# Roundup of the Week: Three Scenarios for the Gulf Crisis _I lay out three scenarios for how the Gulf conflict could play out, challenge the UK government's contradictory energy stance, and ask what a record-breaking quarter for corporate megadeals tells us about where the world economy is heading._ Neil Woodford · 2 April 2026 · 10 min read ![NASA's Artemis II mission launches successfully, with the rocket rising from the launch pad — a moment that pushed the Gulf war and Trump's latest speech off the top of global news feeds. Source: NASA](https://cdn.sanity.io/images/v3acfbvo/production/4ce499ffe0bde80eb5279de909094b7c0fa1fcbf-3302x2202.jpg?w=1600&fit=max&auto=format) --- For yet another week events in the Persian Gulf have dominated financial markets and geopolitics, not surprisingly. Sentiment has regularly swung from optimism to pessimism, almost on a daily basis. To some extent this may be a function of reduced trading volumes in the lead-up to the Easter holiday and a desire for market makers in equities and bonds to have flat books ahead of the next four days. Clearly the war could escalate in that time frame but equally, ceasefire discussions could also deliver a more positive outcome. In today's Noise Cancelling podcast I have talked about the different scenarios that I think could play out in this war, the probability I have ascribed to each of those outcomes and what they might mean for the global economy, energy prices, financial markets, and interest rates. Below, there is a brief summary of the rationale I have deployed to arrive at these three different scenarios, and their probabilities. Clearly, I do not have access to the details of what is going on in the Gulf, other than what is publicly available, and neither can I occupy the mind of Donald Trump or the collective minds of the leadership of the Iranian regime. Nevertheless, I have tried to deploy a modicum of common sense in arriving at these 'conclusions', something which seems to be in very short supply amongst those in the media and in financial markets with the loudest megaphones. When I sat down to write this piece I was reminded of the media's and the financial market's reaction to the 'war' which broke out in 2025. On this occasion it was a trade war. Nobody died in this conflagration but the consensus then, as now, was that untold damage would be inflicted on the world economy and that President Trump's Rose Garden announcement heralded a new (worse) world order in which all of the societal gains from the explosion in world trade that had taken place over the last one hundred years would be reversed. I wrote at the time that I thought this was alarmist nonsense and so it turned out to be. In fact, one of the most strident voices who last year claimed that the tariff announcement would usher in a dark future for the world economy, Martin Wolf, who writes for the FT, yesterday wrote that 'global trade definitely didn't die in 2025'. In fact, on the contrary, US and Chinese exports both reached a new record high, and global trade outperformed global GDP growth once again. Just by way of a reminder, the S&P 500 fell about 20% after Trump's Liberation Day announcement. At the worst point following the outbreak of war in late February, the same index had fallen about 8.5% and is currently only down about 5.5%. Here is the brief summary of the rationale and the scenarios I mentioned earlier along with my guess at each scenario's probability. ## The central outcome **Probability: 70%** The war continues for up to a further two weeks as the US and Israel continue to degrade the Iranian regime's military capabilities. To the extent that it can, Iran strikes back at targets in the Gulf as it has done since the conflict started. It will continue to target other Gulf states and shipping assets. It may also have another concerted go at its neighbours' oil and gas infrastructure. Although this won't necessarily be seen as an escalation, the two-week continuation will be a nervous time for markets. Whilst the war continues the settlement discussions brokered by Pakistan's deputy prime minister, Ishaq Dar, who was in Beijing earlier this week to agree a joint Pakistan/China five-point initiative, will continue and will ultimately be agreed. The plan calls for an immediate end to the fighting, an early start to peace talks, protection of sovereignty and security for Iran and the Gulf states, protection of civilians and critical infrastructure (including energy, desalination, power and peaceful nuclear facilities) and the restoration of normal passage through the Straits of Hormuz which of course is critical for these two economies and the wider world. This is significant because it confirms that two states that are deemed friendly to Iran, are actively helping to define how the conflict can end. My sense is that this kind of ceasefire agreement could be secured more quickly than the two weeks suggested in this scenario. Against this backdrop, given what has happened in financial markets since the war started, my hunch is that equity and bond markets and other financial assets continue to recover. What follows this in terms of a more permanent peace deal is harder to fathom. In some respects, this is where Israel and the US's ambitions and goals may diverge and of course who will ultimately prevail in terms of Iran's new leadership is also not at all clear. My guess is that the ceasefire will be easier to agree than a more permanent peace deal. Having said that the critical point for the world economy is that as long as the ceasefire holds, I expect oil and gas exports from the region to normalise, albeit impaired by the damage inflicted on the region's infrastructure. This is a scenario in which oil and gas prices return to pre-war levels and given the additional supply that is now in the market from countries like Russia and the reserve releases, oil prices may even dip below where they were before all this started. One of the longer-term consequences of this war is that the Gulf States' relations with Iran will be fundamentally changed, and I suspect there will be significant investment in military infrastructure and missile and drone defence systems across the region. (Ukraine will be a major beneficiary of this.) Alongside this investment there will also be significant investment in oil and gas infrastructure across the region. This will be targeted at new pipelines, export terminals and ports that will enable oil and gas to be piped and loaded onto ships that then do not need to navigate through the Straits of Hormuz. Clearly, this scenario is positive for financial markets which would continue to recover and bond yields and market interest rates would fall back to where they were before the war started. Central banks that had too hastily abandoned their easing bias would reinstate this inclination. Clearly there would be a significant residual concern that hostilities might start again but my sense is that when the fighting stops it will do so 'permanently'. ## The best-case outcome **Probability: 15%** This is similar to the central case above. The only difference I could see in the short term being better is that hostilities might end more quickly, possibly in the next few days, which financial markets would like a lot. In