After several months of engagement, the United States and Iran are locked in a position neither can easily exit.
Twelve-plus consecutive nights of American strikes, Iranian attacks on ships in the Strait of Hormuz, expanded strikes against GCC energy and civilian infrastructure, Houthi activation in the Red Sea, and explicit statements from both Trump and Rubio that Tehran is not serious about a deal have brought the conflict to a sharper inflection than many anticipated. Oil has already pushed through $100. The market is not waiting for the next rhetorical escalation; it is pricing the physical reality that two critical energy chokepoints are under simultaneous pressure.
For 1963Macro readers, the outcomes are not surprising. The IRGC is behaving as we have anticipated for months when pressed by what is a real and growing U.S. threat. Iranian rhetoric has remained defiant, if not escalatory, and there are few visible signs they seek an alternate course.
Absent the United States simply stopping, Iran is unlikely to make a deal that surrenders coercive control of the Strait or accepts meaningful, enforceable constraints on its nuclear capability. Scenarios like this do not create clean off-ramps. As tracked in previous articles, escalation is now less a trap than it is the logical outcome. This is what happens when one side has to concede something fundamental to end the hostilities, but neither will.
This conflict has shown that conditions can change quickly—and they keep doing so. The probabilities, however, now significantly favor further escalation, and the character of that escalation is becoming clearer.
The Incentive Problem
Using our base case as the frame—that the IRGC will not concede given they are not a traditional state actor but a keeper of “pure” Shia Islam and the broader Middle East—the core problem has always been structural. Iran is fighting for more than the Strait, and we should expect them to engage accordingly. There was always some room for diplomacy, but it was doomed if the expectation was that the IRGC would disarm and cede voluntarily.
That baseline sets the foundation for the problem we have today. If the United States walks back while Iran retains effective leverage over Hormuz and residual nuclear reconstitution capacity, Tehran emerges stronger than it has been in four decades. That would be complete mission failure. It would also demonstrate that sustained pressure on American forces can force Washington to accept state control of an international waterway. Gulf states would be forced to recalibrate alliances. Proxies would be emboldened. Every subsequent administration would face a more confident adversary, even if Iran is depleted today. Taken together, the current U.S. leadership has shown it is unwilling to allow these outcomes—though it did try meaningfully to achieve its objectives through peaceful means.
The alternate view is no better for the IRGC. If Iran concedes—restoring free navigation on non-Iranian terms, accepting tight nuclear constraints, and dialing back the horizontal campaign—it ends the nightly attrition but loses the two instruments that have given it regional weight for a generation. The resistance narrative takes a severe hit. From Tehran’s perspective that registers as strategic defeat even if the physical state survives and the country receives compensation or foreign investment.
Our long-standing baseline, coupled with recent developments, produces a high-stakes kinetic stalemate. Neither side sees a tolerable compromise that leaves the other with its core coercive tools intact. What we are witnessing is likely less the beginning of limited strikes and temporary pauses than a battle for the terms of the regional order over the coming decades. In more than forty years of engaging the Islamic Republic, the United States has never put this combination of sustained kinetic pressure on Iran’s maritime and logistics networks, an explicit contest for control of the Strait, post-Khamenei internal Iranian dynamics, and simultaneous activation of a second chokepoint.
The pre-war status quo is long gone, and with it many of the variables that were still in play in April.
Why April Likely Won’t Repeat
Observers will note that we have seen maximalist rhetoric before. That is true. In early April, Trump threatened “Power Plant Day and Bridge Day,” complete demolition of Iranian infrastructure, and a return to the “Stone Ages.” It was made-for-TV pulpit pounding complete with specific deadlines. As the deadline approached, the full campaign as described did not materialize. The United States moved toward a ceasefire path, limited tit-for-tat strikes, and the subsequent Memorandum of Understanding.
The MOU collapsed quickly once Iran resumed attacks on shipping and the United States resumed strikes. Our base case prescribed this outcome. We had already seen a ceasefire violated numerous times that resulted in a U.S. blockade of Iranian ports. The MOU language prescribing “freedom of navigation” for 60 days on the Strait was met negatively by the IRGC and hostilities resumed. Force posture was elevated in April and remains elevated today. So why should this time be different?
