resident Trump warned last week that any nation or business seen helping Iranian government stay afloat would be similarly targeted. He said nobody—from oil importers in Asia to banks in Europe and shipping firms across the Gulf – was exempt from the US bid to bring Iran to its knees through unprecedented economic sanctions. The question now is whether such sanctions can hold and what will happen to the global oil market if they do. The threat is reshaping calculations in the Gulf. It may also have opened a narrow passage for diplomacy.

Efforts at mediation continue. A key question is whether President Trump is prepared to return to the Islamabad MoU signed in June. He may be, considering his phone call to Chief of Defence Forces Field Marshal Asim Munir to discuss engagement with Iran.

On August 24, Field Marshal Munir visited Iran. He was accompanied by Interior Minister Mohsin Naqvi. According to a statement issued by the Inter-Services Public Relations, they held a series of meetings in Tehran focused on preventing further escalation, reopening the Strait of Hormuz and bringing the conflict to an end. Field Marshal Munir met President Masoud Pezeshkian, Supreme Leader’s Representative on the Supreme National Security Council Mohsen Rezaei, Parliament Speaker Mohammad Bagher Ghalibaf, Foreign Minister Abbas Araghchi and Interior Minister Eskandar Momeni. The statement said the Iranian leaders appreciated Pakistan’s “constructive role and sincere efforts” to facilitate dialogue, de-escalation and a peaceful resolution of the conflict.

On August 27, Foreign Office (FO) Spokesperson Tahir Andrabi noted that the discussions held during CDF Munir’s visit to Tehran “focused on regional de-escalation, breaking the military stalemate and exploring a negotiated settlement to restore peace and stability”. “I will also highlight that claims by certain quarters that the COAS and CDF visited Iran as envoy of President Trump or the US are misleading and factually incorrect, as his visit was undertaken purely in the context and backdrop of Pakistan’s role as a mediator,” he said.

These mediation efforts coincided with the Omani-Iranian announcement of nearing an agreement to allow commercial shipping safe passage and to undertake demining of the Strait of Hormuz.

Escalation, however, remains a key risk. The pressure could spill over into attacks on energy facilities, shipping lanes and US-allied assets.

“Whether that pressure works, depends on how Iran absorbs it. Iran has built a broad welfare system to cushion ordinary citizens from economic hardship,” says Asif Durrani, Pakistan’s former ambassador to the United Arab Emirates and Iran. “Its economy is structurally dominated by public sector entities: Bonyads or religious foundations that are estimated to control 20-30 per cent of GDP. The Iranian Revolutionary Guards Corps is involved in an estimated 30-50 per cent of key sectors. Through a digital smart fuel-card network, vehicle owners receive a monthly allowance of heavily subsidised petrol. Electricity supply for domestic users, water and natural gas remain price-capped. The Kala-barg electronic food-voucher scheme helps low- and middle-income families buy 11 essential commodities, including poultry, dairy, eggs and cooking oil at stabilised prices. This is complemented by Yaraneh, which provides monthly cash transfers directly into household bank accounts. These measures sit alongside price controls and fuel subsidies, although rationing and power cuts persist,” says Durrani.

“Despite these protections, serious challenges remain. Inflation has exceeded 40 percent. The rial has suffered a record collapse, with the dollar recently crossing 200,000 tomans on the free market. Manufacturing is hampered by infrastructure damage. Fixed-income households face sharply reduced purchasing power, fuelling public protests. Water shortages add to the strain.” Yet, according to Durrani, most Iranians remain strongly nationalist and continue to support the regime, seeing US sanctions and pressure as a major cause of their economic hardship.

“They understand that you go to war with the regime you have, not the regime you wish you had. They may not like the regime, but the regime is the one thing standing between them and the United States. They are going to support their government.”

“The United States and Israel clearly represent an existential threat to Iran. If the objective is to force Tehran to surrender, it would require inflicting an extraordinary level of pain. Iran is fighting for its survival. The threshold for forcing Iran to capitulate is therefore extremely high. We have seen throughout the conflict that Iranians hate to capitulate,” Durrani says.

Iran’s actions will be calibrated to affect energy markets and the global economy.

“Senior IRGC leadership has warned that if Iran is denied oil export, no other country in the region will be able to sell either,” Pakistan’s former ambassador to the EU and China Naghmana Hashmi says. “This is how quickly the conflict could spread to energy and shipping lanes.”