this scenario the oil price would fall more quickly back to where it was before the crisis started. This would, as in the central case, also lead to lower market interest rates and lower bond yields relieving the strain that otherwise might have inflicted harm on the economies of indebted nations across the world. Such a scenario, once again, could also lead to a reinstatement of the easing bias of a number of central banks that in my view, ill-advisedly abandoned this stance when the war began. In this scenario there might also be a significantly different medium to longer-term outcome following some sort of regime change in Iran that could lead to a less isolated and more pragmatic approach to the issues that ultimately led to this war in the first place. This could follow some sort of counter-revolution at one extreme or just more pragmatic leadership at the other. In this scenario the dividend might be the ending of sanctions and Iran's oil and gas returning to all international markets which would naturally lead to a much better domestic economic situation in Iran but also sustained lower energy prices globally. This in turn would lead to further falls in inflation and lower interest rates, lower bond yields and a further equity market rally. ## The worst-case outcome **Probability: 15%** In this scenario talks aimed at delivering a ceasefire fail, Iran continues to block the Straits of Hormuz and the US, probably along with other forces, possibly from the region, have to put boots on the ground to ensure safe passage for oil and gas exports from the Gulf states as well as naval resources in the Gulf to escort shipping through the Straits. This might ultimately be a successful operation, and the Iranian regime might not be able to resist it, or continue to inflict damage on its neighbours' infrastructure, but whilst this sort of military escalation was unfolding the world would worry a lot about this war turning into a much more prolonged and very messy confrontation. Oil prices in this scenario would likely rise to well above $100 a barrel again, gas prices would increase, central banks would continue to fret about inflation and recession, and financial markets would be weak again, probably testing recent lows. Although this scenario would likely not last that long, whilst it was playing out the world would be extremely concerned as would financial markets. In the medium and longer term I suspect that the overwhelming superiority of the forces assembled to counter the Iranian regime would win and achieve the goal of securing safe passage for oil and gas exports. This might then yield a negotiated ceasefire agreement but the journey to that better place would be a much more difficult one. Whilst I was thinking about this war and how politicians, particularly in the UK, have responded to it I couldn't help but notice the duplicity of the response set against the context of the UK's lunatic energy policy. In general politicians here and across Europe, aside from whether they support the US or not, cite the harm higher energy prices are doing to their domestic economies and the wider world. Comments like 'Iran cannot and should not hold the world to ransom' are typical from representatives of the UK government and in his rather odd address to the nation yesterday, Keir Starmer said that the UK's response to this crisis would 'define us for a generation'. What he meant by that I don't know but what he implied using words like 'it's in the British national interest to get the Straits of Hormuz open' is that it's in the British national interest to get energy prices down. Quite how that statement is at all compatible with his government's energy policy which explicitly drives energy prices up, is beyond me. As an economist said in a note I read yesterday, policymakers can see the damage the war is doing to their economies but they seem blind to the damage that they have been doing through the implementation of their energy policies. As the M&S CEO said very recently, non-commodity costs added by the government, such as green levies, network charges and subsidies for renewable projects now make up over half of M&S's total energy bill. He described the situation as 'just not sustainable for UK businesses' and added that high energy costs have nothing to do with the price of oil or gas but are due to government-imposed levies. I can only imagine that the PM hopes that the electorate hasn't yet spotted this duplicity or is just so possessed of a semi-religious belief in his energy policy, that he hasn't yet worked out that his statements and earnest hand-wringing yesterday directly contradict what his government's energy policy does. Either way, his comments yesterday when set against his policies look fundamentally dishonest. On arguably more mundane matters, away from the political noise and the war, I thought that I should mention something which received very little comment in the financial media this week. To give the FT some credit it did cover this story with the headline 'Blockbuster quarter for megadeals' but it largely passed unnoticed elsewhere, and for a blockbuster headline got very little other coverage in the FT. The story concerns the record number of large corporate deals announced in Q1 this year. According to the London Stock Exchange Group, a total of 22 deals valued above $10bn were agreed in the first three months of 2026 across Europe and the US. In total the combined deal value of these transactions amounted to $1.2trn which is an all-time record and follows the two previous quarters in which the total value of all deals also exceeded $1trn. As the FT comments, there's no trace of a risk-off mentality here. Right at the end of March Unilever announced a tie-up between its food business and McCormick, and Eli Lilly and Biogen both announced acquisitions. In the latter case this was for one of the businesses I've written about, Apellis Pharma, which agreed to be taken over for a considerable premium valuing the business at $5.6bn. Whilst some may see this news as peripheral to the more concerning matters in the Gulf, my sense is that the institutions involved in these transactions are looking through the current crisis and expect to see western European and the US economies return to 'normal' in the relatively near future. Sentiments which I share. And in the context of the world moving on, I thought it was interesting today that the top stories on my news feeds were the successful launch of the NASA Artemis II moon mission. It pushed the war and the latest Trump speech off the top spot. Is this the start of what we always see — the world's attention shifting to other things while the crisis grinds towards resolution? If you need a precedent, look at Ukraine. ## What to look out for next week There is not much going on in the UK next week in terms of macro data and corporate results. In the US it's once again a busy week for macroeconomic data including inflation and GDP releases. The attention paid to these releases will be dictated by what's going on in the Gulf and moves towards a ceasefire or escalation. I suspect that these issues will continue to occlude all other news good or bad, but my hope is that by this time next week we will have more clarity on moves to end the war.