Iran

The Memorandum of Understanding did not constitute a comprehensive or definitive settlement of the nuclear issue. Rather, it served as a temporary truce to freeze military strikes and maritime and nuclear threats, buying time to negotiate a comprehensive agreement that would address the enrichment crisis at its roots. These developments come in the wake of the collapse of the 2015 nuclear agreement following the United States' withdrawal in 2018, which gave Tehran considerable room to expand uranium enrichment, restrict international inspections and accumulate large quantities of uranium enriched to levels approaching those required for the production of a nuclear weapon.   Against this backdrop, the nuclear programme stands out as the Iranian leadership's principal bargaining chip. Although Tehran does not currently possess a nuclear weapon, it has accumulated the technical expertise, established the necessary infrastructure and secured the enriched uranium needed to produce one within a relatively short period should the political decision be taken to do so. This reality underscores that Iran's leverage at the negotiating table is no longer merely theoretical. It is tangible leverage, rooted in Tehran's ability to move rapidly towards weaponisation.   On the operational front, despite US and Israeli strikes targeting nuclear facilities inside Iran, assessments have confirmed only limited damage. Tehran is still strongly believed to retain substantial capacity to continue uranium enrichment. However, experts remain divided over the true extent to which the attacks have set back its nuclear programme. These assessments indicate that military action alone has failed to resolve the nuclear issue, naturally increasing the likelihood of an eventual resumption of negotiations and a return to the diplomatic track.   Against this complex backdrop, a fundamental question remains: will the terms governing the nuclear issue be revised in any future memorandum, or will they remain unchanged from those set out in the "Islamabad Memorandum"? If the parties move towards introducing new amendments, how far can each side go in making concessions to negotiate an end to this chapter?

On 24 August 2026, the US Treasury announced an economic enforcement campaign under the name Operation Economic Outcast, designating close to 60 entities, individuals and vessels and issuing five unprecedented sectoral determinations under Executive Order 13902.1 Treasury Secretary Scott Bessent described the campaign as a comprehensive economic onslaught intended to sever every artery feeding the Iranian economy, while Iran's Minister of Economy, Ali Madanizadeh, dismissed it as an act of economic terrorism, insisting that his country has its own instruments and knows the rules of the game.   The significance of the campaign extends well beyond the number of designations. Washington is shifting its weight away from penalising Iranian entities and towards pursuing intermediaries in third countries: independent Chinese refineries, Gulf trading and exchange houses, and settlement channels operating outside the dollar. Yet the record since 2012 reveals a pattern that is close to invariable: sharp friction imposed from the American side, followed by structural Iranian adaptation, in which Iranian exports survive and the American stock of coercive power erodes.   This analysis therefore sets out to dissect the legal architecture of the campaign and identify what is genuinely new within it, then to test its six enforcement tracks against the structural obstacles Tehran has accumulated across four successive waves of sanctions, and finally to estimate the likely impact on the volume of Iranian exports, on the discount imposed on its crude and on the price path, while measuring the cost of compliance that financial and logistics hubs will have to absorb.

The expiry of the 60-day timeframe stipulated in the Memorandum of Understanding has left the Middle East facing an exceptionally complex geopolitical vacuum, following the failure to forge a strategic agreement that would either defuse tensions or secure the full reopening of the Strait of Hormuz. This does not necessarily signal a sudden or dramatic collapse in negotiations. Rather, it raises a fundamental strategic question about what comes next. The region appears to be entering a calculated tactical transition from conventional diplomacy to a bitter phase of brinkmanship and mutual attrition between Washington and Tehran. As a result, maritime security in one of the world’s most vital waterways, through which approximately 21 million barrels of oil pass each day, equivalent to 20% of global oil consumption, together with around 20% of global liquefied natural gas trade, is increasingly subject to volatile political calculations.   Understanding US conduct in this crisis requires a careful examination of two seemingly contradictory, yet ultimately complementary, perspectives. President Trump’s insistence that there is no pressing timetable for resolving the crisis can be understood as part of a broader doctrine of tactical manoeuvre. Washington is effectively weaponising time to exert systematic economic pressure, sustained by the continuing naval blockade of Iranian ports and an intensification of sanctions. The strategic objective is to drive the Iranian economy towards breaking point and compel Tehran to make substantive concessions, while sparing the US the costs and risks of an open military confrontation. A parallel and more probing assessment, however, suggests that this tactical calm conceals a classic dilemma that sharply constrains US options. Full-scale military escalation would carry prohibitive security and financial costs, potentially driving maritime insurance premiums and energy futures into double-digit surges and placing global supply chains at risk. Yet acquiescing to Tehran’s terms would effectively subordinate international navigation to Iranian will. The current stalemate therefore amounts to little more than an enforced freeze, reflecting institutional frustration at the absence of effective surgical solutions.   On the other side of the strategic equation, Tehran has been far from a passive recipient of pressure. Instead, it has devised a counter-strategy that seeks to redefine the rules of engagement and weaponise geography as a potent source of negotiating leverage. In a particularly consequential move, Iran has succeeded, at least temporarily, in shifting international attention away from the complexities of its nuclear ambitions and uranium enrichment programme, while exploiting maritime chokepoints as an instrument of immediate coercive pressure. Tehran has transformed control over the flow of global trade through the Strait of Hormuz into a decisive bargaining instrument, demonstrating its ability to disrupt global geoeconomic calculations. Iran’s brinkmanship is clearest in the far-reaching conditions it has set for reopening the strait. Rather than limiting its demands to lifting the blockade, Tehran has raised the stakes by calling for the withdrawal of US forces and payment of financial compensation, while insisting on exclusive security control over the waterway and threatening to impose sovereign transit fees. Such maximalist escalation does not necessarily indicate an expectation that all these gains can be secured immediately and in a single settlement. Instead, it is intended to engineer a new geopolitical reality that affords Iranian negotiators greater room for trade-offs and forces the US administration onto the defensive.

