Traders on Polymarket assign a 27% chance the US launches a ground invasion of Iran before 2027, while a separate market prices a 19% chance of an effective ceasefire by the end of the month. A nuclear deal by the end of the year is priced at 33%. These probabilities emerge amid reports that President Donald Trump initiated the conflict believing the regime would collapse rapidly, a claim detailed in a new book by New York Times reporters Jonathan Swan and Maggie Haberman titled "Regime Change: Inside the Imperial Presidency of Donald Trump."

Market Probabilities and Economic Impact

The prediction markets offer a specific view on the duration and escalation of the conflict. The ground invasion contract resolves yes only if US forces commence an offensive intended to establish control over Iranian territory. Meanwhile, the economic implications are being tracked closely, with May CPI at 4.2%. Traders on Polymarket now price a 59% chance the Fed hikes rates this year.

Sector Performance and Valuations

The potential for prolonged conflict and elevated oil prices, with Brent above $91, creates a divergent outlook for equities. This environment may favor Exxon Mobil (NYSE: XOM) and Chevron Corp (NYSE: CVX). Conversely, high-multiple names such as Palantir Technologies (NASDAQ: PLTR) and Tesla Inc. (NASDAQ: TSLA) face pressure, as their valuations rely heavily on future earnings that are discounted more heavily in a rising rate environment.

Defense stocks have not provided the expected hedge for traders. Lockheed Martin (NYSE: LMT) hit an all-time high near $692 in March during the escalation but has since surrendered most of those gains following a disappointing first-quarter report.

Ret. Lt. Gen. Keith Kellogg, the former U.S. Special Envoy for Ukraine and Russia, has called for a reshuffle in the American negotiating team handling the Iran conflict. During an appearance on Fox News Channel's 'America Reports,' Kellogg argued that the current team lacks the necessary toughness and should not be populated by 'real estate guys.' He emphasized the need for 'real hardcore' personnel capable of managing the evolving situation effectively.

Kellogg, who served as National Security Advisor on an acting basis in 2018 and 2019, outlined a multi-pronged strategy to increase pressure on Iran. He suggested that airstrikes alone would not be sufficient to settle the conflict. Instead, he proposed the deployment of ground troops to secure strategic targets, arguing this would provide the President with leverage and control over Iran's economy. 'You’re going to need ground troops to do something. That doesn’t mean they go all the way to Tehran,' Kellogg stated.

The former envoy recommended that the U.S. seize Iran's Kharg Island and another strategic island to the east. This move, he argued, would disrupt the majority of Iran's energy exports and grant the administration significant leverage. Additionally, Kellogg urged the continued targeting of key Iranian leadership and strategic assets to instill fear within the regime and weaken the Islamic Revolutionary Guard Corps (IRGC).

Support for Iranian opposition groups seeking to overthrow the current regime was another key element of Kellogg's roadmap. He suggested providing special operations assistance, similar to operations in Afghanistan. Kellogg also called on President Donald Trump to make the case directly to the American public, framing the prevention of a nuclear Iran as vital to avoiding a regional arms race and protecting future generations.

Kellogg's recommendations align with recent sentiments from other former Trump administration officials. Former Defense Secretary Mark Esper warned that relying solely on aerial strikes might not lead to victory and suggested focusing on economically 'strangling' the Islamic Republic. Similarly, former National Security Advisor John Bolton argued that the U.S. should prioritize dismantling the IRGC, citing recent attacks on U.S. bases and the deaths of American service members as justification for a broader campaign aimed at regime change.