Ongoing hostilities between Israel and Iran, including U.S.-backed Israeli strikes that killed Supreme Leader Ayatollah Ali Khamenei in February 2026 and subsequent retaliatory exchanges, have eliminated any near-term prospect of diplomatic normalization. Formal ties have remained severed since 1979, with Iran maintaining a policy of non-recognition and support for regional proxies opposed to Israel. Recent failed ceasefire attempts and renewed tensions over the Strait of Hormuz have reinforced trader consensus reflected in the 98% probability assigned to no embassy reopening this year. While a dramatic shift such as comprehensive regime change in Tehran or an unforeseen bilateral agreement could theoretically alter the trajectory, structural barriers including mutual security doctrines and ongoing military operations make such developments improbable within the remaining months of 2026.