Pentagon told to prepare Iran strikes as Trump weighs when to act

Any fresh major combat aimed at Iranian energy infrastructure would affect oil in two ways — a direct loss of Iranian supply and a renewed danger to Gulf shipping and flows through the Strait of Hormuz, which are already under pressure following Wednesday's tanker attack north of Qatar. That points to a stronger war-risk premium in crude even before any decision is taken, with Brent especially reactive to headlines in the coming three to four weeks. Higher oil prices would directly add to the inflation worries noted in this week's Fed minutes, reinforcing the argument for additional US rate increases and supporting the dollar. Gold and other safe-haven assets would probably gain, while Israeli holdings and Asian economies that import energy appear most vulnerable to escalation.

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The US has prepared the possibility of resuming conflict with Iran, and the decision on when to act now cuts across two election cycles and the price of crude.

The Axios report summarises the following:

• Several days ago, the Pentagon directed US Central Command to prepare for a possible resumption of major combat in Iran, according to US officials cited by Axios.
• No date for strikes was given, and Trump has yet to decide. US and Israeli sources indicated action might occur before the US midterm elections.
• A new campaign would probably include heavy bombing of Iranian energy, infrastructure and nuclear sites, with Israeli involvement likely.
• Diplomatic talks between the US and Iran have made no progress. Qatari mediators are still waiting for Iran's response to a US counterproposal that includes nuclear demands.
• Trump and Netanyahu spoke on Wednesday, their second call in recent days. One Israeli official said the likelihood of action before the elections was low but increased significantly after.
• Israeli officials warned that Iran might strike first, worried about a third unexpected attack.

On Wednesday, Axios reported, citing US officials, that the Pentagon has ordered US Central Command to finish preparations for a possible resumption of major combat in Iran, while President Trump considers if and when to restart the war.

The order, given several days ago, did not set a date for attacks, and Trump has not reached a final decision. But US and Israeli sources said to Axios that strikes could occur before the US midterms, and possibly before Israel's elections, which are scheduled one week earlier. The Atlantic reported earlier Wednesday that Trump was weighing strikes on Iran before the midterms.

The sources expect any fresh campaign to involve heavy bombing of Iranian energy, infrastructure and nuclear facilities, with US and Israeli forces likely cooperating. A Pentagon official stated that the department's job is to create military options for the president, while a White House official said all options are still on the table. The same White House official claimed the US has a strong position, pointing to its control of the Strait of Hormuz and economic pressure on Iran.

Diplomacy seems stalled. Talks between the US and Iran have advanced not at all, and Qatari mediators still await Iran's reply to a US counterproposal that called for nuclear concessions. Trump's national security team gathered at Camp David on Friday, and an Israeli official indicated that part of the meeting addressed a potential return to major combat. Secretary of State Marco Rubio said the gathering was concentrated on long-term foreign policy planning.

Communication between US and Israeli leaders has also stepped up. Trump spoke with Israeli Prime Minister Benjamin Netanyahu on Wednesday, their second conversation in a short time after weeks of sparse contact. A US official said they talked about the anniversary of the 7 October attack. The call came after Netanyahu met with his security cabinet regarding Iran.

A separate Israeli official said that talk of renewed operations has grown, estimating the probability of action before the elections as low but not impossible, and much higher after the US vote. Israeli officials also cautioned that Iran's leadership might launch a first strike, having already endured two surprise attacks. Any Iranian response would probably include a major missile barrage against Israel. Axios noted that increased tension could change the final phase of Israel's election campaign, with any choice and its effect on oil markets likely to dominate the weeks ahead.