Signs of a More Dangerous Middle East
The economic blockade against Iran is entering a more dangerous phase.
What began as an effort to restrict Iran's access to the international financial system is increasingly taking the form of a broader campaign to isolate the country from the outside world. Money transfers have become extremely difficult. Commercial shipping through Iran's southern maritime borders has been severely restricted. And Washington is increasingly pressing Iran's neighbors to tighten land-border controls as well.
For ordinary Iranians, the consequences are becoming impossible to ignore. Annual inflation, which was 42.4 percent in August last year, has now reached 89 percent. At the same time, the average exchange rate for the dollar in August 2025 was about 970,000 rials. Today, it is trading at roughly 2.35 million rials. In a year, the Iranian currency has lost more than half its value.
The question is no longer simply whether the pressure will hurt Iran's economy. It is whether economic pressure on this scale will eventually produce a military response.
The fighting in and around the Persian Gulf has so far remained limited, but it has not stopped. In April, the United States authorized the sale of Iranian oil, apparently in part to prevent a sharp increase in global energy prices. Washington is now taking the opposite approach: restricting the movement of Iranian oil out of the Persian Gulf and, according to reports, targeting Iranian tankers around Khark Island.
That represents a significant calculation by the Trump administration. It suggests confidence that oil from other Gulf producers can continue to pass through the Strait of Hormuz without triggering a major disruption in global energy markets. But that calculation carries risks.
What happens if Iran concludes that the economic cost of restraint has become greater than the cost of escalation? Could Tehran decide that if its own oil exports cannot pass through the Strait, neither should those of its neighbors? And could the current pattern of limited strikes turn into something much larger?
The Pressure on Iran
Iran has experienced inflation at roughly today's level only once in its modern history. That was 84 years ago, during the Allied occupation of Iran in World War II. Inflation reached 96 percent in 1942 and rose to 110 percent the following year. The causes were familiar: war, shortages and disruptions to trade and food supplies.
But the episode also offers an important reminder. Inflation eventually fell sharply, and by the end of the war it had returned to single digits. Today, war and economic isolation are once again producing conditions that many Iranians have not experienced in their lifetimes.
The American pressure campaign operates on two broad fronts.
The first is physical isolation. Restrictions on shipping have made Iran's southern maritime trade increasingly difficult. Humanitarian shipments may still pass through, but this creates a fundamental problem: Iran needs to export oil to earn the foreign currency required to import food, medicine and other necessities.
Washington is now seeking to extend that pressure beyond the sea, encouraging neighboring countries to tighten Iran's land and air connections with the outside world.
The second front is financial. Iran has effectively lived outside the formal international banking system for years. Sanctions have forced Iranian businesses to rely on a parallel network of exchange houses, foreign companies and other intermediaries to settle international transactions.
That network is now coming under increasing pressure from Washington. The objective is clear: make it harder not only for Iran to sell its products, but also for it to receive and move the money generated by those sales.
Yet there is a fundamental problem with the assumption that economic pressure will automatically produce political concessions.
It has not happened before. Years of sanctions have failed to persuade Iran's most powerful decision-makers to abandon their basic strategic position. Iranian leaders have become accustomed to operating under pressure. And unlike governments that must regularly answer to voters for economic deterioration, Iran's political system allows its leadership to tolerate enormous economic costs without necessarily changing course.
That does not mean that nothing will change. As the current pressure increasingly visible in every aspect of Iran, it may eventually force Tehran to have a tougher response.
The American Election Factor
There is another calculation in Tehran: the United States midterm elections. From the Iranian perspective, an escalation that pushes up gasoline and energy prices in the United States could create political problems for the Trump administration.
That may explain some of the increasingly explicit warnings coming from senior Iranian military officials. Their message has been straightforward: if Iran is prevented from selling its oil, other countries in the region should not assume that their own exports will remain safe.
The Strait of Hormuz is central to that threat. Different estimates have circulated about how much oil is currently passing through the Strait under American military protection. President Trump, in a Sept. 3 message, put the figure at 18 million barrels, describing it as substantial in comparison with global flows of roughly 20 million barrels a day.
Whatever the precise figure, the broader point is important. The United States appears determined to keep at least enough oil moving through the Strait to prevent a full-scale shock to the global energy market.
That concern has shaped American policy before. During the earlier phase of the conflict, Washington even granted Iran a sanctions exemption to allow some oil sales, apparently in an effort to prevent energy prices from rising too sharply. But the continued movement of oil from other Gulf producers has also revived a familiar phenomenon: the tanker war.
In recent days, tankers on the southern side of the Gulf and around Basra have come under attack. Iranian tankers around Khark Island have also been targeted.
Meanwhile, attacks on Iranian ports have continued. One strike on the port of Sirik reportedly reached a family wedding ceremony. Iranian missiles have also targeted American military positions, particularly in Jordan. None of this yet amounts to an all-out regional war.
But wars do not always escalate because one side decides to start one. They can escalate because both sides gradually conclude that restraint has become too costly. That is the danger now facing the Persian Gulf.
The Nuclear Question Returns
As the economic and military confrontation intensifies, the nuclear issue is returning to the center of the dispute. Western governments have accused Iran of renewed nuclear activity at Pickaxe Mountain, while the International Atomic Energy Agency has referred Iran's case to the United Nations Security Council.
In Tehran, these developments are being interpreted as a warning that Washington may once again be preparing for military action against Iran's nuclear infrastructure. The result is a dangerous symmetry.
Iran can point to the economic blockade and growing American military presence around the Strait of Hormuz as justification for a harder response. The United States, meanwhile, can point to renewed Iranian nuclear activity as justification for further pressure — including military pressure.
Neither side necessarily needs to believe that war is the preferred outcome. It is enough that each believes escalation may improve its bargaining position. That is what makes the current situation particularly unstable.
The possibility of returning to the Islamabad memorandum, which was violated nearly two months ago, is fading. Inside Iran, the political forces that favored returning to the agreement have lost influence as Israel's campaign against Hezbollah in Lebanon has reshaped the regional balance and strengthened those who favor confrontation.
In Washington, the failure to implement the memorandum has reinforced a different conclusion: that Iran may not be a reliable negotiating partner and that another agreement could fail in the same way.
The space for compromise is therefore narrowing on both sides.
The Next Move
The United States and Iran are approaching a dangerous moment in which both may have reasons to escalate despite the enormous costs.
For Washington, the midterm elections could be a constraint. A major military operation that sends oil and gasoline prices sharply higher would carry obvious political risks. For Tehran, however, the same elections may create an opportunity.
Iran could calculate that Washington is particularly vulnerable to an energy shock and that a tougher response to the blockade could impose a political cost on the Trump administration. The danger is that the two calculations may reinforce each other.
The more Washington tightens the blockade, the greater the pressure on Tehran to demonstrate that it cannot be economically strangled without consequences. The more aggressively Tehran responds, the stronger the argument in Washington for further military and economic pressure.
That is how a limited confrontation can become a wider war — not necessarily through a single dramatic decision, but through a series of decisions that each side considers rational at the time. For now, the Middle East remains short of such a war. But the direction of travel is troubling.
An economic blockade is becoming a military confrontation. The nuclear dispute is returning. The Strait of Hormuz is becoming a potential flash point. And the political calendar in Washington may give both sides an additional reason to take risks.
There is an Iranian saying that seems particularly appropriate to the moment: some things may be delayed, but they cannot ultimately be avoided.
The question now is whether the region is approaching one of those moments.
Pouya Jabal Ameli Economist and former editor-in-chief of Donya-e-Eqtesad Daily