The Fragile Equilibrium

Each month I have been reflecting on the war in Iran. In August I described the Iran war as a morass. It still is. But something important has changed.

America appears to have found a way to live in it.

A cheaper war for America

The war has settled into a much lower operational tempo. The United States is no longer burning through expensive munitions at anything like the rate it was earlier in the conflict. American personnel losses remain small. The naval blockade and sanctions continue to impose pressure on Iran without requiring continuous high-intensity military operations. And the threat that the United States can rapidly increase the tempo again remains.

Earlier in the conflict, time was expensive for everyone. Iran was being bombed and economically squeezed. The United States was consuming difficult-to-replace weapons at an alarming rate. The closure of Hormuz was imposing enormous costs on the global economy. Oil and fuel prices were rising. Everyone had reasons to find an exit.

The United States has since changed the equation.

Lowering the military tempo was, in my view, one of Trump’s more successful tactical innovations in this war. The United States has maintained pressure while dramatically reducing the marginal cost of applying it. The blockade continues. Sanctions continue. Iran still has to account for the possibility of another major American strike. But America does not have to fire the missiles to derive some benefit from having them available.

The current posture is much less expensive to maintain than the intense fighting earlier in the war.

This is not Russia in Ukraine. America is spending a great deal of money and has consumed an uncomfortable share of some important weapons inventories, but it is not feeding men and equipment into a front that grinds them down every day.

More oil is getting out

Most importantly, a lot more oil is getting out of the Middle East.

Goldman Sachs estimates that Gulf exports, including dark transits, have rebounded to around 23.3 million barrels a day, in line with their 2025 average. Other estimates are somewhat lower, but tell the same story of a sharp recovery. With the East-West pipeline and the Red Sea route under attack, Saudi Arabia redirected exports back to its eastern ports, and much of the additional oil has gone out through Hormuz itself, including through ship-to-ship transfers and dark transits with tracking systems switched off. Iran, meanwhile, has gone weeks without meaningful crude exports through Hormuz, with satellite data showing no seaborne exports of Iranian crude or main refined products in September.

That last point matters. Iran has not lost its ability to disrupt Hormuz, but it is discovering that its grip on the waterway is becoming porous. Increasing volumes of Saudi, Iraqi and other Gulf oil are getting through the same waterway Iran has been trying to use as its principal source of economic leverage.

Flows are not back to normal in every respect, and refined product markets remain extremely tight. The world entered the war awash with oil, but months of disrupted supply have run down much of that buffer. Inventories are depleted and the market is consequently far tighter than it was in February, even as Gulf flows have recovered. But Iran’s ability to make the closure of Hormuz intolerable to the rest of the world is not what it was.

That changes the economics of the war.

The costs already incurred are sunk.

What matters now is what another month of war costs each side.

And another month may now cost America considerably less than it costs Iran.

Fuel prices are the exception

There is one big exception to this increasingly workable American equilibrium: US domestic fuel prices.

American diesel recently exceeded $6.50 a gallon. Gasoline is also painfully expensive. Fuel costs have become a serious political problem with the midterm elections only weeks away. The administration is releasing more oil from the Strategic Petroleum Reserve, states are taking emergency measures, and Trump has even flirted with restricting US diesel exports.

I wrote recently about what a 90-day diesel export ban might do. In the short run, it could trap diesel inside the United States and push the domestic price down. But storage would eventually fill, refinery margins would deteriorate and refiners would cut runs. Because diesel, gasoline and jet fuel are joint products of the same refining process, the eventual result could be less gasoline production and higher gasoline prices.

It is not attractive economics.

But it makes more sense as politics.

A policy introduced in October does not necessarily have to work for 90 days. It needs to work until November 3. If the immediate constraint is the midterm election, a policy that works for four or five weeks and becomes problematic in week six can still achieve its objective.

The fact that Trump is even considering such an intervention tells us something important. Fuel prices are hurting.

And Iran knows it.

Iran’s leverage expires November 3

That is why I am increasingly sceptical that Trump should conclude a substantive agreement with Iran before the midterms.

Iran has proposed a seven-day confidence-building process that could reopen Hormuz and return the two sides to negotiations. Qatar is mediating. Trump publicly rejected the Iranian proposal, but the diplomacy has continued, and Iran has confirmed it received an American response. Reuters reports that the remaining argument is substantially about sequencing.

That is interesting because sequencing helped destroy the last agreement.

But there is a more immediate problem for Trump. Any agreement he reaches in October has to survive until November 3.

Suppose Trump reaches an agreement with Iran. Hormuz begins reopening. Trump declares success. A week later Tehran says some element of sanctions relief, inspections, frozen assets or maritime arrangements needs to be renegotiated.

What does Trump do?

Walking away risks renewed disruption in Hormuz, another round of strikes, higher oil prices and potentially American casualties immediately before an election.

Iran would know this.

In other words, Iran currently possesses a bargaining asset with a very short expiry date: its ability to make Trump’s midterm campaign substantially worse.

On November 4, that asset largely disappears. Trump will never again face voters in a presidential election. Whatever happens to Congress will constrain him in various ways, but his personal electoral constraint is gone. Iran can still threaten American interests, American forces and the global economy. It can no longer threaten Trump’s next election.

That dramatically changes the bargaining dynamics.

I would be wary of accepting Trump’s claim that Iran is “desperate” simply because Trump says so. Anything Trump says about the state of his opponent needs independent corroboration. The same applies to Tehran.

