Trump gets his wish: Economics plays peacemaker in the US-Iran war
Around his 80th birthday, President Donald Trump got the gift he sought: a memorandum of understanding to end nearly four months of hostilities that began with a US-Israel attack on Tehran in late February. Under its terms, Iran will reopen the Strait of Hormuz to commercial shipping, allowing oil to flow freely again, while the United States lifts the naval blockade it had imposed on Iranian ports. The two sides have committed to a 60-day window of further negotiations to settle the harder questions, foremost among them Iran’s nuclear programme.
News of the breakthrough rallied markets, lifted equities and pulled oil prices down, offering a measure of relief from cost-of-living pressures in economies far from the Gulf. Peace and prosperity, it seems, move together. The question worth asking is whether economics did more than coincide with peace — whether it helped make it possible.
Wars are conventionally ended by military victory, negotiated compromise, or simple exhaustion. What appears to have brought this one to a halt is something different — the shared recognition, across multiple capitals, that the economic consequences of continuation were too severe for too many powerful actors to absorb.
It would be an exaggeration to say that economics alone imposed this truce. Military realities, diplomatic efforts and domestic political considerations also played their part. Yet economic pressures appear to have been among the strongest forces pushing the parties towards restraint. This ceasefire is not the result of thawing relations between the warring parties but the child of necessity, conceived in the interests of oil exporters, energy-dependent economies and the global shipping networks that connect them.
No nation could afford to ignore the wider consequences without endangering its own prosperity. The architects of this truce are less statesmen than spreadsheets.
The geography of deterrence
The Strait of Hormuz is a narrow channel between the Persian Gulf and the Arabian Sea through which roughly a fifth of the world’s oil passes each day. For Iran, it represents a form of strategic leverage that no military disadvantage can easily offset.
The logic has a Cold War quality about it. The United States could inflict severe damage on Iran through conventional military force. Iran, in turn, could inflict severe damage on the global economy by disrupting or closing the strait. The fear that encouraged restraint on both sides was not nuclear exchange but the prospect of oil prices climbing past a hundred dollars a barrel, fractured supply chains and economic disruption rippling far beyond the region.
America’s greatest constraint in this conflict may not have been military. It may have been arithmetic.
Why oil still matters
There is a paradox worth noting. The United States has become one of the world’s leading energy producers, yet American consumers remain exposed to price shocks originating thousands of miles away. Oil is priced on global markets. When traders anticipate disruption to Gulf shipping, prices rise everywhere — at filling stations in America, airport fuel depots in India, and power plants in Japan.
For any administration, sharply rising fuel prices are not simply an economic inconvenience. They carry direct political consequences. Inflation, energy costs and market volatility quickly become electoral issues. That reality places a ceiling on military escalation that strategic considerations alone cannot easily override.
The quiet influence of the Gulf states — and Pakistan
The wealthy Arab monarchies of the Gulf have played a significant, if understated, role in encouraging restraint. Saudi Arabia, the UAE, Qatar and Kuwait have little appetite for prolonged regional conflict. Their prosperity depends on stable energy exports, open capital flows and sustained international investment. Disruption is bad for business in the most direct sense.
Their influence, however, extends well beyond oil production. Over decades, petrodollar revenues have been reinvested in Western financial markets on a large scale. Gulf sovereign wealth funds — among them the Abu Dhabi Investment Authority and the Saudi Public Investment Fund — hold substantial positions in American equities, real estate, infrastructure and government debt. These are not simply foreign investors. They are, in a meaningful sense, structural participants in American economic life.
When Gulf governments signal concern about regional escalation, Washington listens — not merely as a matter of diplomatic courtesy but because the interests at stake are deeply intertwined.
It is no accident that the agreement ending the war — the Islamabad Memorandum — bears the name of the Pakistani capital. Pakistan, which led the mediation alongside Qatar, Saudi Arabia and Turkey, has no oil wealth comparable to its Gulf neighbours, but it has its own reasons to want the conflict contained: a fragile economy exposed to oil-price shocks, a large expatriate workforce across the Gulf states whose remittances are a vital source of foreign exchange, and a long-standing relationship with Tehran that it could not afford to see collapse into open hostility on its border. Pakistan’s diplomatic capital, in other words, was deployed in defence of its own economic interests as much as out of regional goodwill.