Field Marshal Asim Munir met Iranian President Masoud Pezeshkian, Supreme Leader's Representative Mohsen Rezaei, Parliament’s Speaker Mohammad Bagher Ghalibaf, Foreign Minister Abbas Araghchi and Interior Minister Eskandar Momeni. The Iranian leaders appreciated Pakistan's "constructive role and sincere efforts" to facilitate dialogue.

Enforcement of proposed US sanctions will require international cooperation. With key allies alienated under Trump, building pressure on Iran for a deal is much harder. “The JCPOA, which Obama crafted, got signed in 2015 because of large support from the Europeans and from the Russians and from the Chinese. Everybody was interested in working with the United States to shut down Iran’s nuclear programme. That coalition has collapsed,” Hashmi says.

“Sanctions are most effective when paired with a genuine diplomatic offer. That is how they worked under President Obama: secondary sanctions were imposed, pressure was applied and a negotiating table was put forward for a realistic discussion of the nuclear programme,” Hashmi says.

“President Trump is offering no such pathway. The message is simply that Iran will be squeezed until it surrenders. That is unlikely to happen. There is already a diplomatic off-ramp. Both parties need to return to the memorandum of understanding signed in June and implement it. It is abundantly clear that the sanctions are unlikely to bite Iran, which has lived under them for more than four decades,” she says.

“The US measures will raise costs and create problems for Iran, but they are not designed to topple the regime or force capitulation. The calculation appears to be political: project US leverage while keeping the situation stable with no further escalation until the November mid-terms. The administration understands that deeper economic pressure could trigger Iranian counter-escalation, which would be more damaging for the US and for President Trump ahead of the elections,” Durrani argues.

The US currently views the closure of the Strait of Hormuz to have a less severe economic impact than is widely assumed. The US itself is in a comfortable position in terms of its crude oil supply gathered through very large crude carriers that can transport up to two million barrels of oil. Only about five such vessels a day will be needed to restore half of the US pre-war Hormuz requirements. China has already reduced its daily oil consumption. Some of the remaining oil flows are being supplied through Saudi and Emirati pipelines. Together these measures have kept oil prices in the $80-90 a barrel range, helping to contain prices and avoid a global economic recession. The lower Chinese demand is the anchor keeping prices from going to $100 a barrel.

Durrani believes that in order to hurt Iran seriously with the current sanctions, the US will have to target China. In retaliation, Beijing could inflict significant economic and political damage on President Trump.

US Treasury Secretary Scott Bessent has said that the sanctions will target major financial institutions. Western banks have already exited Iran-related business and Iran is locked out of SWIFT. Any new target is therefore likely to involve Chinese or Hong Kong institutions linked to China. Such a move risks Chinese retaliation and will expand a Gulf conflict into the financial markets, entangling the United States with major global actors with whom it has other unresolved issues.

Considering this and the scheduled visit of President Xi Jinping to the US for a summit with President Trump, the US administration has little interest in lighting new fires. The US is not in a position to take on China and Russia at this point. For now, it suits Washington to maintain the status quo, at least until the November elections. “By and large, therefore, these sanctions will be high on bark but low on bite,” Durrani says.

Another consideration for Tehran is whether the current US posture represents only a temporary pause or whether Washington intends to inflict greater damage later. If Tehran concludes that the latter is likely, it may seek to escalate before the US elections, when the political impact will be greater. “The Iranians therefore have a limited window to assess the situation and calibrate their response,” experts say.

Durrani says, “Islamabad has faithfully conveyed the positions of both capitals. Article V of the Islamabad MoU provides for the joint administration and management of the Strait of Hormuz by Iran and the UAE, in coordination with regional countries.” The MoU enabled a two-month ceasefire that recently expired, allowing hostilities to resume. “The responsibility for upholding the MoU, however, rests with its stakeholders, not Pakistan. Its violation has clearly threatened the peace process, making it all the more encouraging that Islamabad is once again being asked to help resurrect diplomacy.” That renewed call for Pakistan’s role now carries real diplomatic weight.

According to recent reports, a 10-day ceasefire proposal is under US review. This may be less about the pause and more about what it unlocks: a diplomatic channel kept alive by Pakistan and Oman. That’s the hopeful signal. Regional mediators have re-centred the conversation around Hormuz security and de-escalation, forcing Washington and Tehran to choose between escalation and negotiation. The trade-offs are clear — Iran wants guarantees, the US wants leverage. As Oman’s FM noted, this will require “painful concessions.” For the first time in weeks, the initiative is not coming from the battlefield. If both sides use this window, it could shift the conflict from military attrition to a managed diplomatic track.

The writer is a senior The News staffer in Karachi.