Between July 26 and 31, 2026, hackers took manual control away from water and wastewater utilities across U.S. states, Minnesota, Michigan, New Jersey, Georgia, and South Dakota among them, with more than 30 community systems hit in Minnesota alone. According to news, cyberattacks on U.S. water systems are suspected to be linked to Iran-backed hackers. Operators in Georgia's Clayton County Water Authority, serving 300,000 people near Atlanta, watched pressure drop and had to issue a boil-water advisory before service was restored within hours. In several cases, the hackers gained remote access to pumps, valves, and water pressure, though the cyberattacks have had no impact on drinking water, which has remained safe.   A hacking front calling itself CyberAv3ngers, an Iranian Revolutionary Guard Corps-linked group sanctioned by the US Treasury Department in February 2024, has since claimed the operation on Telegram, framing it as a warning rather than an attack: "our intention in attacking Minnesota was only to warn" of its abilities and its intention to retaliate against any country that poses a threat to Iran. That framing matters as it leaves us questioning whether an “actual” attack can take place.

Negotiations between Washington and Tehran are entering an increasingly complex strategic juncture, with most of the 60-day timeframe established under the "Islamabad Truce" having elapsed without a decisive agreement. This has been accompanied by renewed hostilities and the Strait of Hormuz once again closing to international shipping.   These developments on the ground coincide with intensive international diplomatic efforts to contain the repercussions of an open military conflict that has clearly weighed on regional and global economic growth.   At the heart of this negotiating landscape is the conspicuous absence of the regional proxy issue from both the draft preliminary agreement and the current talks. Rather than signalling that the issue has been sidelined, this absence raises fundamental questions about the future of the complex network that has for decades formed a central pillar of Iran's deterrence doctrine.   Current political dynamics suggest the proxy issue is no longer a secondary matter that can be deferred or ignored. Instead, it has become a structural fault line that cuts across each side's conception of security and stability, as well as the limits of any viable settlement.   Its exclusion from the initial formulations reflects a clear recognition of how difficult it would be to incorporate the issue without directly confronting red lines at the intersection of Iran's deterrence doctrine, the US vision of regional security, and Israel's efforts to translate military pressure into irreversible negotiating gains.   The dilemma takes on even greater significance in light of recent macroeconomic analyses indicating that the costs of proxy involvement have extended well beyond direct military losses, striking at the heart of the global economy. Proxy-related operations along critical maritime corridors, particularly in the Red Sea, have severely disrupted supply chains and inflicted tens of billions of dollars in losses on international trade through unprecedented surges in shipping and insurance costs. They have also created unconventional threats to the security of digital infrastructure, most notably subsea fibre-optic cable networks.   Security experts emphasise that the structural attrition the Axis of Resistance suffered during the intense confrontations of 2024 and 2025 prompted Tehran's leadership to reassess its tactics and instruments, but not to abandon them.   The crisis stems from a fundamental divergence in the actors' perspectives. Iran regards its network of proxies as a forward line of defence and an integral component of its national security, integrating these groups with its missile and drone capabilities. Washington and Tel Aviv, backed by regional powers, by contrast, view dismantling and disarming these groups as a mandatory precondition for any new regional security architecture.   This reality places the proxy issue at a critical intersection between three complex levels: Iran's pursuit of strategic depth for its defence; US efforts to neutralise sources of asymmetric threat; and regional and international concerns that link market stability and freedom of navigation to ending the activities of these groups around maritime chokepoints and in the Eastern Mediterranean. Any settlement that fails to define the place and functions of these proxies would therefore amount to little more than a fragile truce vulnerable to rapid erosion.   This section examines the divergent perspectives of the key actors on the regional proxy crisis. It assesses how these competing positions may clash or converge behind closed doors at the negotiating table. The paper asks a central question: will these discussions translate into strategic trade-offs that underpin a comprehensive and sustainable settlement, or will divergence between the parties' red lines reduce the anticipated agreement to little more than a temporary tactical freeze before an even more violent round of conflict?   This issue was written on August 2, 2026

