If you’ve realized that keeping up with the trajectory and ramifications of the war in Iran can become a full-time job, join the club. Each day, information descends like an avalanche. Writing this post has helped me sort stuff out. Here’s hoping that it will help you as well. I’d be curious about your views and have therefore kept the comments section open.
Diplomacy is MIA:
Not surprisingly, the single biggest barrier to getting clarity on what’s happening in this realm has been…Donald Trump, particularly his barrage of wild-eyed late-night social media posts and free-association-filled comments to the press. The latter include gems like the claim that the Strait of Hormuz will be kept open by “me and the Ayatollah” and the insistence, in the same breath, that “there’ll also be a very serious form of regime change.” Trump insists that Iran has been pummeled so badly that it’s all but begging for talks and that his administration has been in contact with Iranian officials. He won’t say who they are, on the grounds that their lives would be endangered. But if they’re so vulnerable, what does that say about their clout within Iran’s power centers?
Two Iranian leaders have been particularly prominent in the public realm (though, by all indications, the Islamic Revolutionary Guard Corps–perhaps along with the army–is calling the shots, literally and metaphorically, following Ayatollah Ali Khamenei’s assassination). The pair are foreign minister Abbas Aragchi and parliamentary speaker Mohammad-Bagher Ghalibaf. Both insist that Iran isn’t talking to the Trump administration and doesn’t plan to. Some might say, “Well, they would say that, wouldn’t they?” Point taken. It’s nevertheless significant that Trump–who’s increasingly rattled by rising prices and their potential effect on the November mid-term elections–keeps saying diplomacy is making headway and Tehran declares, time and again, that diplomacy is dead.
Iran may be right that it’s had no direct contacts with the US, but that doesn’t mean it spurns third parties acting as messengers. Pakistan is one of the states vying for this role and is well-placed to succeed. Its army chief Asim Munir (he’s the country’s most powerful figure, not the prime minister–a pattern in Pakistani politics) seems to have established a rapport with Trump, who became the first American president to host Pakistan’s top general at a formal lunch when the latter was not simultaneously head of state.
Why Trump Can’t Strike a Deal
Trump wants to reach some sort of deal that he can spin as a victory. That won’t be possible if he insists that Iran eliminate all uranium and plutonium enrichment, drastically reduce its missile stocks and production, and abandon regional allies like Hezbollah in Lebanon and the Houthis of Yemen.
In Tehran’s view, the focus on its missiles and supposed determination to build nuclear bombs was meant to rationalize a war whose real purpose was to end the Islamic Republic, or, failing that, destroy enough of Iran and arm insurgents to precipitate prolonged, Libya-style chaos. Iran’s leaders will now reasonably conclude that they need a large stock of missiles more than ever, perhaps even nuclear weapons. The irony of Trump’s war is that it has created the very threats he hyped to justify it.
Taken together, these conditions don’t favor a political settlement. And even if negotiations do get underway in the next several weeks, it doesn’t help matters that Trump’s envoys will (again) be Steve Witkoff and Jared Kushner. During talks with Russia and Iran, they have proven to be feckless neophytes—unsurprising considering that the only qualification they have for representing the United States in such high-stakes talks is their personal connection to Trump. What Pete Hegseth is to war, Witkoff and Kushner are to diplomacy.
For his multiple meetings with Vladimir Putin, Witkoff was apparently unaccompanied by seasoned CIA or State Department Russia hands and also initially relied on Putin’s interpreter, switching to State Department translators only after catching flak. Upon returning from Moscow, he has echoed the Kremlin’s narrative on Ukraine. He and Kushner aren’t the people who should be representing Washington in meetings with Putin or foreign minister Sergei Lavrov, among the world’s most savvy diplomats.
As for Iran, the two Americans will be bargaining with its foreign minister, Abbas Aragchi, who has years of top-level diplomatic experience and extensive knowledge of nuclear technicalities. Witkoff, following his talks with Iran in Geneva, made unsubstantiated claims about its nuclear program. There’s an added problem: Iran may share the view of a senior Omani diplomat with detailed knowledge of the Geneva talks that Witkoff and Kushner are, in effect, “Israeli assets” and helped convince Trump to attack Iran. Both do have close, longstanding ties to Benjamin Netanyahu and others on the Israeli right, but the larger point is that their inexperience alone should disqualify them.
So, we shouldn’t wait with bated breath for transformational diplomatic results that end the war or make that outcome more likely. Even the efforts of intermediaries like Pakistan seeking to create a climate conducive to direct talks will prove fruitless.
Unremitting Economic Shocks:
In a recent post, I covered the economic effects of the war in detail, so I’ll just hit the highlights. As you read the bullet points below, keep my overall conclusions in mind. First, things are bad; and even positive signs—such as oil price decreases—could quickly turn negative. Second, when the price of one commodity surges, the ripple effects can push up the price of others and therefore overall inflation. Third, this second effect will make the Fed reluctant to lower interest rates, and that will increase the cost of everything from auto and home loans to big-ticket investment-related borrowing.
