The apparent breakthrough in the Iran conflict has proved much less durable than it looked a week ago. Negotiations between Washington and Tehran have stalled again, the Strait of Hormuz remains severely restricted, and the American blockade of Iranian oil exports is continuing. Only a fraction of normal maritime traffic is moving through the strait: Reuters reports that at least seven vessels crossed during the latest 24-hour period, compared with roughly 140 passages per day before the war began on 28 February. Six Iranian oil tankers have also reportedly been turned back by the American blockade. Markets are now pricing the diplomatic failure directly. Brent crude has climbed to $108.23 per barrel and US West Texas Intermediate to $96.37, with Brent rising for six consecutive sessions. What interests me most is that the conflict is exposing a weakness in the way political success is often discussed. Governments announce ceasefires, frameworks and negotiations as though the existence of an agreement demonstrates progress. In reality, an agreement has political value only when the incentives supporting it are stronger than the incentives to defect from it.
The basic disagreement remains surprisingly fundamental. Iran wants recognition of a continuing right to enrich uranium for civilian purposes and an end to American economic coercion, while Washington wants much stronger restrictions on Iran’s nuclear capabilities and insists on genuinely free navigation through Hormuz. The United States is simultaneously attempting to pressure Tehran through a blockade of Iranian oil exports. Both governments therefore want negotiations while preserving the coercive instruments they believe make negotiations productive. This creates a familiar paradox: each side treats its own pressure as the reason the other might compromise and the other’s pressure as evidence that compromise would be dangerous. Washington believes the blockade increases the cost of Iranian resistance. Tehran believes control around Hormuz increases the cost of American pressure. Neither therefore wants to surrender leverage before receiving concessions, because doing so would weaken its bargaining position if negotiations fail.
This is a classic commitment problem. Imagine both sides would prefer a negotiated settlement to another year of war, but neither trusts the other to remain restrained after it gives up its strongest bargaining asset. Iran fears that reopening Hormuz and dismantling nuclear capabilities could simply make future American coercion easier. America fears that relaxing the blockade and accepting Iranian enrichment could allow Tehran to rebuild economically and eventually recreate the original nuclear threat. The obstacle is therefore not necessarily that either side prefers war in absolute terms. It is that each fears the political world created after unilateral restraint. Peace requires institutions capable of making today’s concession safe against tomorrow’s exploitation.
The oil market is now functioning almost like a daily referendum on whether those institutions will emerge. Reuters estimates that the diplomatic impasse is preventing roughly 10–13 million barrels of oil per day from reaching international markets normally, while Goldman Sachs has raised its fourth-quarter Brent forecast to $90 because of reduced Middle Eastern output. This is an extraordinary reminder that prices contain political information. Brent does not rise because traders possess moral opinions about the war. It rises because millions of market participants collectively revise the probability that future supply will be available. Political uncertainty therefore acquires a price long before governments know how the political dispute will end.
That matters because prolonged uncertainty can become almost as damaging as physical destruction. A business can sometimes adapt to a permanently higher oil price by redesigning supply chains, changing equipment or raising prices. It is harder to invest when nobody knows whether oil will cost $70 or $130 six months from now. Firms delay projects, airlines hedge fuel, governments reconsider budgets and central banks struggle to distinguish temporary inflation from persistent inflation. The economic cost of geopolitical instability therefore includes a risk premium on decision-making itself. The world is not simply paying more for energy; it is paying for not knowing what energy will cost.
The central-bank problem is particularly uncomfortable. Higher oil prices create inflation while simultaneously reducing economic growth, producing the conditions economists describe as a negative supply shock. Raising interest rates can prevent energy inflation from spreading into wages and broader expectations, but it cannot produce another barrel of oil or reopen Hormuz. Excessive tightening therefore suppresses demand in an economy already weakened by the supply shock. Doing nothing risks allowing inflation expectations to become embedded. Reuters notes that traders increasingly expect the European Central Bank may eventually need to raise rates if elevated energy prices persist. Monetary policy becomes the institution asked to manage the consequences of geopolitical decisions it had no role in making.
