 2024 had already substantially degraded Iran’s air defenses. Israel was able to use Syrian airspace freely due to the fall of Syria’s President Bashar al-Assad in 2004. The current government in Syria is weak and disorganized, which gives Israel a free hand from an operational perspective.

The immediate trigger for this war may have been an International Atomic Energy Agency board resolution issued days before, which passed by 19-3. That, for the first time in twenty years, Iran was found to be in noncompliance with its nuclear-related agreements. This vote was called based on Iran’s refusal over the last six years to explain the presence of undeclared nuclear material in Iran. That’s a plausible casus belli, but this attack was coming one way or the other.

Israel’s Targets

Israel’s attack struck Iran’s nuclear weapon development sites, other key military sites, and some civilian areas as part of its assassination program. Prime targets included Tehran (for assassinations), Fordo (underground uranium enrichment site), Tabriz (oil refineries and a key airport), Borujerd, Shiraz and Kermanshah (underground missile development sites), and Natanz (main uranium enrichment site).

Among the key assassination targets were Mohammed Bagheri - Iran’s military chief of staff, Hossein Salami - commander in chief of the Iran Revolutionary Guard Corps (IRCG), Ali Hajizadeh - leader of the Iranian Air Force, Ali Shamkhani - the top political advisor to Supreme Leader Ali Khamenei and numerous other generals and four top Iranian nuclear scientists. In military parlance, killing an entire leadership group in this manner is known as a decapitation strike.

Some of Israel’s drones used in the attack were assembled and launched from inside Iran using smuggled components. Israeli commando units are operating freely throughout Iran. Israel has said it has not ruled out assassinating Ali Khamenei if circumstances require.

Iran Retaliation

Iran struck back with ballistic missile attacks on Israel, targeting key cities including Tel Aviv and Haifa. Some buildings were destroyed, and some civilians were killed, but the strikes had no significant military impact. Israel’s Iron Dome missile defense system and other systems, such as the Patriot anti-missile system supplied by the U.S, shot down most of the missiles and drones Iran fired.

Still, Iranian attacks proved effective when they used hypersonic missiles developed, no doubt with help from Russia. There are currently no effective air defenses against hypersonic missiles traveling at 2,000 miles per hour or faster.

The attacks have continued as of the time of this writing. I expect they will continue for weeks to come as Israel thoroughly destroys Iran’s military and nuclear capabilities. These attacks may expand to include the Iranian Navy as a way to preclude any effort to close the critical Straits of Hormuz.

The success of Israel’s attacks so far has revealed several factors. The first is that Israel has what is called air superiority (one step short of air supremacy). This means Israeli fighter jets can mostly fly where they want, and Israeli missiles and drones can reach their targets with little or no resistance from Iran. The second is that the Israeli intelligence agency Mossad has completely penetrated Iranian intelligence and some leadership units. This means Israel has the intelligence it needs to continue selecting target sites and assassination targets, and to anticipate Iranian responses.

This is highly demoralizing to the Iranians since they can no longer trust their own intelligence service or political cadres. Iran will spend substantial resources rooting out double agents and plugging leaks instead of fighting the war directly. Some unverified reports say senior Iranian military and civilian officials are fleeing Tehran because they may be next on the assassination list.

The Nature of the Israeli Attack

The nature and breadth of the Israeli attack raise the question of whether the attack was primarily aimed at degrading Iran’s nuclear weapons development programs or whether the main goal is regime change in Iran. The answer is both. Preventing Iran from obtaining nuclear weapons was an immediate existential mission for Israel. Regime change is the best long-term solution.

Already, Reza Pahlavi, Crown Prince of Iran and son of the deposed Shah Mohammed Reza Pahlavi, has been making public comments about regime change in Iran. This does not mean Iran will return to monarchy if the Khamenei theocracy falls. However, constitutional monarchies with a parliament and democratic elections are a proven model in the UK, the Netherlands, Norway, Sweden, and Spain. It’s too early to estimate what comes next in Iran, but it’s not too early to game out the possibilities.

The Israeli attack was not put together hastily. It was years in the making, led by technological developments, covert operations, and counterintelligence. Recall the pager and cell phone explosions targeting users in Hezbollah last year to see how effective the Israeli intelligence services are. Israeli intelligence had also concluded that every day Iranians were tired of theocracy and limits on their freedoms. This did not mean they were ready to rise in rebellion, but it did mean that the regime would not enjoy widespread support if Israel did exactly what she did.

The timing of the attacks was no doubt opportunistic. Iran’s weakness has been spreading for years. Iran’s air defenses had already been destroyed. Trump is preoccupied with Ukraine and the Big Beautiful Bill. Russia is fully engaged in Ukraine. The Iranians had refused to slow down their uranium enrichment efforts and were non-transparent about the status of the nuclear weapons program. Netanyahu no doubt took a “now or never” approach that has succeeded – so far.

