The US-Iran war will hit the half-year mark next week, with both Washington and Tehran betting that they can outlast the other. As mistrust deepens and the Strait of Hormuz remains a flashpoint, the conflict is entering a new phase in which economic costs and shifting regional strategic calculus are increasingly likely to shape the prospects for its eventual outcome.

Following the expiry of the 60-day truce under the Islamabad Memorandum of Understanding, there are growing indications that both Washington and Tehran are preparing for a drawn-out confrontation. On August 20, US President Donald Trump said he would launch “the most powerful economic operation ever taken against” Iran and warned that third countries supporting Tehran would also face harsh economic penalties.

The US and Iran have divergent interpretations of the MoU with regard to the Strait of Hormuz. According to Tehran’s interpretation, Article 5 of the Islamabad MoU acknowledges Iran as being ‘responsible’ for ensuring safe traffic through the Strait of Hormuz. This provision became a major sticking point after Iran mandated all ships to notify their movements. The US and most GCC states rejected the Iranian stance, insisting that navigation through the southern corridor - passing through Omani waters - does not require Iranian clearance.

Iran has used the passage as a key source of leverage, fearing that the southern/ Oman route was designed to deprive it of its primary bargaining tool in any future conflict. A compromise has not been reached. Oman has sought to broker a middle ground. Its diplomatic efforts have risked provoking President Trump whenever they appeared to differ from Washington’s position. On at least one occasion military action was threatened against the country.

The conflict has also exposed the growing vulnerability of the Gulf states, whose security and economic interests are increasingly threatened. They could face severe political and strategic consequences arising from the conflict. Oman and Qatar appear increasingly conscious of the need to accommodate Iran and adjust to the emerging regional reality. With their own security and economic interests threatened, regional states are likely to step up efforts to broker an understanding and pursue separate arrangements with Tehran, even if such accommodation comes at the expense of US influence.

The complete lack of diplomatic engagement between Iran and the US has left regional observers deeply concerned that even a minor miscalculation could rapidly escalate into a wide conflict. Both the United States and Iran are constrained by mounting internal pressures. Washington is facing depleted ammunition stocks and strained troop morale. Tehran is grappling with high inflation, currency collapse and severe shortages. Yet, neither side has shown a willingness to soften its stance. With communication channels closed and pressures rising, the margin for error continues to shrink.

The conflict is likely to become fiercer and has all the makings of a “forever war.”, Periods of escalation have been followed by temporary pauses before there is renewed fighting. Economic warfare has been sustained. Beneath the public posturing and military escalation, both sides appear to be searching for a modus vivendi — an accommodation that could prevent the conflict from spiralling further.

Last week’s attack on a Saudi oil refinery, reportedly carried out by the Houthis, was another warning to Saudi Arabia. It added yet another layer of complexity to an already volatile regional situation.

According to Pakistan’s former ambassador, Abdul Basit, “The lengthening of the conflict will depend largely on Iran. Tehran’s emphasis on the Islamabad MoU provides room for optimism. The phased easing of sanctions and the release of frozen Iranian assets could help create the conditions for de-escalation and gradually defuse the conflict.”

“Despite its military prowess, the next phase of the conflict could prove precarious for Iran. The prospect of potentially lethal US attacks poses a direct threat to the survival of the Iranian regime. The blockade of the Strait of Hormuz and six months of conflict have narrowed Tehran’s economic and strategic room for manoeuvre.”

“At the same time, the Pakistan-Saudi Arabia-Turkey defence agreement is reshaping the regional security environment, further narrowing Iran’s strategic space and increasing the risks it faces if the conflict escalates,” Basit says. Pakistan had once again conveyed its strong reservations to Iran over Houthi attacks on Saudi Arabia.

West Asia is important to the entire world because of its central role in global energy supplies. Experts believe that the region is also at the centre of the struggle over the petrodollar, with Iran challenging the dollar-denominated financial architecture of global energy trade and seeking greater use of alternative currencies and payment mechanisms.

This is closely connected to the war in Ukraine and the wider strategic confrontation involving Russia, Iran and China. The conflict is already affecting China on multiple fronts — through the Ukrainian and Iranian theatres and through its extensive trade and commercial links with West Asia. According to international experts, rather than confronting Russia, Iran and China simultaneously on the military front, Washington is increasingly relying on economic pressure. It is using the Strait of Hormuz and Red Sea routes, to indirectly constrain China. By disrupting or threatening the energy flows on which China depends, the US can impose economic costs on Beijing without directly confronting it militarily. This strategy, however, may not produce the intended consequences, as prolonged disruption could encourage China to accelerate efforts to diversify its energy supplies, strengthen strategic reserves and reduce its dependence on vulnerable maritime routes. Iran’s ability to withstand the conflict while receiving strategic support from Russia and China poses a major challenge to the United States.

According to Basit, China has vast strategic reserves and has invested heavily in alternative energy sources, enabling it to better withstand disruptions to oil supplies and mitigate the impact of an energy crisis.

Washington is increasingly relying on economic pressure, including the blockade of the Strait of Hormuz and Red Sea routes, to indirectly constrain China.

However, the prospect of the United States being drawn into a prolonged war in the Middle East is highly beneficial for China. Basit says, “The prolonged US war in Iran is benefiting China by diverting American military resources and attention away from East Asia and towards the Persian Gulf. For Beijing, a drawn-out conflict that keeps US forces tied down in the Middle East serves its strategic interests.”

These pressure is also exposing a widening gap between Washington’s stated objectives and its ability to shape events on the ground. Trump has ceded the initiative and is caught in strategic paralysis, while Iran has seized the initiative and appears to be shaping its strategy around the US mid-term elections.

Tehran’s apparent aim is to weaken the Trump presidency by keeping the Strait of Hormuz closed, driving up energy prices, interest rates and the cost of living for American consumers. The higher the economic and political costs for the US, the greater the pressure on the Trump administration.

Against this backdrop, Iran’s attacks on the UAE last week serve a broad strategic purpose. By targeting the Fujairah bypass while Houthi attacks threaten the Saudi route, Tehran is gradually eroding the alternative channels that help offset the impact of the Hormuz blockade. This leaves Washington with a difficult choice: counter-escalate before the mid-term elections, risking a wider conflict, or refrain and allow Iran to sustain pressure through higher energy costs and mounting economic and political pressure on the Trump administration.

Nearing 180 days of war with Iran, President Trump appears to be in a strategic cul-de-sac with no easy way out. He faces two difficult choices: prolong the war at the cost of further casualties, economic disruption and escalation, or strike a costly deal with Iran, which has steadily raised its demands for re-opening the Strait of Hormuz.

The absence of a decisive military outcome suggests that Washington does not have an easy military solution. If the United States had a viable military option that could decisively end the conflict, President Trump would be better off using it before the mid-term elections and going into the polls with a military victory. The fact that this has not happened suggests that Washington either lacks such an option or considers the costs and risks of using it too high.

Iran, too, is increasingly cornered. Its military assertiveness should not be mistaken for strategic freedom. While Tehran has seized the initiative and demonstrated its ability to impose costs on its adversaries, prolonged conflict, severe economic pressures and the threat to the survival of the regime are steadily narrowing its room for manoeuvre.

Washington lacks an easy military exit. Tehran must convert its military leverage into a negotiated outcome before the accumulating costs of war erodes that advantage.

The writer is a senior The News staffer in Karachi.