The focus shifts to Tehran's next move after the United States bombs Iran.

We believe that Iran will take military response, as its leadership must take action politically. Iran mainly has two options: precise targeted retaliation against American assets to show that Iran has responded, but to avoid triggering a harsher military retaliation by the U.S. This is similar to Iran's reaction after the U.S. killed General Qasem Soleimani in 2020. Subsequently, both sides may de-escalate the situation through negotiations. A large-scale retaliation may include targeting American military personnel and assets in the region, energy facilities in the Gulf region, and may even take unprecedented actions such as using mines to block the Strait of Hormuz or harassing passing ships. Currently, it is still in the early stages, but our initial assessment is that Iran will be cautious to trigger a war escalation that it knows it cannot win. Although it is difficult to determine the extent of damage to Iran's nuclear program, Tehran seems to be downplaying the impact of the attacks, indicating a more likely precise targeted retaliation against the U.S. However, whether this will lead Iran and Israel to take the path of conflict de-escalation is another question. In the extreme scenario of the Strait of Hormuz being blocked, crude oil prices could soar to over $130 per barrel, which would drag down global growth and push up consumer prices. We estimate that this could bring U.S. CPI inflation close to 4% in the summer - well above the Fed's comfort zone. For the Fed and other central banks, concerns about losing control over inflation expectations will make it difficult for them to ignore this impact, thereby delaying the timing of further rate cuts. Iran is militarily inferior to Israel and cannot compete with the U.S. Even so, as a country with nearly 90 million people, nearly $450 billion GDP, and a large amount of weaponry, Iran remains a powerful opponent that poses risks to American interests. Israeli citizens are also not accustomed to consuming war. Trump seems to believe that attacking Iran's nuclear program is a necessary step to ensure peace. However, the lessons from past U.S. interventions in the Middle East show that the consequences are difficult to predict and even harder to control.