The Stalemate With Iran Is Not Sustainable

September 23, 2026
Richard Haass and Carolyn Kissane

A Diplomatic Strategy to End the War

 

For six months, the war with Iran was disruptive but manageable. The Strait of Hormuz was largely closed to maritime traffic, blocking a transit route for roughly 20 percent of the world’s liquefied natural gas trade and an even higher proportion of the oil trade. Prices ticked upward and many parts of the world struggled with oil and gas shortages, but countries found ways to help stabilize the global energy market. The United States and Iran both refrained from overly destructive attacks on the Gulf region’s vital energy infrastructure. It seemed that Washington and Tehran could extend their current stalemate, occasionally trading airstrikes and attacks on individual tankers and energy facilities, without leading the world into economic calamity.

That is no longer the case. The war has now expanded to critical parts of the region’s energy infrastructure, including the very routes that had been making it possible to offset the asphyxiation of the Strait of Hormuz. As of mid-September, the Bab el Mandeb Strait—a maritime chokepoint along the Red Sea route that is the main alternative to shipping oil and gas through the Strait of Hormuz—is under the control of the Houthis, a Yemeni-based group aligned with Iran. And a drone launched by an Iranian-affiliated militia operating out of Iraq struck the East–West pipeline in Saudi Arabia, through which the kingdom had diverted a large portion of its oil exports. The attack temporarily disabled the pipeline.
As a result, the price of oil jumped from the mid $70s in August to $110 per barrel in September. And if the rest of the region’s energy infrastructure is no longer off limits to military attack, further supply interruptions could easily push oil prices to $150 or even $200 a barrel. An escalation of fighting between Saudi Arabia and the Houthis, which has become a very real risk since the Houthis launched attacks on the Saudi cities of Riyadh and Yanbu last week, would add to the upward pressure on prices. If that happens, an energy crisis that plunges the world into recession is not far off.
Washington must now find a way out of this untenable situation. Half a year of alternating military attacks and economic coercion has not forced Tehran and its partners to make concessions, and there is no reason to expect that those strategies—much less threatening to “annihilate” Iran, as U.S. President Donald Trump did in his UN speech on Tuesday—would compel them to change their behavior today. Nor would it be possible for the United States and its allies to protect energy infrastructure and shipments indefinitely under threat of attack by Iran and other hostile actors.
The least bad option is a return to diplomacy. The United States needs to try to reach an agreement with Iran to end the war, one that includes not just a cease-fire but also a plan for keeping vital waterways open and measures that induce Tehran to comply with its terms. Washington must also encourage Saudi Arabia to pursue a similar settlement with the Houthis. Brokering these truces will require painful concessions from both Washington and Riyadh. But continuing to fight this war would court economic disaster, and that would be far more painful.
 
