BY:Shatha kalel
The renewed negotiations between the United States and Iran raise a fundamental economic question: if another military confrontation threatens global energy markets, why are both sides willing to risk further escalation? The conventional explanation focuses on Iran’s nuclear programme, regional security, and political influence. However, an economic interpretation reveals a broader struggle over energy transportation, market stability, and strategic bargaining power. The Strait of Hormuz is central to this confrontation because it connects Gulf oil and gas producers with international markets. Disruptions to this passage affect not only the availability of energy but also shipping costs, insurance premiums, inflation expectations, and investment decisions. From this perspective, the conflict is not simply about the price of oil; it is about the ability to influence the movement of energy and the economic consequences of interrupting it. The latest negotiations, mediated by Qatar and Pakistan, demonstrate how closely diplomatic concessions are connected to economic interests. Iran’s reported demands for sanctions relief, restored oil exemptions, and recognition of shipping arrangements suggest that Tehran considers economic access and regional influence essential components of any agreement. The central question, therefore, is whether negotiations can produce a lasting settlement when control over strategic economic routes remains contested.
Iran’s economic strategy may be understood as an attempt to transform its geographical position into negotiating leverage. Although the Iranian economy has suffered from sanctions, restrictions on financial transactions, and limitations on oil exports, its location near the Strait of Hormuz gives it an important strategic advantage. The threat of disruption can influence global markets even without a prolonged closure, because energy prices respond to uncertainty about future supply. This creates an economic paradox: a country facing substantial financial pressure may still possess the ability to impose costs on much larger economies. However, this strategy also carries significant risks for Iran. Prolonged disruption could reduce regional trade, damage infrastructure, discourage investment, and deepen domestic economic hardship. For the United States, the calculation is equally complicated. Military pressure may strengthen Washington’s negotiating position, but a renewed energy shock could increase fuel prices, intensify inflation, and undermine consumer confidence. This raises an important possibility: both governments may be using the prospect of economic damage as a bargaining instrument while attempting to avoid bearing its full consequences. In my assessment, the negotiations are therefore not necessarily evidence that either side has abandoned confrontation. They may instead reflect recognition that economic pressure can achieve political objectives at a lower immediate cost than another major military campaign.
The consequences of this confrontation extend beyond Washington and Tehran, particularly for oil-dependent economies such as Iraq. Higher international oil prices are often presented as an economic advantage for petroleum exporters because they can increase government revenue. Yet this assumption overlooks the distinction between higher prices and the ability to export oil safely and consistently. Iraq’s public finances depend heavily on petroleum revenue, while its economy also relies on imported consumer goods, industrial materials, and essential equipment. A regional conflict that raises oil prices could simultaneously increase transportation expenses, disrupt supply chains, and threaten export infrastructure. If export volumes decline significantly, the financial losses could outweigh the benefits of higher prices. Furthermore, increased import costs may place additional pressure on domestic prices and household purchasing power. This illustrates a deeper structural weakness: dependence on oil exposes an economy not only to fluctuations in international prices but also to geopolitical disruptions beyond its control. Iraq should therefore evaluate regional developments through the combined effects of oil prices, export capacity, shipping security, and public expenditure. The larger lesson is that high oil prices do not automatically translate into economic strength. Without diversified production, reliable infrastructure, and effective fiscal planning, temporary revenue gains may conceal growing long-term vulnerabilities.
My expectation is that the economic consequences of renewed military escalation will encourage further negotiations, but they will not necessarily produce a comprehensive political settlement. A limited agreement focused on reopening the Strait of Hormuz, easing selected sanctions, and reducing immediate military tensions may be more achievable than resolving every disagreement over nuclear policy and regional security. Such an arrangement could provide temporary relief to international energy markets while leaving the underlying strategic competition unresolved. However, there is an alternative possibility: if either side believes that additional pressure will produce greater concessions, negotiations could collapse and trigger another round of disruption. I expect market uncertainty to remain significant even if a preliminary agreement is announced, because investors will assess not only diplomatic statements but also whether shipping routes remain accessible and commitments are implemented. In the longer term, repeated disruptions could encourage energy-importing countries to diversify suppliers, strengthen strategic reserves, and reduce dependence on vulnerable transportation corridors. These adjustments would gradually change the economic value of the leverage currently exercised around the Strait of Hormuz. Ultimately, I believe the decisive issue is not which side can threaten greater military destruction, but which side can sustain economic pressure without undermining its own interests. The conflict demonstrates that energy security has become an instrument of geopolitical power, while also revealing the limits of using economic instability as a negotiating strategy. A sustainable outcome will depend on whether both sides recognize that controlling energy flows through threats is less valuable than preserving their stability through enforceable agreements.
Economic Studies Unit – North America Office
Al-Rawabet Center for Research and Strategic Studies