The Middle East is witnessing a new geopolitical crisis centred on the Bab al-Mandab Strait after Yemen’s Houthi movement announced on 20 July 2026 the imposition of a naval blockade on the Kingdom of Saudi Arabia, in application of a principle the group terms “blockade for blockade”. The measure comes as a direct response to the restrictions Saudi Arabia has placed on the airports and ports lying under Houthi control, most notably Sanaa Airport and the ports of Hodeidah, and the decision followed a military escalation that included strikes on Sanaa Airport and the launching of missiles and drones towards Saudi airports.   Through this closure the Houthis seek to transfer the cost of the blockade from the Yemeni interior to a corridor vital to Saudi Arabia in the Red Sea and the Bab al-Mandab Strait, by closing the strait to vessels flying the Saudi flag or bound for the Kingdom. The closure also coincides with the disruption affecting the Strait of Hormuz as a result of the ongoing Iranian–American war, where the Revolutionary Guard’s interception rate of vessels transiting the strait has reached some 89 per cent. This has driven the Kingdom over the past four months to reroute its oil exports westwards, moving 4.5 million barrels of oil a day through a pipeline to the port of Yanbu on the Red Sea in order to provide an alternative passage, an increase of close to fivefold on the period before the war began.   On another front, Pakistan faces a complex strategic position as a result of these developments, since Islamabad is bound by a mutual strategic defence agreement with the Kingdom of Saudi Arabia signed in September 2025, alongside the presence of Pakistani forces stationed in the Kingdom. The agreement stipulates that any aggression against either state is deemed an aggression against the other, while Islamabad simultaneously performs the role of diplomatic mediator between the United States and Iran, having sponsored the signing of a ceasefire memorandum of understanding between the two parties in June 2026. In this context, Pakistani officials regard attacks on Saudi Arabia as a red line, which makes the naval blockade not merely a problem touching Saudi security but a direct test of Pakistan’s ability to balance its role as mediator with Tehran against its military commitments towards Riyadh. This tension places the Pakistani leadership before a clear challenge and raises an important question as to whether it will persist in its neutral position, or move towards a firmer stance should the crisis develop into a regional confrontation affecting the interests of its Saudi partner.

Iran's missile programme and drone arsenal constitute one of the Middle East's principal security determinants. Before the outbreak of military hostilities in February 2026, Iran possessed the region's largest stockpile of ballistic missiles. Estimates varied, placing its inventory at between 2,500 and 6,000 long-range missiles capable of striking deep inside Israel at speeds approaching 17,000 kilometres per hour. This coincided with Tehran consolidating its position as a leading developer of drones, particularly the various Shahed models, the Karrar series, and the latest Kaman variant unveiled in January 2026.   The strategic significance of these capabilities became evident during the war, when they became a top priority for U.S. and Israeli strikes. Production facilities, storage sites, and launch platforms were targeted in an effort to degrade Iran's deterrent capabilities and neutralise the threat they posed to Israel. This military escalation was consistent with the pre-war U.S. position, which had signalled its intention to prevent Tehran from acquiring ballistic missiles and stressed the need to incorporate this issue into the nuclear negotiations. In practice, this was reflected in the simultaneous targeting of the infrastructure underpinning both the missile and nuclear programmes.   However, the launch of the negotiation process introduced a new strategic dimension to the issue through the Islamabad Memorandum. Contrary to expectations that Iran's military capabilities would be incorporated into the initial agreement, both the missile and drone programmes were excluded from the preliminary understanding.   The Trump administration subsequently announced a departure from its previous position, stating that it was not seeking to prevent Tehran from rebuilding its missile capabilities, citing Iran's sovereign right to self-defence. This shift reflects a strategic trade-off based on temporarily overlooking the missile programme in exchange for containing the nuclear programme and restricting the funding of armed groups across the region.   This exclusion is not merely a procedural feature of the negotiations. Rather, it raises fundamental questions about the trajectory of the sixty-day transitional period and the strategy each party is likely to pursue thereafter. This situation requires an assessment that goes beyond measuring battlefield losses to understand how these capabilities have evolved from mere weapons systems into a fundamental pillar of the regional balance of power, imposing themselves on regional strategic calculations.   This issue was written on July 2, 2026

