Ongoing military tensions between Israel and Iran, including recent strikes, stalled U.S.-mediated talks, and Iranian missile activity in the Strait of Hormuz, underpin the 98% trader consensus against embassy reopening in 2026. Direct diplomatic relations have been absent for decades amid proxy conflicts, nuclear disputes, and leadership disruptions that have complicated negotiations. Recent developments, such as Iranian offers for regional mediation alongside rejections of broader deals and Israeli signals of potential further operations before elections, reinforce expectations of continued hostility rather than normalization. A verifiable ceasefire with formal diplomatic restoration before year-end remains the primary low-probability path that could shift outcomes, though current evidence points to persistent barriers.