Latest Developments in Middle East Conflict — "The Risk of Endless War Continues to Rise"

President Trump of the United States campaigned in the 2024 presidential election with the slogan “America First” and promised “no wars.” However, just over a year later, the U.S. is deeply involved in multiple military conflicts, with the ongoing Iran war being the largest to date. This is a war initiated by Trump himself, without support from Congress or NATO allies. The conflict has lasted several days, and the U.S. government is still working to present a coherent response to the strategic intentions behind it.

The upcoming midterm elections in November pose potential risks for the Trump administration due to the lack of strategic clarity. Prolonged military actions—rather than the initially envisioned quick resolution—will disrupt global supply chains and drive up inflation, at a time when the American public faces an increasingly severe crisis of purchasing power. More importantly, involvement in another “perpetual war” similar to Iraq could lead to U.S. taxpayers bearing approximately $2.9 trillion in military costs. Given the record-high U.S. national debt, this expenditure is not easy to manage.

Iran has explicitly stated it will not negotiate with the U.S., and considering the extreme lack of trust between the two countries, this is not surprising. So, how long will this conflict last? Based on current developments, the outlook is not optimistic. There are two main reasons: (1) Trump demands Iran’s “unconditional surrender” and insists on “participation” in selecting the next leader (similar to Venezuela), which effectively amounts to regime change; (2) with the midterm elections approaching, Iran likely believes that if the U.S. government has limited tolerance for rising energy prices and inflation, it can win through a war of attrition. Before Trump softens his rhetoric and demands, Iran’s proactive continuation of the war cannot be ruled out.

The supply shocks causing energy prices to surge will continue to fuel inflation expectations. Meanwhile, consumers are facing a purchasing power crisis, and high debt levels in developed economies limit government fiscal options to support economic growth. During this highly uncertain period, investors should appropriately allocate assets such as short-duration investment-grade corporate bonds, gold, and hedge funds to diversify portfolio volatility risks.

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