The China factor
China has been perhaps the most consequential and least visible force for de-escalation. As the world’s largest importer of crude oil and one of its largest trading nations, Beijing has powerful reasons to want the Gulf to remain stable. Higher energy prices erode Chinese growth. Disrupted shipping lanes threaten Chinese export industries. A destabilised Middle East puts at risk the Belt and Road investments that Beijing has built over the past decade.
China’s interest in stability is entirely pragmatic. It wants open sea lanes because open sea lanes support commerce. The same logic, with variations, runs across much of Asia. Japan, South Korea and India all depend heavily on Middle Eastern energy. For these countries, a closed or threatened Hormuz is a direct threat to growth, employment and domestic political stability.
The result has been an unusual convergence. Actors in Washington, Beijing, Riyadh, Islamabad, Tokyo and Brussels — pursuing entirely different national interests — have found themselves aligned around a common preference: that this conflict should not escalate further.
Israel’s calculation
Israel’s calculations were not identical to those of Washington or Tehran. Security concerns remained paramount. Yet even for Israel, prolonged conflict carried risks. Extended uncertainty threatened investment, commercial activity, tourism and relations with regional partners. While security considerations undoubtedly dominated decision-making, economic considerations were not absent from it.
That does not mean Israel’s concerns have disappeared. Indeed, many of the issues that contributed to the conflict remain unresolved, particularly those involving Iran’s nuclear programme and Iranian-backed armed groups across the region.
Why other wars continue
The contrast with Lebanon and Ukraine is instructive, if uncomfortable.
Fighting in Lebanon has continued in parallel with the US-Iran ceasefire process, with Israel maintaining that its operations against Hezbollah fall outside any agreement to which it was not itself a party. While instability in Lebanon can contribute indirectly to wider regional tensions, it does not threaten a global economic chokepoint on the scale of Hormuz.
The Russia-Ukraine war grinds on despite years of mediation efforts. Unlike Hormuz, however, Ukraine does not threaten a single maritime artery whose closure could trigger an immediate worldwide economic shock. The conflict has imposed enormous costs on Europe and disrupted energy and grain markets, but over time alternative supply routes have emerged, energy markets have adjusted and trade patterns have shifted.
The difficult truth is that governments respond most urgently when their own economies face direct and immediate threat. Humanitarian suffering, on its own, rarely generates the same speed of action. Hormuz focused attention precisely because its closure would have imposed simultaneous costs on Chinese factories, American consumers, European financial institutions and Asian exporters.
Can commerce prevent wars?
History does not encourage excessive optimism on this point. Europe’s deep economic integration did nothing to prevent the First World War. Russia and Germany were significant trading partners before the invasion of Ukraine. The proposition that commercial ties make armed conflict unthinkable has been refuted more than once.
What economic interdependence can do is raise the costs of conflict, create domestic constituencies for stability and introduce considerations that go beyond the purely military. It cannot override nationalism, ideology or national security when leaders conclude that these matter more. But it can, under the right conditions, tip the balance.
The situation in Iran may be a case in point. It is impossible to know which consideration ultimately weighed most heavily in the calculations of leaders in Washington, Tehran and Jerusalem. Yet economic costs appear to have figured prominently in all of them. Every major party — the United States, Iran, China, the Gulf states, Pakistan, Europe and the Asian economies — appears to have reached the same conclusion: that the price of a wider war would be prohibitive.
That shared calculation helped produce restraint.
An uneasy peace
The ceasefire remains fragile. Iran’s nuclear programme is the central unresolved issue, with the 60-day negotiating window intended to settle questions of enrichment, stockpiles and verification that have eluded agreement for years. Israeli concerns about Iranian-backed armed groups have not eased, and Israel — which was not a direct party to the memorandum — has signalled that it does not consider itself bound by its terms with respect to Lebanon. Hezbollah remains organized and capable. A single miscalculation could reignite hostilities.
The forces sustaining restraint are real but not permanent. They depend on the continued judgement — in Washington, Beijing, Riyadh, Islamabad and Tehran — that escalation costs more than it gains. Economic interests can shift. Political pressures can override commercial logic. History makes no promises.
What the Iran crisis appears to show is that in the twenty-first century, economic interdependence has become a genuine, if unreliable, factor in how wars are waged and ended. Oil exporters want stable markets. Sovereign wealth funds want predictable returns. Asian manufacturers want secure supply chains. Western governments want lower fuel prices before the next election.
These interests do not make war impossible. But they can make certain wars too expensive for too many powerful actors to permit.
The ceasefire in Iran may be the child of necessity. Whatever its origin, it should be welcomed.