Oil Prices: Don’t Be Fooled by Momentary Dips
Since the war began on February 28, gas prices in the US have risen by 30 percent or more depending on the location. Benchmark Brent crude has reached $120/barrel and crossed the $100/barrel mark repeatedly. This link will take you to a graph that depicts the post-war trend line: https://markets.businessinsider.com/commodities/oil-price. Despite their recent decline–Brent crude fell by 4.5 percent to $99.85/barrel in the wee hours of this morning–oil prices could surge again, for several reasons. Trump may decide he wants to “obliterate” Iran’s power plants after all. On Saturday, he threatened to do just that, and within 48 hours (he later extended the deadline), unless Tehran completely unblocked the Strait of Hormuz, through which 20 percent of global crude oil passes—and around 30 percent if refined products are included.
Trump has the world’s biggest wrecking ball and has trained it on Iran with devastating effects. But his blows have strengthened Iranian leaders’ resolve, and they have retaliated in ways—closing the Strait and targeting Persian Gulf states’ refineries, ports, and LNG terminals—that have made oil prices soar, hurting not just the American economy but also the global one, which in turn feeds back into the American economy.
Trump knows that voters watch oil prices like hawks. Last Friday, he lifted sanctions for 30 days on the purchase of 140 million barrels of Iranian oil that were already loaded on tankers. Strange as it may seem, to placate voters, he’s helped Iran fight its war; but his decision won’t change oil prices much: the world consumes about 103 million barrels daily.
A few final points on oil prices. The current sky-high shipping insurance isn’t the main impediment to tankers sailing to and from the Persian Gulf via the Straits; it’s the safety of the crew and the risk of losing tankers: the largest (called Very Large Crude Carriers, VLCC) can cost $80-$100 million to build and even smaller ones at least $40 million. If 60 tankers moved through the Strait daily in each direction before the war, barely any do now because these behemoths can be damaged or sunk in multiple ways. Yes, Saudi and Emirati pipelines are bypassing the Strait, but they can handle only part–in Saudi Arabia’s case half–of the two countries’ total crude exports. Plus, Iran can target the Red Sea port of Yanbu, where the Saudi pipeline ends, and has already hit Fujairah, on the Gulf of Oman, where the UAE pipeline terminates.
Diesel Prices: Everyone Will Pay More, for Everything
This fuel powers the hulking tractor-trailers you see on highways. They deliver–to numerous individual consumers and companies–between 64 percent and 90 percent (in dollar value) of the top five commodities that move around the country, and food is one of them. Here’s a link to track diesel prices (https://fred.stlouisfed.org/series/GASDESW), and here’s the takeaway: Between March 2 (two days after the attack on Iran), the average per gallon cost of diesel in the US was $3.90; by March 24 it had reached $5.38—a 31.90 percent increase.
Fuming Farmers
Fertilizer, like gas, is another commodity that gets Trump’s attention. Higher fertilizer prices–directly caused by the war’s effect on the price of urea and ammonia, both exported through the Strait in large quantities–have hit farmers hard. Farmers voted overwhelmingly for him in 2024. They were already seething before the war. Trump’s tariff hikes reduced their sales to key markets like China–Beijing raised its agricultural tariffs once Trump did–and also made imports they use more expensive.
Fertilizer prices also affect the cost of the food, which also matters politically to Trump. The effect and magnitude of price increases vary by crop. Wheat is especially fertilizer-dependent, soybeans much less so. The effect on corn will be mitigated by the increasing demand for ethanol created by the leap in gas prices. And the northern parts of the country will be hit harder than other places. All this, according to Cornell economics professor, Christopher Barrett, who concludes that only a fifth of all farmers will be pinched badly. OK, but farmers in general are angry—and Republican legislators are alarmed—because gasoline and diesel prices are also slamming farmers, regardless of what they grow.
Helium: The Overlooked Risk
This commodity hasn’t gotten the attention it deserves, given how important it is and how much its price has risen since the war began. Helium isn’t just for inflating party balloons; it’s essential for making semiconductors, including the ultra-small/ultra-thin superchips that make various modern gadgets run and are essential to those “data centers” (which, incidentally, require massive amounts of electricity, produced by fossil fuels) that are much in the news, as well as to the burgeoning AI sector. Helium prices vary by region, but in Northeast Asia, home to 80 percent of global semiconductor production, the cost has already jumped by almost 22 percent.
Qatar plays a critical role in helium supplies. It’s the world’s third largestLNG exporter, and helium emerges from gas processing, including liquefaction. This is the context for understanding the significance of Iran’s attack on Qatar’s Ras Laffan LNG plant, which is the world’s largest and accounts for 20 percent of global production. Iran’s strike precipitated a shutdown, reportedlyslashed Qatar’s LNG production by 17 percent for up to five years (12.8 million tons annually), and forced the suspension of long-term contracts, which affected various countries, including Belgium, China, Italy, and South Korea.
