Iran's Economic Leverage Fades as Crude Exports Rebound
The recent shift in Iran's stance on negotiations with the US has sparked interest in the ongoing conflict. After months of hardline positions, Tehran has emerged as the more eager party for talks. The development comes after President Donald Trump's speech at the UN General Assembly, where he threatened to 'annihilate' Iran. However, Trump rejected an Iranian proposal for a seven-day roadmap to end hostilities.
The US midterms are approaching, and Trump is not allowing Iran to use the elections as leverage against him. Another factor contributing to Iran's willingness to negotiate is the decline of its economic leverage in the Strait of Hormuz. Tracking data shows that crude exports from West Asia rebounded in September, with shipments through the Strait and alternative routes carrying just under 80% of their pre-war flows.
The closure of the Strait was a potent economic weapon for Iran against a superior military power. However, the recent recovery in oil exports has weakened this leverage. Saudi Arabia's repair of the East-West pipeline and resumption of Red Sea oil exports have also reduced Iran's chokehold on oil flows. Meanwhile, Iran's ability to export crude through the Strait is hindered by the US counterblockade.
Iran's economic situation is deteriorating due to a wave of new US sanctions, dubbed Operation Economic Outcast. Despite this, there is little sign that the financial pain is translating into pressure on the leadership. Both parties will need to give up some leverage if the deadlock is to be broken, or they risk remaining locked in a prolonged stalemate.