SHOCK ABSORPTION
At the start of the war, many economists and analysts feared that the effective closure of the Strait of Hormuz would provoke an acute energy crisis and economic downturn, or worse. Their concerns were reasonable. Before the conflict began, nearly 20 million barrels of crude oil and refined products passed through the strait each day, along with close to one-fifth of globally traded liquefied natural gas. By August, energy exports were running at roughly half their prewar level. Some days, fewer than ten ships traversed the strait—far fewer than in peacetime, when between 130 and 150 commercial vessels would make the passage each day.
Yet the global energy system proved remarkably capable of adjusting to what the International Energy Agency (IEA) called the “most severe oil supply shock in history.” Oil prices rose from just over $70 a barrel before the war to more than $125 in April but then fell back down to the $80s and $90s, where they remained until this month.
Part of what kept prices relatively stable was additional oil production outside the Gulf. The United States, Argentina, Brazil, Canada, and Guyana together added an estimated 1.4 million barrels a day. That replaced only a fraction of the missing Gulf supply, but every barrel mattered in a tightening market.
Tapping inventories helped as well. In March, the IEA’s 32 member countries authorized the release of 400 million barrels from emergency reserves, the largest coordinated drawdown in the agency’s history, and more than double the previous record of nearly 183 million barrels released in 2022 amid the war in Ukraine. Traders and refiners also drew on commercial inventories to replace some of the missing Gulf oil and allow refiners to maintain fuel production.
Demand also fell, especially in Asia. Part of the decline was the result of a consumer response to high prices. China, the world’s largest crude importer, also made a large, orchestrated adjustment that resulted in its seaborne imports’ dropping from over 11 million barrels a day before the war to just over seven million in August. Beijing drew on its 1.4 billion–barrel oil stockpile, Chinese refineries reduced the amount of crude they processed, and the government placed restrictions on fuel exports to keep more gasoline and diesel at home. China increasingly played the role of what the energy analyst Javier Blas has called a “swing importer”: by retreating from the market when prices rose, it freed barrels for other buyers and helped prevent more acute price spikes.
After the initial shock of the war, Gulf producers found ways to bypass the Strait of Hormuz and export some of their oil. The United Arab Emirates (UAE) used a pipeline connecting its inland fields to Fujairah, a city that lies past the strait. Saudi Arabia relied on its East–West pipeline, which carries crude from the country’s eastern fields to the Red Sea port of Yanbu. For much of the war, the pipeline moved four to five million barrels a day, making it the most important alternative export route.
Finally, restraint among the war’s belligerents kept the level of disruption to energy markets much lower than it could have been. There were still some significant incidents. Israel attacked Iran’s South Pars gas field in March, after which Iran carried out strikes on Qatar’s Ras Laffan refinery, knocking out approximately 17 percent of Qatar’s liquefied natural gas export capacity. It could take years for the site to become fully functional again. But these attacks proved to be exceptions. Although more than 80 energy facilities across the region have been hit—including Saudi Arabia’s Ras Tanura port, Bahrain’s Sitra refinery, several Kuwaiti refineries, and the UAE’s Habshan gas complex and Fujairah export facilities—the bulk of the region’s infrastructure survived intact and operational.
This was no accident. Iran, Israel, and the United States largely avoided sustained attacks on the region’s largest oil fields, processing plants, pipelines, and export terminals because they all had reason to hold back. Given the difficulty of defending against drones, missiles, and bombs, large-scale attacks on critical infrastructure would likely have succeeded and invited reprisals in kind, leaving everyone worse off. Washington, under pressure from concerned Arab governments that feared such escalation, refrained from carrying out the sort of massive attacks on Iran’s oil and gas facilities that Trump threatened on multiple occasions, and it pressed Israel to exhibit similar restraint. Tehran, for its part, declined to strike its neighbors’ vulnerable energy installations because it knew that its own oil and gas facilities, the last engine left powering the Iranian economy, would have met with the same fate. It was the energy equivalent of the mutual assured destruction doctrine, which brought stability to the U.S.-Soviet nuclear standoff during the Cold War.
 
