By Elwin de Groot, head of macro strategy at Rabobank

A degree of calm seemed to return to energy and financial markets yesterday, helped by tentative signs – reinforced by US and Israeli statements – thatintensified military operations against Iranian targets are degrading Iran’s air defense, missile, and drone capabilities.A US submarine sank an Iranian naval vessel off the coast of Sri Lanka, and, as noted in yesterday’s Global Daily, Kurdish forces appear to have already made limited incursions into Iranian territory.

⭕️This is a crucial indicator of Iran's remaining and degraded capabilities. There has been a consistent and steep daily decline in the number of launches from Iran.pic.twitter.com/GuDmjsSYAs

Still, there is no clear evidence that the regime is nearing collapse.Both Israel and the United States have signalled that their operations will continue for several more weeks. Given the “fog of war,” any firm conclusions would be premature. Indeed, the closure of the Strait of Hormuz – even if it appears to be a narrow maritime problem –could triggera cascading, system‑wide global crisis because modern civilization is built on deep, fragile interdependencies.What begins as an energy supply disruption can rapidly spread through petrochemicals, fertilizers, food production, metals, electricity grids, semiconductors, and ultimately state finances and even public order.

Oil prices are stabilizing in a range of $80–85 per barrel, while the European gas benchmark fell below €50/MWh after touching €65 on Tuesday. These moves are not easily tied to specific events,though Trump’s announcement earlier this week – that the US would insure and secure shipping through the Strait of Hormuz – may have supported sentiment. European equities recovered about 1.5%, and government bond yields nudged lower yesterday, where UST’s saw yields rise by 3–4 basis points across the curve. The decline in European yields was more than reversed in early trading today, after reports of new strikes on Iran dampened sentiment again.

Following the attack on a Cypriot airfield earlier this week, NATO intercepted an Iranian ballistic missile launched toward Turkish airspace yesterday.Its apparent trajectory toward the strategic port of Ceyhan – home to a major oil terminal, highlights the widening risk. As the conflict drags on, the number of “innocent bystanders” is likely to shrink.

Indeed, another noteworthy development is thegrowing willingness of European countries to contribute to regional security. EU foreign policy chief Kaja Kallas already said on Sunday that the EU would reinforce its Gulf naval mission, Aspides, to protect shipping. The list of countries announcing deployments – especially to Cyprus – is expanding andnow includes France (taking a lead role), the UK, Germany, and Greece.Italy is coordinating but has not confirmed deployment, while Dutch mediareportthat the Netherlands is also sending a naval vessel.

And, asEuropean leaders try to find the right posture given the developments in the Gulf region, the EU is also trying to make further advancements in other parts of its strategic autonomy agenda.

First, the EU indicated it does not expect the US to raise its universal tariff on EU exports from 10% to 15% this week, despite Treasury Secretary Scott Bessent signalling the increase was imminent. According to Bloomberg, citing individuals familiar with the matter, the EU has received assurances that the US will maintain the 10% rate for the bloc. EU lawmakers have therefore kept the ratification process on hold pending further clarity from Washington and plan to reconvene on 17 March.

A central question, however, is whether the US can legally offer preferential tariff treatment to any specific country or bloc. The current framework is being applied uniformly, and existing exemptions cover only narrow categories of goods. While legal interpretation is ultimately for experts, the statutory language behind Section 122 tariffs supports temporary, non‑discriminatory surcharges – not country‑specific relief. Any deviation could expose the administration to legal challenges, and if courts adhere to the original intent of Section 122 (addressing balance‑of‑payments risks), preferential exemptions may trigger broader complications.

Source: ZeroHedge News