CITIC Securities says renewed U.S.-Iran tensions reflect fundamental flaws in
the U.S.-Iran memorandum of understanding that make implementation difficult.
The current stalemate carries a risk of becoming prolonged, characterized by
failure to form a stable agreement, episodic fighting and intermittent
disruptions to transit through the Strait of Hormuz. Markets typically expect
this year’s U.S. midterm elections to restrain the Trump administration’s use of
force, but CITIC notes that if the probability of Republicans losing the Senate
remains low, political pressure on issues such as Supreme Court appointments,
impeachment probes and election disputes will be limited — so markets may be
overestimating the midterms’ constraining effect.
