U.S. and Iran head back toward conflict as markets swing and Congress waits

After the midterms: political momentum vs. the calendar

Expectations that the conflict might wind down rose after Democrats won decisive majorities and said they will try to force an end to the war through a war powers resolution. But the new Congress takes office in January, and any such measure would still face a presidential veto.

On Friday, Helima Croft, who leads RBC Capital Markets' global commodities team, told clients: "Throughout the week, we were struck by the divergence between deepening escalation concerns in the Gulf and the headline driven off-ramp optimism of market participants thousands of miles away."

One more wrinkle hit markets: over five sessions, crude fell more than 16 percent after Vice President JD Vance blamed Republicans' stinging loss on the war, stoking doubts about whether the administration still backs continuing the conflict.

Escalation on the water and at the Pentagon

Security incidents kept piling up. In the days after the vote, several oil tankers were attacked near Oman, killing one seafarer, maritime security agencies reported. Missile fire into Saudi Arabia by Iran's Houthi allies in Yemen has also continued.

The U.S. is adding muscle, with a third carrier strike group heading to the region. Rapidan Energy puts the odds of fighting resuming at 80 percent as diplomacy stalls.

Since the election, Tehran has been needling Washington. An update on Mojtaba Khamenei, Iran's Supreme Leader's, social media page declared the "process of the U.S.'s collapse has accelerated" after the midterm results.

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Oil, prices at the pump, and the risk setup

Prices point both ways. Even after that more-than-16 percent slide, Brent was trading above $97 on Friday and U.S. crude was around $90. Bob McNally, who runs Rapidan and previously advised President George W. Bush on energy, said renewed fighting would send crude back above $100 a barrel. He told CNBC that "President Donald Trump is determined as a legacy item, almost at all costs, to prevent Iran from getting a nuclear weapon, having them give up their nuclear capabilities," while "The Iranian regime, on the other hand, is not willing to do it."

Amos Hochstein, who once served as President Joe Biden's energy adviser, said the risk of war persists, particularly because Trump no longer has elections ahead. He added that, if fighting picks up again, prices for gasoline, diesel and jet fuel would all rise.

Diplomacy, funding leverage, and what to watch next

Diplomatic feelers are out, but signals are mixed. Qatar's state news agency said Trump spoke Friday with the emir about efforts to lower tensions. A senior Iranian official told Reuters that a nuclear proposal was transmitted by Tehran to the U.S. via Qatar, and that talks will follow only once Washington fulfills its conditions. Trump dismissed the outreach Thursday, saying, "Iran will never have a nuclear weapon," and, on diplomacy, "They're not doing anything without our approval. It doesn't make any difference what they're looking at."

Trump told reporters Thursday he will decide soon whether to strike Iran again. "I would rather not destroy the rest of the country if possible but maybe I'll have to," he said in the Oval Office. "You'll know soon enough." He added, "We're locked and loaded," and, "If we have to do the rest of the Iran thing, we're very much locked in."

Back in Washington, Croft said Congress's real leverage is the purse. The current spending authority runs out on Dec. 11, and she pointed out that talks on yet another continuing resolution might extend into 2027, boosting Democrats' leverage when they assume power in January. "Importantly, deferring funding decisions would not immediately constrain Trump's ability to conduct military operations, but could significantly reshape the administration's longer-term funding outlook," she wrote.

For portfolios, here is the setup: attacks at sea, a U.S. buildup, sharp rhetoric, and an 80 percent war risk call alongside Brent trading above $97 and U.S. crude around $90. If fighting resumes, McNally sees oil clearing $100 and Hochstein expects fuel prices to jump, which would ripple through energy, airlines, shipping, and inflation expectations. Track three levers into January - the funding timeline, the war powers push, and any movement on the Qatar channel - because those will shape both the path of conflict and the price deck investors trade against.

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