A conflict edging toward negotiations, as the global economy prepares for the consequences

The conflict with Iran appears to be moving toward some kind of negotiated outcome, though the timing and specifics remain unclear. As the war drags on—and as the Iranian regime endures—the likelihood of a decisive US victory, understood as Tehran’s full capitulation, seems to diminish. This suggests a prolonged, uneven phase of de-escalation, with ongoing disruptions to the global economy likely in the meantime.

From this perspective, Iran is unlikely to win militarily. The US, on the other hand, has the capability to secure a decisive victory, but achieving unconditional surrender would almost certainly require a large-scale ground invasion—an option that appears improbable given the political costs, as seen in Afghanistan, Iraq, and Vietnam.

While the US can continue to intensify air and missile strikes, the impact of such tactics may be waning after weeks of sustained bombardment by US and Israeli forces. Expanding attacks on Iran’s infrastructure could inflict significant economic damage, but it remains uncertain whether this would compel the regime to fully concede, especially as it views the conflict as existential.

Given these dynamics, the most likely outcome is a gradual shift toward negotiations shaped by realities on the ground. The timing and structure of any agreement will depend on internal pressures—such as resource constraints and public sentiment—which create different breaking points for each side.

For the US, key concerns include maintaining its global credibility and influence in the Middle East, as well as managing economic repercussions. The closure of the Strait of Hormuz has already driven energy prices sharply higher, highlighting Iran’s ability to disrupt a critical global supply route and the limited options available to the US to fully counter such actions.

A critical vulnerability for Iran is the risk of economic exhaustion. While Tehran may be able to disrupt energy flows from the Gulf, the US has the capacity to tighten restrictions on Iran’s own oil exports—its primary source of income.

Ultimately, the situation may hinge on which side yields first.

China could emerge as a key, if understated, influence. As the largest buyer of Iranian oil—accounting for over 80% of its exports in 2025, and roughly 13–14% of China’s seaborne crude imports, according to Kpler—Beijing holds significant economic leverage. At the same time, China maintains extensive trade ties with the US, despite ongoing tariffs, giving it strong incentives to balance relations with both sides.

This dual positioning suggests China could quietly shape the path toward negotiations. One important dynamic to watch is whether Beijing uses its leverage to keep Iran engaged in talks, even as it continues to support Tehran’s capacity to withstand US pressure.

For the US, the key issue is when mounting political and economic pressures might convince President Trump that negotiation is the most viable option. Another open question is how far Washington is prepared to go in further weakening Iran’s economy. While escalation may be tempting, it comes with clear trade-offs. A renewed military push would likely keep energy exports constrained, sustaining higher inflation and dampening economic growth both domestically and globally.

In the end, neither side may achieve the outcome it seeks—only a compromise that both can ultimately accept.