Murad Sadigzadeh
President of the Center for Middle East Studies
The events of late February and early March have shown that the path of negotiations around Iran increasingly serves not as a path to resolution, but as a parallel backdrop against which military decisions are made more quickly and easily.
At the same time, in the markets, today's escalation is no longer felt as a series of isolated episodes, but as the formation of a stable crisis contour, in which these same military decisions begin to dictate the economic rhythm.
Therefore, the world will never be the same, but a diplomatic solution will emerge from the conflict. Let's look at why.
Iran after the death of the Supreme Leader
Israel began “preemptive strikes“ on the territory of the Islamic Republic on February 28, and the involvement of the United States from the first hours gave the events a scale that is difficult to interpret as a one-time action. According to Reuters, Operation “Epic Fury“ began with cyber and space operations to suppress individual communication and defense elements, then escalated to a major air strike using precision-guided munitions.
Iran's reaction was swift and was calculated to increase the costs of continuing the campaign. The missile and drone strikes against Israel have been complemented by a shift in tension towards the waters and coastal infrastructure of the Persian Gulf, where key US installations and allied economic centers are concentrated.
Furthermore, the death of Ayatollah Ali Khamenei is not only the loss of a leader associated with an era, but also a test of the strength of the entire power structure. A transitional governance structure has been announced, including an interim council and the inclusion of a figure called upon to ensure legal and symbolic continuity - Ayatollah Alireza Arafi.
The initial effect on domestic politics is an almost inevitable mobilization. In the face of an external attack, public sentiment, however divisive in peacetime, often follows the simple logic of survival. For the government, this is a chance to restore legitimacy through the language of defense, dignity, and continuity. For society, this is a period of anxiety, when political expectations are reduced to the question of whether social order, infrastructure, and minimal daily stability will be preserved tomorrow.
The second effect is related to the elites. The disappearance of the figure of the supreme arbiter increases the risk of apparatus frictions, however hidden they may be. At such times, it is especially important who controls the pace of decisions and the chain of execution, which means that the role of the security bloc increases. In wartime, the centers responsible for security naturally gain strength and begin to determine the criteria for the acceptability of the future leadership. Here, religious authority must be combined with the ability to ensure discipline, mobilization, and stability of governance.
At the same time, it is important to take into account the specifics of the Iranian political system and the culture of power. It is historically structured to survive personality crises and maintain governance even under external pressure. Here, a combination of institutions, a habit of mobilization regimes, and a significant base of loyal citizens who perceive an external threat as an argument in favor of uniting around the state are at work.
The Persian Gulf as a Zone of Mutual Vulnerability
The current phase is distinguished by the fact that US involvement transforms the conflict into a regional system of mutual obligations. US bases, logistics, and command and control centers become both a shield and a target. Any episode along this arc can instantly turn into a crisis for states that do not seek to be parties to the war but are forced to respond because security and economic elements are located on their land territory or in their waters.
There is also a layer of psychological threat. The transition to direct strikes leads to increased pressure from domestic audiences demanding revenge and continuation. Even if political leaders remain willing to limit conflict, they must take into account the dynamics of expectations and the risk of being perceived as “weak”. It is during such extremes that miscommunications are most likely to occur.
Economy responds faster than diplomacy
The economic consequences are manifesting themselves faster than diplomats can make statements. The market is driven by expectations and calculations based on insurance. Amid the escalation, sharp price movements have already been recorded. According to media reports, in the first days of the escalation, Brent crude oil rose by about 9% and exceeded 80 USD per barrel, the American WTI rose at a comparable speed, and European gas prices responded with a jump of tens of percent.
At the same time, a less visible but more lasting mechanism is being triggered. Insurance premiums are increasing, transportation costs (sea freight) are increasing, delivery schedules are becoming more complex, and some shipping companies are changing routes or reducing their activity in risky areas. This affects the cost of capital and investment decisions, because investors do not dislike bad news as much as they dislike uncertainty.
The ability to assess the rules of tomorrow's game
For the Gulf monarchies (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE), this factor is particularly sensitive. For decades, their strategy has been built on the opposite premise. The region should be not only a source of raw materials, but also a predictable space where they can locate headquarters, build logistics centers and develop finance, tourism, services, technology and industrial facilities. When war rages nearby and the Strait of Hormuz is regularly mentioned in the media, it is harder for investors to explain why the risk here is manageable.
It is telling that the Gulf countries themselves have publicly linked their economic future to increased long-term investment in recent years. For example, in 2025, Reuters reported that the UAE aims to increase annual foreign direct investment inflows to 240 billion dirhams (approximately $65 billion) by 2031. And in 2023, the figure was 112 billion dirhams. According to this logic, any military turbulence, even if limited in time, reduces the region’s investment attractiveness by increasing the risk premium and complicating the planning horizon. Globally, this is exacerbated by the general trend of slowing productive capital flows.
