It's either go hard on Iran, or “toughen the sanctions until Iran collapses” or “make a deal with Iran,” says Donald Trump. When they are offered individually they seem to be three competing strategies. In practice, Washington is already employing some of all three. The threat of escalation from military power, the gradual pressure of sanctions on Tehran's ability to manoeuvre, and the prospect of negotiations provide Iran with an out, as long as it is willing to accept terms that Trump can spin as a win for the United States.

The fastest and most dangerous would be the big military push. It could be directed at Iran's missile facilities, command networks, oil terminals and remaining nuclear-related facilities. But if the fixed installations are destroyed, it does not ensure political submission. Tehran has the options of countering the bases of the U.S. in Tehran, threatening the supply routes to the Gulf, growing the scope of their ocean attacks and mobilizing allied armed groups. Iranian commanders have already threatened an additional attack by the United States will increase the “geography of the war,” suggesting future retaliation could have additional areas of theatre.

The economical one will take longer but might be more effective. Iran is under pressure of limited oil exports, disrupted oil shipping, currency pressure and increasing reconstruction costs. Instability in the Strait of Hormuz is extremely bad for Iran, but it comes at a hefty cost for the rest of the world. The strait pre-war transported about 20% of the world's oil and LNG traffic. It is reported that only two commodity-vessel transits were seen on Monday, down from ten the day before.

After Washington eased military pressure and removed its blockade of Iranian ports, Iran has now said it may reopen Hormuz in seven days. Markets reacted immediately. At the same time, Brent was taken below $98 a barrel as traders weighed the prospect of renewed Gulf supplies and Saudi Arabia was ready to restart exports via its East-West pipeline from Yanbu. The movement demonstrates the interdependence of military signalling and economic pressure. A diplomatic sentence can strip billions of dollars in geopolitical risk premium from the energy market, a missile or tanker attack can put it back in minutes.

That is not a surrender policy, however, for Trump's third option: a negotiated settlement. It could be the goal of the other two strategies. Washington has the ability to exert military pressure, cut off Iranian financing, and provide a graduated program of access to the sea, nuclear development, missile deployment and Iran's regional reach. Iran, meanwhile, would ask for sanctions relief, release of the country's frozen funds, an end to attacks on its nuclear facilities and acceptance of its membership in regional security efforts.

The problem is trust. Iran will not abandon its deterrent just for a verbal commitment and Trump won't sign a pact that is essentially the same agreement as the one he signed when Obama negotiated the nuclear deal, but with a different name. If there is any feasible settlement, there will have to be steps that can be measured, some form of verification and penalties for not complying. Oman and other regional go-betweens might help do the mediation, but the deal would need to deal with the war, not just the nuclear one.

This is where Xi Jinping comes into play. His summit with Trump in Washington is officially one on trade, artificial intelligence, rare earths, agricultural purchases and Taiwan. But Iran is almost tied up with all those issues. Among its energy buyers, China is Iran's biggest economic partner. A Chinese-damaged manufacturing sector, weakened transport infrastructure, and a pricey oil import bill are disadvantages for the Chinese; but so too would be a U.S.-backed settlement that would cripple Tehran, leaving Beijing less influence in the Gulf.

For America to be flexible somewhere else, Xi can help with Iran diplomatically. Beijing will push Washington to halt or delay arms sales to Taiwan, citing the 1982 US-China communiqué. In 2026, an American arms package worth $11 billion is scheduled to be approved for Taiwan, and another arms package is reportedly valued at around $14 billion has been put on hold. China's aim will be to use Trump's push for progress with Iran and trade as levers to hold back the U.S. on Taiwan.

The fact that a currency crisis is afoot gives Xi a lot of leverage. In 2025, the trade surplus could reach a record $1.2 trillion as China continues to build up its trade surplus. It has been a risk to the supply chains of the U.S. defence, electronics and automotive sectors due to its rare earth elements. The current trade truce is set to come to an end in November and Washington thinks Beijing has not yet fully reopened supplies of crucial minerals. China, meanwhile, also seeks tariffs that it knows it can count on, access to the latest technology, and more time for the country to modernize its artificial-intelligence sector.

The top may likely result in a modest settlement instead of a substantial settlement. Previously, China agreed to buy at least $17 billion worth of goods from the United States annually from 2026 to 2028, and a few commitments have been fulfilled, with large aircraft purchases being one example of those that have been delayed. Stability is the desired objective for both leaders, and neither desires dependence. Their notion of "cooperation" is more accurately described as managed competition.

Israel is getting ready for “the possibility” that this management won't work. It was prepared more than usual in the lead up to Yom Kippur, with the region's forces strengthened, extra reserves of ammunition and armed aircraft at the ready, and an extra naval force. Some of this is normal precautions during a very sensitive national observance, but the surrounding circumstances are not normal. Iran has threatened new targets and new weapons, tanker traffic continues to be at risk, and the instability in the Yemen has added a new "pressure point" in the Red Sea.

Israel is worried that the diplomatic process in New York could offer its adversary political protection while it spreads its weapons and strengthens command lines or readies its response. Iran's worry is that it might be able to stall a decision through negotiations as the US and Israel get better targets. This mistrust is apt to lead to misjudgments, rather than a well-managed regional conflict.

Pakistan is the weak link in the long chain. Islamabad is trying to be relevant in the diplomatic world, but faced with political repression, militant violence, tensions on the border, inflation, and ongoing IMF dependency. The next review of its $7-billion Extended Fund Facility is underway. While official reserves have now recovered from previous crisis levels, the economy continues to be vulnerable to oil prices, external financing needs and domestic instability.