Experience Stern | Faculty & Research

After decapitating the Iranian regime and bombing Islamic Revolutionary Guard Corps positions for 40 days, the Trump administration has failed to secure a surrender and left Iran in control of the Strait of Hormuz. With Iran striking critical infrastructure across the Gulf Cooperation Council states and threatening shipping, the United States reverted to TACO (Trump always chickens out) mode by agreeing to a ceasefire. And now rising inflation and slowing economic activity imply a bout of stagflation—just in time to anger voters ahead of the US midterm elections.

So, what happens next? There are four possible scenarios.

First, the current ceasefire could lead to successful negotiations to end military hostilities and reopen the Strait of Hormuz. The US does have some leverage here because its blockade of all naval traffic to and from Iranian ports is adding to the financial pressure on the regime. Trump is probably hoping that a more moderate faction—perhaps led by the speaker of parliament, Mohammad-Bagher Ghalibaf—can convince the hardliners that a compromise on the nuclear issue will bring both sanctions relief and renewed shipping revenue through the strait.

Read the full Project Syndicate article.
___
Nouriel Roubini is a Professor Emeritus of Economics and International Business and the Robert Stansky Research Faculty Fellow.