What Comes Next

Issues of why and what comes next may best be addressed in Q&A format: 

• Why did Israel launch this attack on Iran if it cannot finish the job on their own?

Of course, Netanyahu wants the U.S. to join in the attack. So far, Trump has resisted (apart from cheering on the sidelines). There are two logical inferences from this: the first is that Netanyahu will continue to escalate (with Iran counter-escalating) until the U.S. has no choice but to join in. The second is that Israel believes it can do this by itself or at least do enough to make the effort worthwhile. That is the history of the Israeli-Arab conflicts since the 1920s. Every time the Israelis seem outnumbered and surrounded, they still manage to win. (One exception - the 2006 Hezbollah war, which was a stalemate).

• Israel has now hit oil production facilities and refineries, and is vowing to hit more - what happens to oil prices next week? If they rise, does that lead to U.S. inflation? Does it help Russia?

Oil prices will go up. But it’s well known that the cure for high oil prices is high oil prices. Global oil demand is weak, and the price is expected to retreat soon, assuming there is no attack on the Strait of Hormuz. There may be a short-term blip in U.S. inflation, but it won't last. Still, higher oil prices will help Russia, especially in its efforts in the Ukrainian war.

• If the U.S. does not get out of the Ukraine war and starts getting pulled into the Iran war, what happens to the U.S. economy?

The wars in Ukraine and Iran are important, but they will not affect the U.S. economy that much. There are many bigger forces at play in the economy, including a global slowdown, rising debt, disinflation, and higher tariffs. Gold will certainly rally. It is the ideal “everything hedge.”

• What is the political fallout for Trump if he does not keep the U.S. out of the war in Iran and fails to extract the U.S. from the war in Ukraine?

Trump will suffer badly if he gets dragged into the Iran war or if he fails to get the U.S. out of its involvement in the Ukraine war. Right now, both issues are on the knife's edge. MAGA is mainly (if not exclusively) anti-war and anti-intervention. Tucker Carlson and Steve Bannon have the two biggest megaphones with MAGA. They are both opposed to U.S. involvement in both wars. 

An event of this magnitude refashions how America and the rest of the world see Israel, and will directly impact U.S. strategy in the Middle East. Whatever Trump thought before Thursday has been overtaken by events. Even what he says today, for diplomatic reasons, isn’t highly relevant. The balance of power has shifted decisively in Israel’s favor.

Global powers and regional states see that Israel is distinctly strong while Iran is far weaker than previously believed. Hezbollah sees this clearly, which is why they sent an official email promising not to become involved by launching missiles.

Israel’s intelligence services and defense technology sector have gained significant stature in the global arena. This turn of events is also restoring pride to pro-Israel communities around the world and to the Jewish diaspora, who again see Israel as a decisive power.

The next stage of the conflict is concentration by Israel's concentration on regime change in Iran. With complete air superiority over Iran, the IDF can now strike oil and gas production and refining facilities, which form the backbone of Iran’s economy. Other Iranian institutions, such as universities and civil society, will also be influenced in ways adverse to the Iranian regime. This could be the spark that ignites a public rebellion against the theocratic regime.

Critically, Israel had great success in destroying Iranian facilities that were deep underground. Here’s an intelligence report from inside Iran that explains why this capacity is so important.

Iran long assumed its most sensitive weapons and missile production sites were safe, buried deep underground. But Israel’s 2024 raid on the Masyaf missile facility in Syria shattered that assumption. This Iranian-built site, hidden more than 400 feet beneath the surface, was close to producing precision-guided missiles capable of striking major Israeli cities and military bases. The successful raid demonstrated that Israel can penetrate even the most heavily fortified underground targets.

Iran’s most sensitive nuclear sites, like Natanz and Fordow—buried deep inside mountains—have long been thought nearly untouchable by airstrikes alone. Iran’s regional proxies in Yemen and Lebanon have developed hardened underground facilities modeled on Iran’s own defenses. The Masyaf operation shows Israel can eliminate these targets too. Hiding underground no longer guarantees safety.

Ironically, the key to settling the war in Iran lies in Ukraine. Russian President Putin spoke with President Trump last Saturday. Putin offered Trump a kind of off-ramp for U.S. involvement in Iran. If the U.S. and Russia can reach a rapprochement on Ukraine that satisfies Putin, then Russia would be able to exert pressure on Iran to satisfy the U.S. (and, by extension, Israel).

That approach opens the door to stopping two wars at once – Ukraine and Iran. But first, Zelensky must be removed, and the Lindsey Graham wing of the Republican party must be squashed. Neither of those outcomes is a sure thing.

Trump is smart, but neocon warmongers surround him. If Trump takes the Russian off-ramp, two wars may be resolved quickly. If not, both wars will continue indefinitely with a material risk of escalation to the point of a nuclear war that would end human life on earth. Putin opened the door. The next move is up to Trump.