In the most recent 1963Macro article, we covered some of the risks associated with President Trump’s most recent set of “major strike” threats should they be carried out. The strikes read as probable because anything less would be the definition of insanity—doing the same thing over and over again expecting a different result. The offramp to that strike was either American retreat—which is what happened—or the lower-probability Iranian capitulation. As reported, Saudi Arabia talked Trump out of the strikes and thus avoided the military campaign, but simultaneously exposed the major problem for the administration:
The United States is a one-trick pony with excessive ambitions relative to toolkit.
First, the ambitious diplomacy. Trump, along with the negotiating team of Witkoff and Kushner, clearly desire an expansion of the Abraham Accords to secure a diplomatic win. Kushner appears to be driving much of that end of the engagement, but his efforts have repeatedly failed and brought the process back to the starting line. Despite essentially zero supporting evidence, the administration clearly believes it has the platform, tools, and ability to coerce additional countries into the Accords such that the war would theoretically end or change composition in favor of U.S. desires.
To this end, recall President Trump attempting to force effectively all GCC nations into the Abraham Accords on a conference call—met with silence before Kushner tried to keep the conversation going. Trump then tried to tie the Saudi nuclear deal to the Accords after the deal was already signed. This is the clearest illustration that, in this deal-making framework, the U.S. truly believes various settlements that are beneficial to the U.S. and GCC can be negotiated into existence despite a consistent lack of supporting outcomes.
The deal-making did not stop with the Abraham Accords. We saw the Saudi nuclear deal, arms deals with Ukraine, the reintroduction of various tariffs, and more. Negotiation itself is not the problem—it is the preferred path and works far more often than it fails globally. In this instance, however, it simply doesn’t, a point Trump himself has acknowledged.
With that understanding, the administration lives out the same cycle because this is the only path it appears willing or capable of pursuing. A one-trick pony. The playbook is not a book; it is a page. Iran sees that, and U.S. strategy loses effectiveness as a result.
We have now experienced three identical cases of major escalatory rhetoric followed by unwillingness to follow through. The theory—which Trump wrote a book about and which everyone, including Iran, can read—is to apply pressure in order to extract more favorable terms. That works only if the threat is credible. After the third iteration producing no deals and no resolution, the threat has lost what credibility it once had. Iran views the pattern as weakness and as evidence that it is inching closer to Strait ownership and cemented regional dominance. This is the opposite of what the U.S. has repeatedly stated it hopes to accomplish.
A one-dimensional toolkit also gives Iran room to exploit. Iran has the door open to go on the offensive, reconstitute, and drive the U.S. out of the region—its stated objective—because the U.S. either cannot or will not match its bark with meaningful bite. The much-hyped sanctions have had minimal effect. Unlike the United States administration, Iranians worship a god via religion, not money. A strategy that works only when the other party shares that same lust for money fails flatly when higher motivations exist. Iran has survived and will likely continue to survive under the current U.S. approach in large part because of this mismatch.
Taken together, nothing material has changed from last week. The Camp David meeting, press conferences, and Israeli coordination ultimately did not need to happen, nor moved the needle. Iran still controls the Strait, shipping traffic remains effectively zero, Iranian influence is growing rather than shrinking, and the U.S. has now demonstrated that major military operations are something it is either not capable of or unwilling to execute.
Our earlier piece on the yen remains a useful contingency blueprint should dynamics shift back to confrontation. Setting strikes aside, we should expect more headline roulette from Trump, continued Iranian resistance, and the ongoing sternly worded statements from GCC nations. Iran will continue to harass commercial shipping, and the Strait will remain effectively closed. Nothing credible points to another path beyond status-quo.
This where our long-standing baseline assumptions may have run their course. The administration appears to be actively seeking any offramp that can be spun and sold. That course of U.S. action leaves Iran more powerful than it was at the onset, Israeli and GCC relationships fractured, U.S. military security guarantees worth materially less, and opens the door to a legacy-defining loss for President Trump. The baseline that this administration would not accept defeat, would “finish the job”, and project strength is now broken. Solving the Iran file requires accepting short-term economic pain for long-term economic and security gain and time is the commodity the administration does not have. The concept of wholesale defeat and retreat of a U.S. fighting force is not something Americans are accustomed to, and many would not believe to be possible. Taking the path of an offramp aligns with the “End of the American Empire” thesis that is growing in analyst circles and factually moves us closer to that state—a world in which American security guarantees, military force, or any form of aggressive policy is viewed as unserious and feckless. For any country, that outcome is expensive long-term. Retreat is just as if not more expensive than fighting over time, but those impacts are points the administration will likely attempt to blunt once the elections have finished.
In a scenario such as Iran, the costs of disengagement can be compounded by deals that are signed and then walked back or loaded with post-signature stipulations, rendering the United States an unreliable counterparty. The most foundational guarantee America can make is its military one, and once that that is broken, the deal-making that was previously tolerated under the security blanket loses force and effectiveness. The implications extend well beyond Iran to American influence and American business ambitions globally. While attention will focus on the handling of this specific file, the bigger development most Americans have not yet internalized is that, absent major strategic changes from the U.S. administration, they are living through what is tracking towards the largest degradation of U.S. influence and power in their lifetimes. Military ineffectiveness is a problem, but compounding that with untrustworthy deals and unrealistic stipulations serve to make these problems more broadly impactful.
The conflict now sits in the blank space between actual diplomacy and military action. Iran will logically exploit that space to extract additional concessions if negotiations resume. For now, the threat of material U.S. military escalation can be taken off the table.
Extending on that assessment, the learning of the last 24 hours suggests that, at baseline, a full U.S. retreat from this campaign and from securing the Strait of Hormuz is increasingly likely to materialize. There is no evidence that Trump will authorize major strikes in practice, and those strikes are the last option short of disengagement. The negotiating team has failed repeatedly because negotiations were always going to fail given Iran’s stance and motivations. The Iran file has shifted from an attempt to solve a problem into one that makes multiple problems worse and accelerates the energy risks observers have tracked for months. Absent a change in strategy or military escalation - neither of which appears to be in the toolkit - disengagement becomes the logical option.
Of course, this can all change quickly. It has been said by allies and noted in observer circles that this engagement is being managed on the fly by the United States. As Israel shared, there is no plan, meaning strikes could be put back on the table seemingly at any time. That lack of clarity is likely viewed by the administration as an asset, but in practice, it fractures relationships and leaves the U.S. more flailing and alone than controlling.
Hopefully the administration has more tricks than it has shown us to date. Otherwise, American foreign policy is likely neutered for the foreseeable future - and with it, some amount of American influence and primacy.
In the meantime, it seems we can reduce our vigilance regarding strikes and the associated market implications.
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