Risk of escalation outweighs the likelihood of a deal

Conflict update:As the war enters its second month, the conflict presents a mixed picture, with peace negotiations and military escalation occurring at the same time. Shortly after Trump announced negotiations with Iran, hostilities intensified during the weekend. Israel launched massive strikes causing widespread power blackouts in Tehran and damaged an Iranian nuclear plant. Iran retaliated with waves of ballistic missiles and drones and direct strikes on smelters in the UAE ad Bahrain. In the same vein, the US continues to send more troops for a potential ground operation while Pakistan has become the most active intermediator in the ongoing talks.Oil and gas:Brent crude has fluctuated markedly but remains elevated and most analysts expect further hikes or stay high for longer if the disruptions in the Strait of Hormuz remain in placeCDS:The CDS market followed a similar pattern, with spreads briefly tightening on the positive negotiation news. This correction quickly stopped, however, once the market realized the inconclusive and contradictory nature of the ongoing diplomatic efforts.Stock/other Market:Oman maintains its outperformance, serving as a clear market hedge due to its geographical advantage outside the conflict zone. Investment flow:     Since the war broke out, foreign investors have sold $1.2 billion of GCC shares between Feb 28 and March 22. This is not noticeably different from other crisis periods, at least so far. The selling pressure is coming more from institutions with retail investors buying the offloaded shares.Real economy:     Despite Iran’s claims that the Strait of Hormuz is conditionally open, shipping and airline data show no clear recovery. Kpler reports only 32 vessel transits from March 23–29, versus over 100 per day before the war.