Iran Attacked Israel. Why Did Our Scenarios Not Collapse?

Genevieve Signoret & Delia Paredes

(Hay una versión en español de este artículo aquí.)

In our latest Quarterly Outlook, we identified three scenarios for 2024–2025 and 10 tail risks among which one, “direct military involvement [in the Gaza War] by Iran”, as written, was violated over the weekend. And, last August, in our primer on tail risks, we defined such a risk as one fulfilling three criteria:

1. It is highly unlikely.
2. We can imagine it; it is on our radar.
3. Should it come to pass, it would cause our entire forecast structure to collapse; we’d have to build all new scenarios.

Notice criterion number 3: Should it come to pass, it would cause our entire forecast structure to collapse; we’d have to build all new scenarios.

Given how we articulated the tail risk of an Iranian attack on Israel, by this criterion, the events of last weekend should have caused our entire forecast structure to collapse; we should be building all new scenarios. Yet we hold to our scenarios. Why?

We did not articulate the tail risk with sufficient care. A single attack by Iran that stops there, does not lead to escalation, in fact does not suffice to wreck our forecast framework.

Today, therefore, we refine our articulation of the assumption that rules out that tail risk, as seen below within the full list:

Assumptions Common to All Our Global Macro Scenarios (Exercise by Which We Assume Away Tail Risks)

1. The Gaza War will not lead to direct military involvement by Iran. Any direct involvement by Iran in the Gaza War will be take place in the shadows or fail to seriously escalate.
2. No new pandemic will break out.
3. War will not break out over the Taiwan Strait.
4. No cyber terror attack will paralyze the world economy for an extended period.
5. No major world leader will be assassinated.
6. Trump will not trigger a constitutional crisis.
7. AMLO will not trigger a constitutional crisis.
8. It will take China several years to resolve its twin debt crises.
9. Putin will stay in power throughout the forecast period.
10. The Russia–Ukraine War will persist throughout the forecast period.