Good morning. For decades, the U.S. and Iran have waged a shadow war across the Middle East following a rule understood by both sides: If you hit us, we will hit back, at least as hard.

But as the Biden administration prepares to retaliate for a drone strike by Iranian-backed militias that killed three American soldiers last weekend, the calculations of the two longstanding adversaries has changed. Neither Washington or Tehran appears eager for a direct military confrontation.

• Complex calculations: For the Biden administration, hitting Iran’s paramilitary forces risks a counterstrike against American troops or Middle East bases by Tehran’s formidable arsenal of advanced missiles and drones, expanding the war in Gaza between Israel and Hamas into a wider regional conflict that the White House is seeking to avoid in a presidential election year. For Iran, the calculation is at least as complex.
   
• Red lines: “Each side is trying to calibrate the use of force as a way of trying to change the behavior of the other side, but they don’t want to cross red lines,” said Gerald Feierstein, a former U.S. State Department official and a senior fellow at the Middle East Institute, a Washington think tank.
   
• Strikes coming: Biden has approved plans for multiday strikes in Iraq and Syria against multiple targets, including Iranian personnel and facilities, according to U.S. officials. But the response, expected to begin as soon as this weekend, will be “tiered,” mixing military actions with other steps that can be adjusted to signal that Washington doesn’t seek further escalation.

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Ad agency Publicis Health to pay $350 million over opioid marketing.

Publicis Health, part of ad giant Publicis Groupe, has agreed to pay $350 million to settle claims that its advertising campaigns for Purdue Pharma played a role in the opioid crisis, according to the office of New York State Attorney General Letitia James.

The agreement also prohibits Publicis from accepting any future contracts or engagements related to the marketing or sale of opioids, James said in a statement on Thursday. Publicis must pay the settlement within 60 days and release hundreds of thousands of documents detailing its past work for Purdue, according to the statement. The total will be divided among all 50 states as well as the District of Columbia and U.S. territories, according to a spokeswoman for James’s office.

U.S. imposes sanctions on Israeli settlers involved in West Bank attacks.

The Biden administration has announced a new set of sanctions against Israeli settlers and others it deems responsible for attacks on Palestinians in the West Bank, as concerns grow in Washington that the Israeli government hasn’t done enough to curb the violence.

Since the Oct. 7 Hamas attacks in Israel and the outbreak of the war in Gaza, attacks by Israeli settlers on Palestinians in the West Bank have doubled, according to the United Nations. Armed settlers in uniforms have shown up in Palestinian villages threatening to kill those who don’t leave, say residents, Israeli peace activists and the U.N.

• Tesla is recalling more than two million electric vehicles in the U.S. over problems with warning lights, its biggest to date and the latest in a series of setbacks for the automaker.
   
• The case that brought down Elon Musk’s multibillion-dollar pay package at Tesla was driven by a lawyer who spent decades representing big companies like Goldman Sachs and 21st Century Fox, and a shareholder who played drums in a heavy-metal band.
   
• Facebook parent Meta Platforms continues to grow despite regulatory challenges and child-safety concerns.
   
• National residential real-estate brokerage Keller Williams Realty on Thursday reached a $70 million settlement in a class-action lawsuit alleging the industry conspired to keep prices high, the latest sign that real-estate companies are eager to resolve litigation that has put the entire industry in peril.

A pillar of global trade is under attack.

The modern economy rests on a rule so old that hardly anybody alive can remember a time before it: Ships of any nation may sail the high seas.

Suddenly, that pillar of the international order shows signs of buckling.

In the Red Sea, Houthi rebels have stormed onto cargo ships, causing freight rates to quadruple and setting a precedent that American vessels aren’t welcome across one of the world’s most vital transport lanes. Russia’s invasion of Ukraine has turned the Black Sea into a gauntlet of warships and mines, navigated by grain-laden bulk carriers sailing under the fragile consent of two warring states.

• U.S. Hits Houthi Targets in Yemen, Citing Threat to Ships

• The Bank of England left its key interest rate unchanged but signaled it is likely to lower borrowing costs this year for the first time since 2020, though perhaps not as soon as investors expect.
   
• Procter & Gamble was dealing with a security incident at a factory in Turkey after a gunman entered the facility in an apparent protest over the continuing conflict in Gaza.
   
• China has pushed a group of state-linked companies to buy exchange-traded funds, part of an effort to boost stock prices. So far, it isn’t working.
   
• Shares of the WuXi family of companies extended losses Friday amid concerns that a proposed bill in the U.S. would block the U.S. government from doing business with some Chinese biotechnology companies due to alleged military ties.
   
• The U.S. today is a very different place than boom-era Japan or China. But both should serve as obvious, painful counterexamples to the idea that “stocks always go up in the long run” or “it doesn’t matter when you buy.” Sometimes, it does.
   
• Exxon Mobil and Chevron banked their second-highest annual profits in a decade last year, riding strong oil demand to solidify their standing among America’s most prosperous companies despite mounting risks.

• Earnouts in M&A deals are on the rise as companies look to close the gap between what buyers want to pay and what sellers think they are worth.
   
• Weak cargo demand, rising labor costs and higher interest rates are challenging freight upstarts.
   
• Publicly traded biotech companies are drawing interest from venture investors as share prices in the sector have fallen.
   
• Need your employees to learn AI? There’s AI to teach them.

• Apple posted a sales increase for the all-important holiday quarter, ending a recent slump. Amazon.com also had strong e-commerce sales during the holiday shopping season.
   
• Amazon reported strong growth in sales and profit for the end of last year as robust holiday spending online helped extend its recovery from a postpandemic slump.
   
• Universal Music Group's songs were gone from TikTok Thursday after the world’s largest music company said it failed to reach a contract to license its music to the app.
   
• One of America’s hottest commodities is probably in your trash.
   
• Zoom Video Communications will cut almost 2% of staff, the latest in a string of tech-industry layoffs in recent weeks. Okta is laying off 400 employees.
   
• McKinsey, which has long been at the pinnacle of the consulting profession, is struggling to run its own shop.

Follow us on X at @WSJRisk. Follow Risk & Compliance editor David Smagalla @DSmagalla_DJ and reporters Mengqi Sun @_MengqiSun, Dylan Tokar @dgtokar and Richard Vanderford @VanderfordRich.

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