THE BUFFERS BREAK
Today, the mechanisms that contained the initial energy shock are faltering. The relative stability of energy markets was the product of several extraordinary adjustments, not a sign that the energy system can indefinitely endure a war that continues to take infrastructure offline. Countries have already used the quickest and least economically damaging tools available to stabilize oil and gas prices. Now, with easy-to-mobilize production already online, alternative transit routes already operational, and reserves running low, few good options remain at their disposal.
Oil and gas production outside the Gulf will continue to grow, but slowly. Further increases to supply would require additional drilling and investment in new pipelines and other infrastructure that would take years to develop. In the meantime, most of the world’s readily available spare production capacity is in the Gulf, yet for the foreseeable future its exporters will not have access to export routes. Another major oil producer, Russia, is unlikely to contribute much, either. The country has halted exports of most refined products, and its own energy infrastructure has come under attack in the war with Ukraine.
Further reduction in demand is also possible, but only at a mounting economic cost. China and other importing countries have already conserved fuel, reduced refinery operations, substituted other energy sources, released reserves, and absorbed higher prices. Cutting consumption of oil and gas much further would likely lead to factories closing, transportation disruptions, and a decline in overall economic activity.
Emergency inventories, meanwhile, have reached dangerously low levels and have not been replenished. These reserves are designed to bridge temporary disruptions, not replace sustained production losses. The U.S. strategic petroleum reserve has already fallen below 300 million barrels, its lowest level since the 1980s.
Most consequentially, the alternative routes that Gulf states were using to export oil have now come under attack. After drones launched from Iraq by an Iranian-aligned militia struck Saudi Arabia’s East–West pipeline last week, Riyadh was forced to shut it down, removing millions of barrels of oil a day—up to four percent of global supply—from the markets. Bringing it fully back online could take days, or it could take many weeks. Even if the damage can be repaired quickly, the pipeline can always be attacked again. The Houthis, moreover, have strengthened their position around the Red Sea. By mid-September, they controlled most of Yemen’s western coastline, including the strategically placed port city of Mokha and islands in and around the Bab el Mandeb Strait. The group had declared a blockade of Saudi shipping in July; now it can enforce it by threatening vessels with drones, missiles, and shorter-range weapons. Neither the Bab el Mandeb Strait nor the Strait of Hormuz is safe for tankers any longer, especially those carrying Saudi oil.
Without the means to offset another significant loss of supply, the latest escalation of the war—and any further escalation to come—risks producing an energy crisis with far-reaching consequences. Shortages of diesel, which powers trucking, agriculture, construction, industry, and much of global shipping, will spread quickly through the broader economy. Reduced liquefied natural gas supplies will pressure electricity and heating markets, particularly as Europe approaches winter with inadequate gas inventories. Fertilizer shortages will raise agricultural costs and threaten future harvests. Three-quarters of the global population live in countries that depend on energy imports. The longer these countries go without critical energy supplies, the closer their economies inch toward crisis.
The burdens will not be distributed evenly. Wealthier countries can outbid poorer ones for limited supplies. Already, many import-dependent countries face shortages, fiscal pressure, and in some cases a difficult choice between cutting fuel subsidies and risking unrest or maintaining them and further weakening public finances. Central banks everywhere are contending with elevated inflation as a result of higher energy costs, but further raising interest rates would hamper growth, especially in economies that are already struggling to cope with fuel shortages—shortages that are now driving public protests in Guatemala, Indonesia, the Philippines, Portugal, and many other countries. Especially if attacks on energy infrastructure pick up, the early fear that this regional war would produce global instability might finally become reality.
 