Several conditions have changed:
Sunk costs and operational momentum are higher. The United States is already inside a multi-week strike campaign, making walking kinetic action back after consecutive nights is politically and operationally harder than extending a future deadline on a threatened package that has not yet begun.
The energy-market damage is no longer prospective. In April the severe supply shock was still largely a threat. Now with Hormuz traffic collapsed, the Houthis opening the Red Sea front, oil through $100, and physical availability, insurance, and spread effects are occurring in practice. Stopping without restoring navigation leaves the United States with the economic and political pain already incurred and none of the strategic benefit of removing Iranian leverage. That “all pain, no gain” problem was less acute in April.
Force posture is more visibly committed than it was after a month of high-tempo operations in the spring. Additional strike assets, including B-1s operating from British bases, are flowing into theater. Public tracking of these movements and the Iranian response—designating RAF Fairford a legitimate target and issuing pointed warnings framed around the British monarchy—raise the cost of quiet reversal. Increased force posture expands the potential target list for Iran, as they have already signaled.
Iranian horizontal escalation is already underway. Strikes and threats against GCC power and desalination infrastructure, explicit UK-base rhetoric, and Houthi attacks on Saudi-linked shipping mean both sides are climbing the ladder at the same time. A U.S. pause would occur against active Iranian expansion rather than a relatively quieter environment in which a freeze might appear more reciprocal.
The post-MOU record has taught both sides—and outside observers—that pure diplomatic pauses without behavioral change tend not to hold. Rubio’s current language—that Iran is “begging” for a deal but is not ready to accept one that sticks, and that the price rises every night—reflects that lesson. The diplomatic track is now treated as secondary until Iranian engagement in the Strait stops. The rhetoric is similar to April, but it is being communicated more broadly by administration officials in a more direct and less hyperbolic manner.
Credibility and precedent also cut against disengagement. Allowing Iran to retain effective control or permanent interdiction capacity after this level of American investment would signal that a determined regional actor can seize a critical chokepoint and the United States cannot reverse it at acceptable cost. That lesson would be unlikely to stay confined to the Gulf. Other actors watching other waterways and partners evaluating the reliability of U.S. security commitments would likely view this as a negative and a sign of American weakness. That outcome would serve to undermine U.S. ambitions across multiple theaters.
Legacy considerations, while secondary, point the same direction. A clean walk-back that leaves Iranian coercive leverage intact after a sustained campaign is not an outcome history would paint favorably for President Trump. The more attractive framing remains that Iran was finally made to feel sufficient pain and free navigation was restored. All U.S. presidents factor how outcomes will read; the case of Iran is almost certainly no exception.
These factors do not make another “TACO” impossible, but they do make it more challenging. Domestic sensitivity to energy prices, munitions stockpiles, alliance management, and Trump’s deal-making instincts remain real. The structural reasons against a clean walk-back that leaves Iranian control of the Strait intact are stronger than they were in April. The costs already paid mean the United States would be treating the effort to date as a pure sunk cost. That appears to be an unlikely preference against the current backdrop.
The Escalation Ladder
If the probabilities favor continued pressure rather than a repeat of the April pause, what does the next phase likely look like?
The highest-probability course likely keeps intensified pressure on energy supplies and markets. Hormuz is already constrained while the Houthis have opened a second front in the Red Sea. Iran has demonstrated willingness to strike GCC infrastructure that supports both civilian life and American basing. Additional ship attacks, broader energy and power targeting inside the Gulf, or credible threats against alternative export corridors would deepen the disruption; all likely continue or expand. Gulf states are accelerating pipeline bypass projects, but those take time. Short-to-medium-term volatility in physical oil supply, prices, and spreads remains an expected side effect of the conflict.
