TL;DR: Israel went too far assassinating a Hamas political chief in Iran in response to the rocket strike in the Golan Heights recently. Iran is going to have to do something fairly big in response in an attempt to keep Israel in check. Resulting instability, escalation, and Russian interest in causing regional chaos could send oil stocks up as shipping through the Straight of Hormuz could be complicated by Iran if there is broad escalation. Defense stocks could also pump. HES MRO and OXY look like more attractive plays rn given recent price action. And of course, if things escalate quickly, spy/qqq puts should continue to print. NFA

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Longer version (may edit later to add more sources)

Things are escalating the Mid East. Israel responded to a Hezbollah rocket attack that killed a bunch of kids at a soccer game by assassinating 2 guys. The guy who launched the rockets in Beirut (alone prolly nbd) and Ismail Haniyeh, Hamas political chief (bfd). Haniyeh was killed in Iran's capital. Assassinating foreign leaders openly is a big deal. Doing it in rival nations capitals is a bigger deal. And what it means is that Iran is now in a position where they have to respond.

Israel needed to thread the needle with their response to Hezbollah to hit the off-ramp. Hardliners were not going to allow a response that was too mild with the awful nature of what happened in the Golan Heights. But international actors were desperately trying to prevent a response that went too far so as to avoid broader conflagration.

International diplomacy failed and Israel went too far. They assassinated the leader of an organization that didn't do the attack in the capital of a foreign rival.

The US is moving military assets to the ME now to protect Israel from a likely Iranian response. Although Iran's response to one of their Generals being killed in April didn't do much damage, they are in a realpolitik position of having to punish Israel for this, lest they grant carte blanche authority for Israel to start decapitating leadership of rival political groups throughout the region with impunity. This is an extraordinary action that Iran cannot afford to rubber stamp with inaction.

Iran and its allied proxies run the distinct risk of escalating conflict in the region by being too soft in their response.

The final kicker here and the elephant in the room is Russia, Iran's closest and most powerful ally. Russia has an extraordinary set of incentives for Trump to beat Harris in November, the most obvious being complicating US funding for Ukrainian defense (there's a whole lot more there but that's one of the most immediate benefits for Russia).

With Harris taking over for Biden's doomed effort, the political calculus has shifted for Putin. A broader regional war in the ME is bad for an incumbent presidency by itself. That causing already teetering markets to collapse further is also terrible for Harris. And on top of that, gas prices have a lot of influence on election cycles.

Russia may believe that a middle east war will produce a Trump victory and that otherwise, those odds are growing longer by the day. With markets on the ropes, Russia may believe prompting an large Iranian response now could be a tipping point.

And if Iran believes that they cannot afford a weak response, their best means of reprisal would be having their proxies attack Israel so the Houti's in Yemen, Hezbollah in Lebanon, and what's left of Hamas in Gaza.

How to play it:

HES, OXY, MRO - The Straight of Hormuz is the concern. If Iran wants, they can shut it down or at a minimum make passage very difficult. That means oil companies with less production in the ME have the most to gain. After 10/7 when there was a perceived risk that Iran would complicate the straight, all 3 of these jumped over the week following. Plus the options are pretty cheap. Depending on how this is developing Monday, I'll probably buy some MRO $28c 8/23 (currently about .55). I don't trade a lot of oil stocks so any feedback welcome on these companies. One other upside is that they all appear to be oversold currently.

LMT, RTX, defense etfs - appears as though these companies have been on a run but they could go further if things escalate. Again, any input on these/defense stocks that could run is welcome, don't typically trade them.

ZIM - someone mentioned this the other day and it did go up at the Golan attack. However, look at its chart after 10/7 before you make the call on that, it actually went down (iirc) a few days after.

Index Puts - I mean who doesn't have these right now?

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Just gonna put a couple other notes about things down here but you don't need to read this part unless you hate yourself and your spare time.

1. De-escalation scenario - the window is narrower than post-golan imo. The reason is because doing very little to nothing effectual in response is now by itself a cause for escalation because it invites more assassinations and attack by Israel. Plus with Russia potentially wanting war, there is no voice in the room for Iran that is discouraging attacks. I'm having trouble seeing an Iranian response that delivers a pound of flesh

2. Nuclear things - I don't see a strong risk of a nuclear response any time in the near future but if tensions escalate and international actors get drawn-in, the more likely nuclear thing that could escalate things is declaration by either Iran or Israel. Iran cause they finished thier first bomb. Israel could abandon long-standing nuclear opacity as a flex.

3. The Tehran assassination - as details emerge, it could influence the response. If it was just a drone through a window, that's one thing. But if some of these reports that Iranian security helped plant the bomb and it was there for month are true, it means Iran needs to be a lot more worried because they are compromised af.

4. Already escalating - been checking in on the news as I write this. Israel is stepping up attacks on South Lebanon, they blew up a school today, they killed another vip in the West Bank today, Yemen may have just taken a shot at a ship from the UK.

5. Biden may have lost his ability to influence Bibi- it seemed to me like the assassination of the commanding officer that launched the Golan missiles was a smart off-ramp attack. I wouldn't be surprised if that killing was negotiated through backchannel (Hez might have even given him up thinking it would avoid an escalation). But it seems like Biden had no idea Israel was planning to pop the Hamas political chief in Tehran. If that's the case, it means Israel is giving in to hardliners internally and shutting-out the 'cooler heads'. Even worse they may be faking willingness to agree to a truce to buy more time. Article about that:

https://www.theguardian.com/world/article/2024/aug/03/assassination-again-shows-netanyahus-disregard-for-us-israel-relations

1. Hope I'm wrong about things escalating, there's enough dead kids in Gaza already, I'm by no means rooting for Israel to open-up on Lebanon. But I think given recent events, its worth keeping an eye on.