Overview
On Saturday, President Trump publicly rejected Iran’s most recent peace proposal, delivered via shuttle diplomacy by Qatar during the UN General Assembly in New York. The apparent failure of this most recent negotiating round raises old and new questions about the prospects for a durable resolution to the conflict, the trajectory of the energy market and regional dynamics – including the perspective of Pakistan, the mediator of the June MOU.
Anni Coonan, Middle East analyst: With prospects for negotiations dim, long-term stalemate seems most likely
The latest iteration of US-Iran ceasefire negotiations has ended up in a familiar place: a stalemate after neither side was willing to offer meaningful concessions. On Saturday, the US publicly rejected an Iranian proposal that would have involved the cessation of hostilities and lifting of the US naval blockade in exchange for Iran reopening the Strait of Hormuz and committing to nuclear talks, among other details
Prospects for a lasting diplomatic solution remain dim. Talks may still be ongoing, but President Trump has again threatened to “blow up” Iran and its leadership, signaling a return to on-the-ground efforts to shift the balance of power before resuming negotiations. The calculus that has made negotiation difficult since February – that both sides feel they have the leverage and longevity to continue pressing for a better deal – remains largely in place. This is true even as the Strait of Hormuz, Iran’s key leverage, has functionally reopened, and both sides are militarily depleted to the point that overwhelming, decisive kinetic operations are less viable.
The calendar throws an additional wrench in the works: Iran has timed its strategy to create increasing pressure ahead of November midterms. Indeed, Trump has repeatedly predicted that the war will end directly after the polls, when Iran’s leverage is lessened. Until then, Iran will hope that maximizing political costs will create increased pressure for President Trump to sign an interim deal for some economic relief. With more and more oil escaping the Strait of Hormuz, decreased Iranian leverage makes American concessions less likely, despite the deepening unpopularity of the war. But less optimistic analysts have predicted that Iran could hold out until 2029, when peace with a new administration would be less of a reputational hit at home.
Ian Cameron, energy analyst: Diplomatic uncertainty and global instability are keeping energy prices high even as oil flows move towards prewar levels
Over the last month, crude oil exports out of the Middle East have returned to around 80% of their prewar levels, according to data analytics firm Kpler. However, market prices do not seem to be fully reacting to this; while current Brent futures prices are slightly above $100, remaining below the high point reached in April of $118 per barrel, they are well above the low of around $74 from the summer.
But even as exports from the Middle East increase, it’s likely that prices will remain elevated due to continued regional instability and uncertainty about US-Iranian efforts to end the war, risks from Russia’s war against Ukraine, and a lack of clarity around Chinese demand and product exports. Likewise, shortages of refined products are contributing to high crude demand.
Middle Eastern shipping still requires US naval protection, and infrastructure damage, such as strikes on a major Saudi Arabian pipeline, is still on the table as Iran looks for escalation options. Conflict in the Black Sea has driven up shipping costs and repeatedly resulted in Kazakhstan reducing oil exports, and Kyiv is continuing its campaign against Russian energy. Finally, reductions in Chinese buying helped cushion the global impact of supply reductions in the weeks after the Iran war began, but Beijing also restricted refined product exports. Oil demand from China showed signs of recovery in August but reportedly stalled in September. The evolution of Chinese demand and exports of refined products will have a significant impact on global crude markets.
Zayna Dembinski, Asia analyst: A protracted Iran war will make it increasingly difficult for Pakistan to juggle its competing roles in the conflict
Since the start of the Iran war, Pakistan has worn many hats, including mediator, economic neighbor and regional security guarantor. Pakistan has played a critical role in facilitating rare peace talks between the US and Iran, including helping secure the Islamabad Memorandum of Understanding in June, while also serving as a key Saudi security partner.
The recent uptick in Houthi drone and missile attacks on Saudi oil facilities and civilian infrastructure, however, could force Pakistan to operationalize security commitments that have been largely deterrent thus far. Islamabad has so far stopped short of publicly committing to direct military operations against the Houthis, despite the Mecca Joint Defense Agreement of August, which reportedly contains a mutual defense clause. Amid this week’s escalation, however, Defense Minister Khawaja Asif said that Islamabad would use “whatever means are available” to defend Saudi Arabia, although the scope of that commitment remains unclear and it would likely stop short of combat operations. Ultimately, the ambiguity surrounding the agreement, particularly as its text is not published, leaves significant questions.
At the same time, Pakistan’s continued economic engagement with Tehran, despite growing US sanctions pressure, risks creating friction with Washington. Islamabad maintains that it is not “obliged” to comply with what it considers unilateral US sanctions on Iran, and confirmed this week that it will continue to trade with Tehran unless UN sanctions are imposed. Recent analysis identified Pakistan, alongside Russia and China, as a key partner in the parallel trade and transportation networks Iran uses to mitigate the effects of Western sanctions.
For Islamabad, a prolonged conflict could therefore compound security pressures stemming from its commitments to Saudi Arabia with friction with Washington over continued economic engagement with Iran. A protracted war will likely make it increasingly difficult for Pakistan to manage these competing interests.
