It has been 28 days since the United States (U.S.) and Iran last exchanged fire. Axios reported last night that Secretary Rubio has been telling his foreign counterparts that "for the time being" the U.S. is expected to focus on economic sanctions and renewed diplomacy rather than additional strikes. When combined with yesterday's news that the U.S. is returning Foreign Service Officers (FSO) to U.S. Embassies in the region, the outlook for decreased risk of renewed conflict grows more positive.
- Global Guardian recommends firms carefully consider travel to the region amid lessened risk of renewed conflict in the near term.
- The 28-day streak appears likely to continue; however, an "October Surprise" from Iran remains a possibility as noted later in this update.
The conflict has shifted from the kinetic sphere to the economic sphere. Each side is trying to squeeze the other’s economy to obtain the upper hand in a political settlement, though neither has succeeded thus far. Talks are continuing through Oman and Pakistan, but no U.S.–Iran agreement is close. However, reports now suggest that Iran–Oman talks on Strait of Hormuz management have succeeded in producing a bilateral agreement establishing entrance to the Persian Gulf through Iranian waters and exit through Omani waters.
In the economic battle, Washington’s weapon is a new sanctions campaign on top of its blockade. On 24 August, the U.S. Treasury launched what it calls Operation Economic Outcast. The stated goal is to economically isolate the Iranian government. It threatens to lock the foreign enablers of the Iranian regime out from the U.S. dollar system. Secondary sanctions are expected to be announced in the coming days and weeks. According to the New York Times, despite characterizing the announcement as "economic D-Day," Treasury Secretary Bessent later acknowledged it was more of a warning shot that would begin a period of “quiet diplomacy” with counterparts around the world.
On 18 August, the UAE Ministry of Foreign Affairs announced that "all trade, commercial exchanges, and financial transactions with Iran have been halted until further notice." This is the most consequential economic act by any Gulf state in the conflict. The UAE supplies roughly a third of Iran's annual imports, and Dubai has been used as a financial and transshipping hub to bypass international restrictions.
Tehran’s weapon is coercive control over the Strait of Hormuz. Iran seeks to decide which ships may pass, and it has begun publishing a blacklist of tankers it says broke its rules. Iran is also writing transit fees into law. Yet Iran's leverage is fleeting. Gulf petroleum producers are using tankers that load inside the Gulf, go dark, and then cross the Strait of Hormuz at night under U.S. military protection along the southern/Omani route. Last week, U.S. Energy Secretary Chris Wright said that on average 8 million barrels a day were passing the Strait.
In terms of outlook, a possible Hormuz deal and/or the announcement of secondary sanctions could impact the conflict in opposite directions. Barring an agreement on Hormuz that satisfies all parties, we assess with moderate confidence that Iran is likely to attempt to create an "October Surprise" for the Trump administration. The intent would be to raise oil prices and make the conflict a major midterm election issue.
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