By virtue of its LNG production, Qatar produced 63 million cubic meters of helium last year, second only to the United States. Helium prices had already been rising steeply starting in 2019, and had doubled to $500/thousand cubic feet by 2024. If the war in Iran creates a prolonged disruption, forecasters project that prices could reach $2,000/thousand cubic feet. The US has plenty of helium, but it imports vast quantities of the most advanced semiconductors. Taiwan, which accounts for 60 percent of worldwide chip production, and 90 percent for the most advanced variants, supplies around 45 percent of the “logic chips” imported by the United States. So, when you think of a prolonged war in Iran, keep in mind the price of helium, which is essential for making the various advanced electronic equipment you use, including your smartphone and tablet, and the diagnostic devices, such as MRI, that doctors rely on to evaluate you in the hospital.
The Fighting: No End in Sight
The correct answer to the question, “How long will this war last?” is: “No one knows, including the leaders of the warring states, so tune out anyone who tells you they do know.” That still makes the duration question arguably the most important—for both the diplomatic and the economic aspects of the war that I’ve covered here. If one or more of the countries fighting believes that there’s more to be gained by continuing the war, diplomacy will fail and the economic pain already produced by the war will increase.
Alas, the US, Israel, the Gulf monarchies, and Iran show no signs of wanting to silence their guns.
Trump keeps hinting at an impending deal, insists that his people and Iranian officials are talking, and has pulled back from his threat to wipe out Iran’s power plants. Yet he also insists that he has crushed Iran, and the terms he’s proposed for peace (part of a 15-point plan) are a rehashfrom last May, and therefore, from Iran’s vantage point, dead on arrival. Trump is behaving like a victor who can write the contract when, in fact, he’s under pressure to end his colossal misadventure—pressure that will only increase.
More importantly, while intimating that negotiations are underway, he’s ordered some 2,500 Marines and 3,000 troops from the 82nd Airborne Division to the war zone, in apparent preparation to seize Kharg Island, which handles 90% of Iran’s exports. Given the risk of pulling off an amphibious landing there–Iran’s troops would be firing at Marines landing at Kharg from the high ground on the Iranian mainland–Trump may try to occupy the Greater Tunb or Lesser Tunb islands. (They are located just west of the Strait, and Iran’s possession of them, as well as nearby Abu Musa, has been disputedby the UAE since its formation following the end of British rule in December 1971.) No matter his choice, planning an island-grab isn’t the sort of thing that leaders serious about winding down a war do.
Israel has given up on “regime change” in Iran—in part because its longtime dauphin, Reza Pahlavi, has no political purchase to speak of within Iran, in contrast to his appeal to diaspora Iranians. Despite Benjamin Netanyahu’s oft-professed concern for the longsuffering Iranian people, he would be perfectly content to destroy as much of Iran as possible now that he can’t find a quisling to run it. He won’t be able to do to Iran what he has done to Gaza—much of which has been reduced to 68 million tons of rubble—but can leave behind an anarchy. And that seems to be his Plan B.
Yet the costs of the war are mounting for Israel. Although Israel has hit Iran hard and often, Iranian missiles have penetrated its much-vaunted air defense system more effectively than anticipated. Even Israel’s heavily-defended Dimona nuclear site has been hit. Israelis are used to watching the IDF hammer adversaries while the homeland remains a sanctuary of normality, save during periodic salvos from Hamas and Hezbollah.
Iran, however, has proven to be a much tougher customer than Israel’s war planners anticipated. Israelis have been forced to experience war in a visceral manner: drone and missile attacks on their towns and cities, the frequent wailing of air-raid sirens, late-night dashes to air shelters, and casualties, including deaths. This has not been a good look for Benjamin Netanyahu, “Mr. Security.” But he may calculate that he can salvage his reputation by winning a war he still thinks he can win—at least so long as Trump stays in the fight. Like Trump, he continues to proclaim that Iran has been “decimated” and that “we are winning.”
The Gulf states, which have been hit extensively by Iran, are hardening their position and signaling their readiness to continue serving as launching pads for American strikes on Iran—and Saudi Arabia and the UAE are, reports the Wall Street Journal, even “inching toward joining the fight.” The slow, but always uncertain, rapprochement between the Gulf monarchies and Iran is now so much wreckage. Their instinct is to stick close to Trump, even though he didn’t consult them about his war plan–assuming there was such a thing–make their defense one of his priorities, or take into account their worries about being targeted by Iran. This has created resentment among Gulf leaders. They may eventually recalibrate their relationship with Washington; but now wouldn’t be the best time for that.
Iran may believe that Trump is searching frantically for an exit and that Israel won’t be able to fight on if the US quits. That calculation may prove mistaken, but it’s hardly irrational for Iran’s leaders to conclude that they must make the US and Israel pay a much heavier price—militarily and economically—to ensure that they don’t give war another go. The Islamic Republic remains standing after being attacked by two superpowers, one global, the other regional, and may therefore believe that time is its ally, and that, in any event, it cannot trust Trump and Netanyahu to honor the terms of a peace unless they are left with no other choice.
Excellent article.