• President Trump canceled a planned military strike against Iran late Thursday, opting instead to pursue a negotiated path with Tehran and Gulf allies.
  • Oil prices and stock futures swung wildly on the news, reflecting investor uncertainty about the volatile Middle East landscape.
  • The decision to hold fire, while maintaining military readiness, signals a tactical shift aimed at avoiding a broader conflict.

A Last-Minute Reversal

President Donald Trump called off a planned strike on Iranian targets Thursday evening, according to two people familiar with the matter, opting for a diplomatic approach after a day of intense deliberations. The operation, which had been in advanced stages, was scrapped after Trump weighed the risks of a military escalation against the potential for a negotiated settlement.

“The president has decided to pause and give diplomacy a chance, but the military option remains very much on the table,” a senior administration official said, speaking on condition of anonymity. The White House did not immediately respond to a request for comment.

Gulf Allies Urge Restraint

The reversal was influenced by appeals from Gulf allies, including Saudi Arabia and the United Arab Emirates, who warned that a strike could destabilize the region and disrupt oil shipments through the Strait of Hormuz. Regional mediators have been shuttling between Washington and Tehran in recent weeks, pushing for a framework to curb Iran’s nuclear and missile activities.

“The Gulf states made it clear that a military response would be catastrophic for everyone,” said a consultant advising the Saudi government. “They urged Trump to give talks a real chance.”

Markets React

Financial markets initially rallied on the news, with Brent crude futures falling as much as 3% on hopes of de-escalation, before paring losses as traders digested the fragile state of negotiations. The S&P 500 index edged higher in after-hours trading, though gains were muted by lingering uncertainty.

“It’s a classic risk-on, risk-off environment,” said a senior macro strategist at a New York hedge fund. “Any credible sign of diplomacy is positive for risk assets, but the threat of renewed conflict means oil premiums will stay elevated.”

A Fragile Path Forward

Talks are expected to resume in the coming days, with Qatar and Oman playing lead roles as intermediaries. However, Trump has made clear that the window for diplomacy is limited. In a tweet Friday morning, he wrote: “Iran should take this opportunity seriously. If not, they will face consequences the likes of which few have ever seen.”

Iran’s Foreign Ministry issued a statement welcoming the pause but warning that “any military aggression will be met with a decisive response.” The regime has signaled willingness to discuss its nuclear program, but insists on the lifting of sanctions as a precondition.

Industry Implications

A prolonged diplomatic process could ease near-term oil supply fears, but analysts caution that the risk of disruption remains high. The U.S. has maintained a naval presence in the Persian Gulf, and the Pentagon has kept strike assets in the region on high alert.

For private credit and infrastructure investors, the situation underscores the importance of geopolitical risk premiums in energy and transport assets. A Reuters poll published Friday showed that 60% of economists expect oil to average above $80 a barrel in the second half of 2026, partly due to Iran tensions.

Correction: An earlier version of this article misstated the timing of the planned strike. The operation was slated for 8 p.m. local time Thursday, not 9 p.m. We regret the error.