BACK TO THE TABLE
Avoiding a full-scale economic crisis requires the United States to rethink its strategy. Washington has been launching strikes on military targets and industrial infrastructure and putting economic pressure on Tehran through sanctions and a naval blockade for close to seven months now. Yet the Iranian regime shows no signs of collapsing or capitulating. Its government, dominated by hardened veterans of the Islamic Revolutionary Guard Corps and largely indifferent to the suffering of the Iranian population, appears determined to fight on. And there is good reason to think it can, relying on Russian and Chinese assistance, a trickle of oil and gas sales, and revenues stashed away early in the war when the Trump administration made the misguided decision to relieve some sanctions. For the United States and its partners, meanwhile, the economic and military costs of the war are becoming unacceptable. It is therefore time to explore diplomacy once again.
Washington should not try to merely resurrect a memorandum of understanding that it negotiated with Tehran in June. That agreement placed no constraints on groups affiliated with Iran that are now interfering with energy infrastructure, nor did it place limits on Iran’s missile and drone capabilities. It was also tilted in Iran’s favor, offering Tehran substantial economic benefits, including access to a $300 billion reconstruction fund, the termination of all sanctions, and full access to frozen assets, much of which the United States should be retaining as leverage for negotiations to limit Iran’s nuclear activities. The best way forward would be to start over, or at least to negotiate modifications to the June accord’s terms.
Whatever the starting point, renewed diplomacy should aim for a cease-fire that extends to attacks on energy infrastructure by all parties and affiliates: the United States, its Arab partners, and Israel, as well as Iran, the Houthis, and other armed groups that Tehran supports in Iraq and elsewhere. Washington should condition the cease-fire on an agreement by the Iranian regime not to alter the status of its nuclear capabilities, but at the same time signal to Tehran that a U.S. military response to any such alteration would only target nuclear facilities. Iran would also receive a to-be-negotiated degree of sanctions relief, a return of some frozen assets, and some reconstruction aid, as long as it adhered to the terms of the agreement.
Some pressure on the global energy trade would ease right away: the United States would end its blockade of Iranian vessels, and Iran would end all mining of the Strait of Hormuz and attacks on tankers using its shipping lanes. Ideally, negotiators would also be able to work out a plan for a multilateral governing authority to oversee and collect reasonable fees for passage through the Strait of Hormuz. A resumption of free transit would be preferable, but some kind of fee structure has likely become unavoidable, given that the June agreement accepted Iran’s right to collect payments. The best outcome now would be a system in which all Gulf countries (including Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE) participated, rather than endorsing the Iranian-Omani governance regime advocated by those two countries.
A U.S.-Iranian accord alone would not eliminate all risk to the regional energy system. Tehran probably does not hold enough sway over the relatively autonomous Houthis, for instance, to induce that group to end its military action against Saudi Arabia. Riyadh might therefore need to reach a separate cease-fire agreement with the Houthis to fully secure its energy infrastructure—a tall task, given that Saudi Arabia’s dispute with the group is tied up in Yemen’s 12-year civil war. Any deal would almost certainly need to accept the Houthis’ participation in Yemeni politics and provide the group economic benefits, possibly including a share of Yemen’s oil revenues. Washington should push Riyadh to negotiate before its conflict with the Houthis escalates further and sends the price of energy even higher—or threatens the stability of Saudi Arabia itself.
The United States would benefit from an end to all hostilities in the Gulf. Energy prices would quickly fall, relieving shortages and inflationary pressures. The danger of escalation that would destroy the region’s energy infrastructure and plunge the world into recession would diminish. Washington would be able to withdraw the bulk of its troops from the region, rebuild its munitions inventories, and begin to restore its military readiness. Iran would also have something to gain: it would no longer have to fear devastating attacks on its own energy infrastructure, and it would reap considerable economic benefits from the resumption of oil and gas sales and from collecting new transit fees—not to mention any sanctions relief, unfreezing of assets, and reconstruction aid that would be part of a deal.
Whether the benefits of a cease-fire—and the risks of continued fighting—would persuade both Tehran and Washington to come to the table is a separate question. Both have been reluctant to lay down arms without a clear victory. Iranian decision-makers, moreover, may see any new U.S. effort to end the war to end as evidence of American weakness and reason to stand firm. Yet the dire state of the Iranian economy, with its negative growth, high inflation, and plummeting currency, might make a diplomatic off-ramp attractive to Tehran, especially among elites who may already be worrying about the stability of their rule. To help nudge Iranian leaders’ calculations in the direction of peace, the United States should make public the terms of any agreement and point out the benefits that would accrue to Iran, with the aim of adding to the internal pressure on the regime. It should also recruit China’s help in pressing Iran to compromise—a role Beijing may be amenable to playing to reduce the chances of escalation that leads to a global economic crisis, which would harm China’s own economy, too.
To have a chance of accomplishing any of this, the Trump administration must also be willing to negotiate. Any diplomatic resolution at this point would leave it vulnerable to charges that the United States paid a great deal for an outcome that left the country and the region worse off—and Iran better off—than before Washington initiated the war. Such criticism would be fair; there is no way to justify this war. Beyond its significant economic and human costs, the conflict has drained the resources of the U.S. military, called into question Washington’s ability and willingness to protect its partners, and likely given Iran and other countries in the region greater incentives to develop or acquire nuclear weapons.
But the administration has left itself few if any attractive alternatives. Continuing to fight or pressure Iran economically is unlikely to yield a better outcome than negotiating. Sustained war is more likely to lead to something far worse: energy prices that leap even higher than they are now, potentially leading to economic disaster if Iran, the Houthis, or other groups aligned with them destroy substantial energy infrastructure by design, accident, miscalculation, or unauthorized attack.
A negotiated agreement could end up having a political upside for Trump. Some criticism would be inevitable, but the war’s end and lower energy prices would be met with relief in the United States and much of the world—except, perhaps, in parts of the Middle East, where countries would have to contend with an empowered Iran. The longer-term costs of the war could be ignored for a time, and the nuclear file and other thorny issues could be quietly set aside for future negotiations. Trump could persuade his supporters—and no doubt some others—that the deal was a resounding success and leave it at that. With global economic catastrophe averted, attention would shift elsewhere. As the Middle Eastern saying goes, “The dogs bark, and the caravan moves on.