For India, the lesson is even more direct. A country importing most of its crude oil effectively imports part of the geopolitical risk attached to that oil. Higher prices can widen the current-account deficit, weaken the rupee and raise domestic transport and production costs. Yet the appropriate response cannot be simply insulating consumers indefinitely through subsidies. That transfers the cost to the fiscal budget without removing it. India’s longer-term objective should be reducing the elasticity of national welfare to Middle Eastern instability through diversified suppliers, strategic reserves, more domestic electricity generation, public transport and gradual electrification. Energy transition is therefore not merely an environmental project; it is a project in political autonomy.
The American blockade raises a more difficult philosophical question. The United States argues that Iran cannot restrict a waterway essential to international commerce, which is a strong principle. But Washington is simultaneously preventing Iranian oil exports in order to compel Tehran politically. The two measures are not legally or geographically identical, yet both use control over economic circulation as instruments of coercion. This illustrates why states often describe similar instruments differently depending on who uses them: our coercion becomes enforcement, while their coercion becomes aggression. A rules-based international order becomes meaningful only when governments can explain why the principle distinguishing those cases would still apply if the identities of the states were reversed.
This does not require moral equivalence between American and Iranian actions. It requires consistency in reasoning. Freedom of navigation is valuable precisely because no individual state should possess arbitrary power over commerce upon which unrelated societies depend. Economic sanctions can be legitimate tools of statecraft, but the stronger their humanitarian and global spillovers become, the greater the burden on governments to demonstrate that the political objective being pursued justifies those costs. Power does not eliminate the obligation to explain proportionality; it makes that obligation more important because powerful states can externalise more of their choices onto everyone else.
The conflict is also revealing a limit to Trump’s highly transactional approach to diplomacy. Transactional bargaining can work extremely well when the object is divisible: reduce a tariff by five percentage points, purchase another quantity of American exports or increase defence expenditure. Iran’s nuclear programme and Hormuz are harder because both governments interpret them partly through sovereignty and security, goods whose value is not easily reduced to money. Tehran can tolerate enormous economic losses if it believes the alternative is permanent strategic vulnerability. Washington can accept substantial costs if it believes Iranian enrichment creates an unacceptable future security risk. Bargaining becomes hardest precisely where neither side thinks the object being negotiated is merely economic.
The sensible solution is therefore to change the structure of the bargain rather than simply increase the pain surrounding it. Iran needs a credible guarantee that verified compliance produces sanctions relief and an end to military escalation. America needs intrusive verification ensuring that enrichment restrictions cannot be reversed secretly. Hormuz needs an arrangement separating commercial navigation from bilateral political disputes. External guarantors such as Oman, Pakistan, Qatar and potentially European states can increase the political cost of either side abandoning the agreement. Trust is not required if institutions make distrust manageable.
That principle is one of the most important ideas in political philosophy. Good institutions are not designed on the assumption that political actors are virtuous. They are designed because actors have conflicting interests and cannot rely permanently on one another’s goodwill. Constitutions constrain governments for the same reason contracts constrain commercial partners. International agreements work similarly. The objective is not making America and Iran trust one another; after decades of hostility, expecting that would be naïve. It is creating a structure in which both can distrust one another and still conclude that compliance is safer than defection.
The current diplomatic stalemate shows that this structure does not yet exist. America remains powerful enough to restrict Iranian exports but not powerful enough to make Iran accept every American condition. Iran remains capable of disrupting Hormuz but cannot do so indefinitely without damaging itself and alienating countries whose political neutrality it needs. Both therefore possess leverage, and both face diminishing returns from continuing to use it.
That is why the rise in oil prices matters politically as much as economically. Brent at $108 is the market’s way of saying that the world increasingly doubts either side has found a credible route out. Every additional week increases the cost paid by people who never voted for Trump, Mojtaba Khamenei or Netanyahu and possess no influence over the negotiations.
The strongest settlement will therefore not be the one in which either government can announce that the other finally surrendered. It will be the one in which each gives up enough coercive capacity that the other can live with the outcome, while retaining enough sovereignty that compliance remains politically legitimate at home. Peace is rarely the disappearance of conflicting interests. It is the construction of institutions capable of preventing those interests from requiring violence every time they collide.