The Strait of Hormuz is no longer merely a disputed maritime passage, nor simply a recurring flashpoint between Iran and the United States. It has instead evolved into a central arena for testing the meaning of sovereignty in the region. While Washington continues to regard the strait as an international waterway governed by the principle of freedom of navigation, Iran’s Islamic Revolutionary Guard Corps treats it as a sovereign zone under its direct administration, subject to military rules imposed through effective ground control. Accordingly, the core of the crisis no longer centres on the question, "Is the strait open or closed?" Rather, the more consequential question has become: what is the future of the strait in light of the ongoing negotiations?   Recent developments, particularly following the Islamic Revolutionary Guard Corps’s threat to close the Strait of Hormuz in response to what it described as violations of the terms of the memorandum of understanding, especially about the Lebanese file just days after the memorandum was signed, reveal that the issue has not been resolved but has instead grown more complex. The memorandum treated the strait as a technical issue that could be managed through arrangements governing passage and transit to prevent friction. The Islamic Revolutionary Guard Corps, by contrast, approached it as a symbol of sovereignty, power, and the right to set the rules. This divergence rendered the understanding itself incapable of resolving the underlying dispute, because the disagreement between the two sides lies not in procedural details, but in who holds the authority to determine those procedures in the first place.   Although the United States and Iran agreed to reopen the Strait of Hormuz immediately after signing the preliminary agreement, this does not necessarily mean that maritime traffic will return to pre-war levels. Implementing this provision presents complex challenges related to the mechanism for reactivating the shipping corridor, the arrangements required to resume vessel traffic, and the restrictions that may persist during the sixty days allocated to negotiate the final agreement. These challenges are further compounded by the dispute over which party will assume responsibility for regulating and managing maritime traffic through the strait. Taken together, these obstacles suggest that reopening the strait may prove one of the most complex aspects of the agreement, particularly given the ongoing divergence between the American and Iranian visions for the future control of this strategic waterway.   The crisis surrounding the Strait of Hormuz, therefore, cannot be understood merely as a dispute over borders or the passage of ships; it is fundamentally a crisis of authority: the authority to set the rules, to impose exceptions, and to exercise the final say in determining whether this waterway remains open, closed, or conditionally accessible. For this reason, the question of the strait should no longer be viewed as a secondary file within the broader Iran–United States conflict. Rather, it should be recognised as one of the most consequential issues shaping and redefining the very concept of sovereignty, both within Iran itself and in the evolving structure of relations between regional and international powers.

The Al Habtoor Research Centre (AHRC) presents a groundbreaking, equation-based assessment analysing the direct and indirect social and economic resource costs of the 110-day conflict that began on February 28, 2026. Utilising an advanced conflict economics framework—including the Stiglitz-Bilmes convention and counterfactual synthetic controls—this research delivers an unprecedented, exclusive analysis of the financial burdens borne by the belligerents and the wider global economy. The headline finding is one of profound asymmetry, proving that recovery capacity, rather than the size of the initial kinetic blow, dictates the medium-term cost of modern warfare. The largest financial burden fell on the global economy, specifically non-belligerent, bystander oil-importing nations, totalling an estimated $1.41 trillion by 2030. Triggered by the 110-day closure of the Strait of Hormuz, this true burden lies in unproduced global output rather than the temporary oil-price spike, which ultimately nets to zero globally. Among the combatants, Iran absorbed an existential, structural blow equivalent to roughly 81% of its pre-war output, costing $305 billion by 2030, or $720 billion on a purchasing-power parity (PPP) basis. Locked out of international capital markets, its output gap fails to close by the end of the decade, triggering a step down to a permanently lower economic path. In contrast, the United States faces a heavily back-loaded bill ranging from $200 billion to $1.1 trillion by 2030. While structurally insulated from the immediate oil shock due to its net energy exporter status, this massive range in projections depends on whether standard cash-budgeting or full multi-decade liabilities—such as veteran care, war-debt interest, and budget ratchets—are present-valued. Meanwhile, Israel sustained a sharp but recoverable macroeconomic shock of $135 billion by 2030, equal to roughly a quarter of a single year's GDP. Advanced air defense mitigated physical destruction, concentrating the cost instead on reserve mobilisation, interception economics, and a transient output gap. Ultimately, this exclusive analysis details how the poorest bystander nations subsidised the conflict's macro cost, marking the 2026 war as one of the most economically disruptive events of the century.

