Will the US-Iran War End Soon? What ICRG Risk Ratings Say About Future Market Volatility

President Trump has suggested that the US-Israel conflict with Iran could be resolved soon, though he qualified his statement by stating that it wouldn’t be within the current week. This makes sense from a political and logical perspective, as Trump likely offered the markets a temporary respite from extreme price action in the oil and equity markets. When speaking to Republican lawmakers, he emphasized that while the US had already won in many ways, they needed to achieve “ultimate victory” and go “further.”

However, there’s a disconnect between Trump’s rhetoric and the risk metrics provided by the PRS Group. Their 22-variable risk model highlights three critical “blind spots” in the current administration’s narrative:

1/ The “Regime Risk” Vacuum: Trump has dismissed Iran’s new leadership under Mojtaba Khamenei as “unacceptable.” However, decapitating leadership without a defined succession plan triggers a “regime risk shock” that historically leads to long-term capital flight, regardless of short-term military outcomes.

2/ Strategic Shipping Vulnerability: Despite threats of retaliation, the threat to the Strait of Hormuz remains a systemic risk. ICRG’s Middle East External Conflict scores have moved into “high-risk” territory, and historically, this precedes a 20% spike in Brent Crude volatility, acting as a hidden tax on global production.

3/ The Sovereign Spread Lag: The administration predicts that a booming economy will offset war costs. However, our data suggests that a 10-point drop in a country’s ICRG rating correlates with an average increase in sovereign bond spreads of 106 basis points. This structural “cost of risk” is already being baked into the markets, despite the optimistic headlines.

The disconnect between political optimism and quantitative risk is the root cause of market volatility. By disregarding the structural ‘cost of risk’—ranging from sovereign spreads to energy transit stability—the administration is placing its faith in an optimistic scenario that the data simply cannot support. As we approach the upcoming quarter, investors must choose between capitalizing on the shifting tides of political messaging or being anchored by the unwavering gravity of ICRG risk scores. Stability is not merely the absence of conflict; it is the presence of a resilient political and economic framework—a framework that is currently displaying red flags.

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CHRISTOPHER MCKEE, PHD CHIEF EXECUTIVE

Christopher McKee is PRS’ CEO and Owner. An international political economist, global investor, entrepreneur, and author, Chris received his PhD from Queen’s University (Canada) and has been involved in the field of geopolitical risk, limited recourse financing, and private sector development for the past 25 years.