For example, the United Nations Conference on Trade and Development (UNCTAD) recorded a decline in global foreign direct investment flows in 2024. It also directly pointed to the role of uncertainty and geopolitical tensions as factors undermining the desire for long-term investment.
The Strait of Hormuz and the Cost of Its Closure
The key link connecting the regional crisis to the global economy is, of course, the Strait of Hormuz. The US Energy Information Administration (EIA) has estimated that approximately 20 million barrels of oil and condensate pass through the Strait of Hormuz per day – a volume equivalent to approximately one-fifth of the world’s consumption of liquid hydrocarbons. The International Energy Agency (IEA) also highlights in its reports that the Strait of Hormuz is the exit route for a significant share of the world's oil supplies from the Persian Gulf.
The gas component is no less important. The Environmental Impact Assessment Agency (EIA) noted that by 2024, approximately one-fifth of the world's liquefied natural gas (LNG) trade will have passed through the Strait of Hormuz. In addition, almost all of the flow of liquefied natural gas from the Persian Gulf, mainly related to Qatar and the UAE, passes through this hub. In figures, this equates to approximately 9.3 billion cubic feet per day of LNG exports from Qatar and approximately 0.7 billion cubic feet per day for the UAE. It is worth considering that Doha accounts for approximately 20% of global LNG exports: in 2025, Qatar Energy delivered nearly 81 million tons of the resource, with plans to expand capacity to 142 million tons per year by 2030.
There is another figure that makes even the threat of closing the Strait of Hormuz economically dangerous. According to EIA estimates, the strait could be partially bypassed by pipeline routes operated by Saudi Arabia and the UAE, but their combined available capacity, which could be used to divert flows in an emergency, is incomparable to the volumes of seaborne transit. Therefore, a figure of approximately 2.6 million barrels per day has been proposed to divert flows around the congested section.
If the strait were to be closed, even for a short period, the consequences would be measured not only in the surge in oil and gas prices. There would be a domino effect, with the energy shock multiplied by the logistical one. Shipping and insurance costs would rise, deliveries would become less predictable, and the impact would spread through industrial supply chains and inflation.
Asia is particularly vulnerable
According to the EIA, by 2024, 84% of the oil and condensate and 83% of the liquefied natural gas (LNG) passing through the Strait of Hormuz would be destined for Asian markets. This means that the Strait of Hormuz will almost automatically become a shock to the world's major demand centers and, subsequently, to the global economy as a whole.
As for the countries in the region itself, the long-term consequences of closing the strait are likely to be negative, even if the short-term increase in prices increases exporters' income. The war undermines decades of efforts by the Gulf monarchies to transform the region into a center for global trade, finance, and logistics, where stability is not a slogan but a commodity.
Telephone diplomacy and the possible role of Russia
Amid the growing risks, telephone diplomacy has intensified as an attempt to regain control and prevent the crisis from spreading to neighboring Arab countries. For example, Russian President Vladimir Putin held telephone conversations with the leaders of several Gulf states, including the UAE, Qatar, and Bahrain.
Qatari sources said the conversation touched on the aftermath of the strikes and regional security issues. Bahrain publicly reported that Vladimir Putin’s conversation with King Hamad bin Isa Al Khalifa included the topic of preventing further escalation and readiness to promote stabilization.
In this configuration, Russia can be seen as a potential mediator not so much for rhetorical reasons as for the practicality of its channels. Moscow maintains working relations with Tehran, maintains dialogue with the Gulf states, and has the ability to communicate with Washington under the Donald Trump administration. Mediation in such crises rarely leads to quick solutions, but it can create the most valuable thing that markets and security need: pause. During this pause, the pace of the exchange of blows slows, opening up space for technical agreements, including baselines for navigation security and de-escalation.
Most Likely Trajectory in the Coming Days
Given the logic of the early decisions and the interests of the parties, I think a limited military campaign is the most likely scenario. The reason is not that the risks are low, but that the cost of uncontrolled expansion is too high (both for security and the economy).
Strikes can quickly escalate into a shipping crisis; any threat to the Strait of Hormuz instantly becomes a global factor, affecting prices, inflation, and the expectations of key consumers. This makes a short, carefully measured campaign, followed by a search for a pause, more rational than moving toward open, protracted conflict that is difficult to contain.
Thus, diplomacy – even if it seems weakened today – remains a necessary exit mechanism. Not as a beautiful ending, but as a risk management tool, when political leaders must both demonstrate determination and stop before economic and regional security begin to dictate decisions for them.
Yet, the underlying meaning of what is happening is broader than this particular campaign. These events increasingly demonstrate the fading of the old world order and the accelerating struggle for a new global order. The old rules are increasingly failing, the previous mechanisms of stabilization are losing their effectiveness, and diplomacy is lagging behind military and economic logic. Uncertainty and conflict are growing, and it is precisely on the ruins of previous agreements that a new order will gradually emerge, which currently has no clear contours and generally accepted limits.