US-Iran Conflict Escalates as Economic Pressure Falters
A few weeks ago, it seemed like 'Operation Economic Outcast' was the Iran policy sweet spot. The US had limits to its economic campaign, Treasury Secretary Scott Bessent acknowledging he wouldn't blow up the global financial system, and a methodical sanctions campaign would supplement the US Navy embargo. But the past two weeks have changed that.
The US destroyed ten Iranian oil tankers following Iranian missile attacks targeting US warships and commercial vessels. The IRGC claimed to have struck multiple vessels and important US air assets in a missile barrage against a US air base in Jordan. The Houthis seized the strategic Yemeni port city of Mocha and an island in the Bab el-Mandeb Strait, further threatening Red Sea shipping.
Energy prices have spiked, Trump acknowledges the conflict won't be resolved before the midterms, and his advisors have reportedly warned him the war could extend through the end of his term in 2025. The US entered the war believing it would be easy to control the timing, but six months later, there's still no resolution.
The Iranian regime is surprisingly resilient and has shown an ability to survive even devastating wars and widespread protests. Economist Esfandyar Batmanghelidj wrote that Iran is shifting pressure from the government to the people by driving down consumer consumption. The regime is also using the pressure campaign as cover to implement costly fuel subsidy reforms.