The Tel Aviv Stock Exchange (TASE) offers one of the most instructive case studies in contemporary political economy. In under three years, it transformed from a compressed, domestically isolated venue into a high-beta financial instrument that prices Middle Eastern geopolitical risk in real time. The period from October 2023 to June 2026 encompassed the gravest security shock in Israel's modern history; yet its benchmark indices delivered record returns, making it the world's fastest-rising equity market in 2024 and 2025, before pivoting abruptly into a sharp correction by mid-2026. This paradoxical trajectory poses a fundamental question: how does capital — foreign and domestic alike — respond when gun barrels intersect with trading screens, and why did the signals emanating from the sovereign bond market diverge so starkly from those of the equity market at the very same moment? This analysis traces the precise correlation between military and diplomatic events on the one hand, and capital flows and the sovereign risk premium on the other, exposing a new financial logic that now governs the pricing of existential risk.   Accordingly, this analysis sets out to disentangle three interlocking layers: first, the mechanics of the initial shock and the manner in which the state intervened to contain capital flight; second, the paradox of the war economy, in which sovereign downgrades coincided with an unprecedented equity rally; and third, the 2026 reversal that repriced geopolitical risk in the wake of diplomatic realignment — culminating in a forward-looking assessment of the market's probable trajectories through 2028.

By mid-2026, the US agricultural sector stands at a critical juncture where macroeconomic shocks intersect with geopolitical repercussions and sharp shifts in domestic trade policy. This has been reflected acutely in the traditional political alliances of rural America—which have historically constituted a formidable electoral stronghold for the Republican Party and, in particular, for President Donald Trump—as they undergo deep structural fractures that continue to widen, driven by the direct economic effects of stringent protectionist trade policies, disruptions to the regulatory framework governing biofuels, and regional conflicts that have combined to erode profit margins and undermine farmers’ confidence in the current system.   To understand the roots of this crisis, it is necessary to examine the nature of the implicit economic contract between the current Republican administration and its rural base. Historically, the government’s strategy rested on a two-dimensional approach: engineering stringent industrial tariffs to protect the domestic manufacturing base, while simultaneously attempting to insulate the agricultural sector from the adverse repercussions of these policies through the injection of exceptional federal support packages. However, the dynamics of 2025 and 2026 have undermined the wager on the sustainability of this equation. The economic strain generated by this dual approach translated into tangible political mobilisation, the effects of which were clearly reflected in opinion polls and primary-election indicators that came as a shock to the Republican camp.   Building on the foregoing, and with the crisis shifting from the economic sphere to the arena of electoral contestation, this analysis seeks to dissect the deep economic drivers that have produced the current state of agricultural frustration, evaluate the effectiveness of government measures in the areas of trade and energy, and assess the extent of the shift in the political calculations of rural voters. Drawing on a systematic reading of quantitative indicators and an examination of the results of the Iowa primary elections, this analysis attempts to anticipate the trajectory of this discontent: does it merely represent a temporary wave of backlash-driven anger, or is it laying the foundations for a broader political realignment capable of reshaping the balance of power in Washington ahead of the midterm elections?

Divisions among Iranian officials became increasingly evident in late April 2026. The hardline faction opposes making any concessions in the ongoing negotiations with the United States and insists that the nuclear programme be excluded entirely from the negotiating agenda. Another, even harder-line faction rejects entering negotiations altogether. By contrast, the moderate faction advocates engagement in nuclear negotiations while remaining committed to the principles of the Islamic Revolution. This camp recognises that negotiations could contribute to the partial lifting of sanctions and help alleviate the economic hardships facing citizens amid the country's continuing economic decline. It also views an end to the war as a strategic necessity, particularly given the strain placed on Iran's military capabilities and the loss of senior leadership figures.   These divisions have also become increasingly visible within the Iranian regime’s diplomatic apparatus. Contradictory statements were issued by members of the same Iranian delegation during a visit to Islamabad on 23–24 April 2026. These disagreements raise direct questions about the future trajectory of both the negotiations and the war, while highlighting the potential scenarios that could emerge from the growing divisions within the Iranian regime itself.