Earlier today the U.S. proposed a peace deal, which Iran predictably rejected. My forecasts tend to be optimistic, but I predict Trump has boxed himself in and that his options are limited to the strait remaining closed for far longer than anyone possibly expects, until midterms or even 2028, or that Trump will have to deploy troops to secure it–the dreaded land war that everyone was hoping to avoid.
Here are two possible outcomes:
Outcome #1: The situation resolves suddenly, even if things seem bad now. Historically, this has typically been the case. This could mean Iran agreeing to open strait, having suffered enough damage to its infrastructure.
Outcome #2: The situation drags on for months, even years, as the strait remains closed. Efforts to recruit NATO and Gulf states are unsuccessful, either refusing to help or failing to open the strait. Trump will either give up, with the strait remaining closed, or escalate with a land invasion to secure the strait. Either option is bad. Trump, to save ego, will refuse to Iran’s terms, causing the situation to drag out and forcing either of those two choices.
I think #2 is more likely. Trump is in a doomed if he does, doomed if he doesn’t situation. Iran will keep the strait closed until the midterms or even long enough to affect the 2028 election.
Gulf state leaders–many of whom also dislike Trump–view a temporary disruption to oil exports as an acceptable tradeoff if it helps the GOP lose in 2028. In fact, because higher prices may offset the disruption, the net effect could even be economically beneficial. Iran’s leadership will endure power outages and other hardship to see Trump dig his grave.
Being a military dictatorship, it’s not as if the Iranian public has any say in the matter (and most of them hate Trump too). The Iranian leadership knows that the strait is its main bargaining chip, and Trump will be forced with having to choose between two bad options, those being indefinite strait closure or land invasion. Once the dems are in power, Iran will play ball.
On the positive side, even if the strait isn’t ever reopened, the global economy will quickly adjust to a new oil price equilibrium and find alternatives to transporting it. Higher oil prices will incentivize production and oil alternatives, depressing oil prices in the long-run. Oil at $90 will mean much more oil coming online, as it’s suddenly much more profitable to produce it.
Given how the S&P 500 has only fallen 4% since the war began despite oil pries surging 50% from $65 to $100, suggests that the U.S. economy can withstand high prices. By comparison, during the 2025 tariffs, major indices fell between 10-20%. As always, large companies will pass costs to consumers, but CPI will go up less than expected (no high inflation like in 2022). For these reasons, there is a decent likelihood stocks can rise even with the strait closed, as the global economy adjusts. This is why I remain invested in stocks nonetheless, with shorting Bitcoin to hedge.