But there are observable signs that Iran wants an agreement. Its economy is under severe pressure, with the rial falling to another record low in late September. Its oil exports have collapsed. It has put forward another proposal. And it wants negotiations while Trump’s political vulnerability is at its greatest.

There is little reason for Washington to pay Tehran for restraint that may become considerably less valuable after the election. If the oil keeps moving, time increasingly favours Washington.

Keep the military activity bounded. Keep enough oil moving. Maintain the blockade and sanctions. Do not burn through scarce missiles unnecessarily.

And wait.

Freedom, not peace, after November

That does not mean I expect Trump to make peace on November 4.

November 4 brings Trump freedom. He could use it to make a deal that would be politically difficult today. Or he could conclude that Iran is weakening and take much greater risks to force something closer to his preferred outcome.

I would not confidently predict which.

If he negotiates, Iran finally capitulated.

If he escalates, Iran left him no choice.

If he maintains the blockade, maximum pressure is working.

If he eventually withdraws, America won and no longer needs to be there.

Trump is unusually willing to take risks, changes tactics readily and is extraordinarily good at constructing an explanatory narrative over whatever he eventually decides to do. That narrative flexibility gives him considerable tactical freedom because yesterday’s explanation does not necessarily constrain tomorrow’s decision.

Good tactics, uncertain strategy

I continue to think entering this war was a major misjudgment. It has been enormously expensive economically and politically, consumed important military inventories and destabilised a region that was already difficult enough.

But that is a different question from whether Trump has conducted parts of the war effectively once he was in it.

In several important respects, he has.

The blockade has imposed real pressure. Reducing the operational tempo has preserved that pressure at much lower cost. Rerouted oil has reduced Iran’s ability to hold the world economy hostage. American battlefield losses have remained small.

Trump is often very good at short-run tactics. He sees pressure points and attacks them with vigour. He is relatively unconstrained by conventional process and unusually willing to accept risk. Sometimes that produces impressive results. Sometimes the second and third-round consequences are ugly.

The danger is that tactical success and strategic success are not the same thing.

A more fragile Middle East

This is the part of the picture that worries me.

The direct US-Iran war looks more stable than it did a month ago. The Middle East around it does not.

The Houthis, the de facto government across much of Yemen’s populated north and west, have resumed major attacks on Saudi Arabia. Saudi Arabia says missiles and drones have targeted its cities and oil infrastructure. Drones shut the East-West pipeline in September, an attack Riyadh blamed on Iraqi militia, temporarily halting loadings at Yanbu on the Red Sea. The pipeline has since restarted, although it has not yet returned to full capacity. That pipeline and the Red Sea export system matter precisely because they help circumvent Hormuz. If Iran and its allies cannot impose sufficient costs through Hormuz, there is an obvious incentive to put pressure on the infrastructure that bypasses it.

And at the end of September, the last American troops left Iraq. The withdrawal was agreed in 2024, long before this phase of the war, so it should not be presented as an American retreat caused by Iran. But the timing is striking. Iranian-aligned militias remain powerful inside Iraq, and Iraqi territory is becoming part of the regional contest just as the direct American military presence there disappears. 

Then there is Mecca.

Saudi Arabia says it has intercepted Houthi attacks threatening the holy city. Whatever the intended target, bringing Mecca into this conflict is potentially explosive in a way that another attack on an oil terminal is not.

Turkey, Saudi Arabia and nuclear-armed Pakistan are also moving closer together militarily. Their military chiefs met in Riyadh this month to discuss intelligence sharing, military coordination and capability integration following the attacks on Saudi Arabia. Their new defence arrangement treats an attack on one as an attack on all. They are now developing the structures needed to give that commitment practical effect.

None of this means a regional war is inevitable.

But it makes the system more fragile.

Fragility is different from instability. A system can look quite stable while becoming increasingly vulnerable to a relatively small shock.

A drone flying somewhere near Mecca is one thing in isolation. It is something quite different when Saudi Arabia is already under attack, Pakistan and Turkey have defence commitments, Iran is under growing economic pressure, the Houthis are fighting again in Yemen, Iraqi militias are active and the region’s oil infrastructure has become part of the battlefield.

More actors now have commitments. More countries have red lines. More pieces of infrastructure have strategic importance. There are more opportunities for an attack, accident or miscalculation to produce consequences far beyond what the person who launched the missile intended.

That is the emerging contradiction.

America’s tactical position may be improving while its strategic position deteriorates.

That tension is visible throughout this war. Pressure points exist inside systems. Push one hard enough and stresses emerge elsewhere.

Circumvent Hormuz and the pipelines doing the circumventing become targets.

Pressure Iran and its proxies search for other ways to impose costs.

Make Saudi Arabia uncertain about its security and it develops other relationships.

Reduce the cost of the bilateral war and some of the instability migrates into the surrounding region.

Trump’s strength is that he sees pressure points and attacks them with vigour.

The strategic question is whether he sees the fault lines forming around them.

For now, time favours Washington

So my assessment at the end of September is considerably less pessimistic about America’s immediate position than it was a month ago.

The war remains a morass, but America appears to have found a workable equilibrium inside it. It can maintain pressure at lower cost. Its battlefield losses are small. More Middle Eastern oil is reaching world markets. Iran appears increasingly interested in negotiations. And in a little over a month, one of Iran’s most valuable temporary sources of leverage disappears.

If the current equilibrium holds, time increasingly favours Washington.

For now, America has found a way to make time work for it.

The danger is that the Middle East may not give it the time.