Xingzheng Wang Han: Seven judgments on the first stage of the US-Iran conflict

# Wang Han, Industrial Securities

Wang Han of Industrial Securities believes that the first-phase strategic objectives of the US and Israel have failed. The Iranian regime remains stable, and the two sides are locked in a stalemate, with time favoring Iran. In the short term, the US and Israel will intensify their strikes, risking a repeat of the "escalation by increments" strategy seen in the Vietnam War. The situation in the Strait of Hormuz will keep oil prices elevated. Geopolitical risks are spilling over to South Asia, Eastern Europe, East Asia, and China-US relations.

This article is compiled from Dr. Wang Han’s conference call on March 16.

In our February 28 conference call, we noted that attacking Iran was a high-stakes gamble for the US and Trump—if Iran withstood the initial wave of strikes, the US and Trump could face an even more passive strategic position. Given recent developments in the Middle East, it is time to take stock of the situation:

## I. The US and Israel Have Failed to Achieve Their Initial Strategic Goals

Strategically, since the outbreak of hostilities, Iran’s regime has not only survived the first wave of attacks but has also seen hardliners consolidate power following leadership changes. The US and Israel’s goal of quickly overthrowing the Iranian regime has been dashed. While tactically the US and Israel still hold an advantage, the conflict has entered a stalemate of “strong but unable to win, weak but hard to collapse.” As the aggrieved party, Iran only needs to maintain regime stability to gradually turn the tide—time is on its side.

## II. The US and Israel Will Likely Intensify Strikes on Iran in the Short Term

For Trump, launching the war against the wishes of MAGA and Silicon Valley right-wing forces has already incurred heavy political costs. A premature withdrawal (TACO) would lead to severe political consequences, making further military escalation highly likely. Bipartisan consensus also supports escalation: despite pre-war divisions, a humiliating US retreat would severely damage America’s global influence, which benefits neither party. Democrats, in particular, hope the stalemate will erode Republican support. Congress’s lack of substantive opposition to Trump’s military actions confirms this domestic consensus. In the short term, the US and Israel will almost certainly step up aerial bombardments, with a gradual “escalation by increments” of ground forces possible. Given Iran’s population, territory, and military strength far exceeding Ukraine and Vietnam, the risk of the US repeating the Vietnam-era “escalation by increments” strategy—starting with limited troops and gradually committing more, ultimately sinking into a protracted quagmire—is rising.

## III. Two Scenarios for Strait Blockade; US-Iran Focus on Securing Third-Party Support

Iran’s preferred scenario is to dominate navigation rules in the Strait, thereby undermining US influence in the Middle East. For the US and Israel, if they cannot fully eliminate Iran’s interference with shipping, they may conduct **false flag operations** to attack vessels of other countries and damage Iran’s relations with them.

In essence, neither side seeks a simple blockade; both aim to sway third-party positions. Iran seeks to “set rules” in the Middle East to demonstrate US decline, while the US and Israel aim to isolate Iran by highlighting its threat to maritime security.

Most countries have yet to take sides. China urges a ceasefire and supports Iran’s stability while warning against conflict spillover. Europe’s stance hinges on its assessment of US chances of victory. Arab nations prioritize avoiding becoming frontlines: they may align with the West if the US and Israel prevail, but lean toward Iran to expel US military presence if the US shows fatigue.

## IV. Oil Prices Likely to Remain High; Watch for Differences Between the Two Scenarios

As both sides have incentives to enforce a blockade, energy supply tightness will persist, and oil prices are unlikely to fall significantly soon. The key question is whether Iran imposes a “structural” blockade under its dominance via geographic advantage, or the US and Israel orchestrate a comprehensive blockade through “muddying the waters.”

These scenarios will have divergent impacts on regional oil prices. A structural blockade could lead to price divergence between WTI, Brent, and Shanghai crude, with Shanghai prices rising more moderately and potentially spurring demand for RMB-denominated oil re-exports. A comprehensive blockade would likely trigger a synchronized global oil price surge.

## V. Rising Risk of Spillover; Monitor Four Key Directions

1. **South Asia**: India and Pakistan rely heavily on Middle Eastern energy; Pakistan is a critical transit route for Iran. A US quagmire in Iran increases the risk of Indian military adventurism against Pakistan.

2. **Eastern Europe**: To contain Russia, the intensity of the Russia-Ukraine conflict may rise, and NATO pressure in Eastern Europe (e.g., Serbia) could increase.

3. **East Asia**: Disrupted energy supplies raise domestic political pressure in Japan; the US may seek Japanese coordination. Watch for unexpected negative outcomes from Kishida’s recent US visit.

4. **China-US Relations**: Stalled in the Middle East, Trump may “invent issues” in trade and geopolitics, increasing uncertainty in bilateral relations.

## VI. A-Shares: Strategic Optimism, Tactical Contrarianism

Strategically, the US’s Middle East predicament further confirms the decline of US hegemony, boosting confidence in China’s great-power competition. Additionally, the leadership’s firm commitment to stabilizing domestic capital markets and supporting policies provide a solid foundation for A-share resilience. Pessimism toward A-shares is unwarranted.

Tactically, a contrarian approach is advisable. Markets inherently dislike risk; intensified US strikes (e.g., more bombings, ground troops) could elevate risk aversion. Iran’s tactical disadvantage means its strategic advantages take time to materialize, prompting short-term capital to seek safety. Buying on excessive pessimism and reducing positions during irrational exuberance—countercyclical positioning—better navigates near-term volatility.

## VII. Three Key Monitoring Points Ahead

1. **USD and Gold**: As discussed in the February 28 call, a strengthening gold price and weakening USD signal market consensus of US strategic failure, benefiting RMB assets.

2. **US Midterm Elections**: Prolonged war may hurt Republican support, increasing intra-party pressure for a ceasefire before elections; Democrats will oppose this. If the war drags on past elections, partisan dynamics may reverse, reshaping US electoral politics.

3. **Trump’s Security and US Infighting**: If “US defeat is inevitable” becomes mainstream, bipartisan consensus may emerge to blame Trump for the quagmire, raising his personal and political risks. Radical, risky actions by Trump cannot be ruled out.

Source: Wang Han on Macro

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