An elevated risk consistent with current rhetoric is the activation or demonstration of hybrid capabilities inside other nations, particularly the United Kingdom. Iran has a documented history of directed plots and influence operations in Europe and the UK recently designated the IRGC under national security powers for exactly this reason. Iranian commentary highlighting open borders in the UK and the explicit naming of British bases as legitimate targets function as classic signaling: the capability to operate inside or activate networks already present exists or can be generated. This does not require large missile salvos. It provides a relatively low-cost, deniable, and politically disruptive means for Iran to fight the battle. Some may view this as a tail risk. This publication assigns higher conviction. That is not a prediction of any specific domestic incident inside a NATO country by rather a stance that dismissing the possibility outright fails to give appropriate weight to Iranian rhetoric and known capabilities. Lower probability, but high enough that cleanly dismissing this possibility seems like a mistake.
More constrained in practice is the use of longer-range missiles reaching into southeastern or central Europe remains on the table (or any number of other in-range locations). Standard Iranian medium-range systems sit in the roughly 1,700–2,000 km class. Some configurations and the prior attempt to strike Diego Garcia suggest possible range extension under modified parameters. From northwestern launch points this puts parts of Europe in theoretical range; deeper Western European targets would require less-proven or scarcer systems. If long-range strikes occur, selective demonstration attacks are more likely than sustained saturation. If the IRGC is to be believed, longer-range strikes will likely happen but further up the escalation ladder.
Lower-probability as a direct conventional option, but still viable asymmetrically, are strikes or disruption aimed at energy pipelines well beyond the Gulf—Azerbaijan and other Caspian or Caucasus routes being the example often raised. Iran has stated that regional export corridors will be “shared by all or denied to all.” Direct ballistic strikes can be geographically and politically awkward, leaving proxy action, special operations, or cyber as more realistic pathways. To wit, recent commentary explicitly highlighted the vulnerabilities that U.S. utilities have to cyber attacks. This, along with missile strikes, are all within the IRGC toolkit.
The overall pattern is horizontal and asymmetric first: deeper energy and infrastructure pressure, maritime disruption across two chokepoints, hybrid signaling and activity, and selective longer-range demonstrations if required. Pure vertical escalation into large-scale long-range ballistic attacks on European territory (or inside/on the United States) is higher-threshold because it risks a materially more severe response.
It is important to understand that as the United States further demonstrates control or degrades Iranian capacity, the closer the IRGC gets to no longer being in power. Regimes under existential threat care little for the boomerang that returns to them.
Against the Consensus Expectation
The consensus view still seems to treat the current phase as another turn in a familiar cycle: threats, limited strikes, mediation, pause, reconstitute, repeat. The structural incentives now argue against that symmetry. The United States has already absorbed meaningful economic, military, and political costs and stopping without progress on the Strait converts that expenditure into pure loss while validating Iranian leverage. The post-April record showed that maximalist rhetoric followed by an unserious pause ultimately solved nothing. Force posture is more committed on both sides, and Iranian horizontal moves are already in progress.
These observations guarantee neither a decisive American victory nor Iranian collapse. We may well end up negotiating settlement again in the future. However, they do mean the barrier to another clean U.S. walk-back is higher than it was four months ago, and the relative cost of continued engagement is lower. The more probable path remains continued and potentially sharper escalation until cumulative damage forces a change in one capital’s calculus—either Iranian capacity and will degrade to the point that negotiation on American terms becomes preferable to further attrition, or U.S. costs rise high enough to force a compromised outcome. The latter still looks less likely given the empowerment risk and the precedent problem, at minimum.
Hormuz control and the nuclear file are not secondary issues that can, at this phase, be easily papered over with another memorandum. Failed diplomacy that leads to fighting does not tend provide a clean return to negotiation absent a material change in the conflict. Accordingly, until one side absorbs enough pain to revise its red lines, the conflict does not likely end through agreement. It ends through exhaustion, degradation, or a forced redefinition of acceptable outcomes under duress. Current indicators still point to the United States choosing to keep raising the cost, which remains the base-case for this publication at the time of this writing.
The differences from April make the U.S. and Iranian course of escalation more durable than the last time maximalist language appeared during conflict.
Escalation, potentially significant, is the expectation from here. The duration of that escalation remains unknown.
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