The expiry of the Islamabad Memorandum of Understanding (MoU) on 17 August has pushed the United States–Iran confrontation into an uncertain and potentially more dangerous phase. Signed on 17 June, the arrangement was intended to provide Washington and Tehran with a 60-day diplomatic window. Yet it ended without a comprehensive settlement, leaving unresolved disputes over sanctions, Iran’s nuclear programme, the Strait of Hormuz and Gulf security. The immediate question is whether the conflict is entering a new phase of escalation or merely receding temporarily before another confrontation. Neither side presently appears eager for unrestricted war, but neither seems prepared to make the concessions necessary for peace. The result is a dangerous middle ground: economic coercion, maritime pressure, military threats, and occasional strikes.From Military War to Economic War

Washington appears to be shifting from large-scale military operations towards economic warfare. President Donald Trump has intensified efforts to isolate Iran, threatening sanctions not only against Tehran but also against countries and institutions maintaining economic ties with it. Although this may appear to signal de-escalation, economic warfare can postpone military escalation without resolving its underlying causes. Iran already faces inflation, economic hardship, damaged infrastructure and restrictions on oil exports. Further secondary sanctions could also pressure major trading partners, particularly China, Iraq and Türkiye. Yet excessive pressure may prove counterproductive. Rather than forcing Tehran to compromise, it could strengthen Iran’s belief that resistance and retaliation remain its principal leverage. Iran therefore faces a difficult choice: negotiate and risk appearing to surrender under American pressure, or resist while absorbing mounting economic costs. Tehran may hope that prolonged confrontation will weaken Washington’s resolve or gamble. The longer the confrontation continues, the greater the economic pressure on Iran and the risk of renewed military escalation.Hormuz: The Most Dangerous Pressure Point

At the centre of the confrontation lies the Strait of Hormuz, one of the world’s most critical energy routes. For Iran, it provides strategic leverage over the global economy; for Washington, freedom of navigation is essential to Gulf security and American credibility. With shipping seriously disrupted, Hormuz also presents the greatest risk of accidental escalation. An attack on a tanker, naval confrontation, misidentified vessel, or strike on US assets could provoke American retaliation, followed by Iranian attacks on US facilities or regional allies. Thus, the greatest danger may not be a deliberate decision for another major war, but a conflict triggered by miscalculation. The expired MoU, despite its limitations, provided a framework for containing such incidents. Without it, even a limited confrontation could acquire wider strategic consequences. Full-scale hostilities may therefore emerge not from a conscious decision by Washington or Tehran, but through an escalating cycle of action, retaliation and misjudgement.The Risk of Regionalisation

The confrontation cannot be understood solely as a bilateral US–Iran dispute. It risks drawing surrounding states and non-state actors into an expanding conflict. Yemen remains an obvious flashpoint. The Houthis retain the capacity to threaten commercial shipping in the Red Sea and Gulf of Aden. A major attack could provoke renewed American military action, creating another front while Washington is already managing instability around the Strait of Hormuz. Oman is even more important diplomatically. Muscat has historically served as a valuable intermediary between Washington and Tehran. Recent American threats against Oman are therefore particularly troubling. Whatever disagreements Washington may have with Oman’s approach towards Iran, weakening Muscat’s mediating role could damage one of the few remaining channels capable of facilitating de-escalation. In conflicts where adversaries do not trust each other, mediators are not signs of weakness; they are strategic safety valves.Neither Side Can Easily Climb Down

The fundamental problem is that both Washington and Tehran have created political narratives that make compromise increasingly difficult. The Trump administration has invested considerable political capital in demonstrating that military and economic pressure can force Iran to change course. A settlement perceived as granting Tehran major concessions could therefore be portrayed domestically as retreat. Iran faces a similar constraint. After months of military and economic pressure, accepting American demands without meaningful sanctions relief or security guarantees could be portrayed as capitulation. Both sides consequently appear to be waiting for the other to blink. There are nevertheless reasons why the confrontation may remain limited. Washington must consider the political and military costs of an open-ended war and the danger of becoming trapped in another prolonged Middle Eastern conflict. Iran, meanwhile, must preserve regime stability and prevent further destruction of its economy and infrastructure. These mutual constraints may prevent an immediate return to full-scale warfare. But restraint produced by exhaustion is not peace.

Diplomacy Is More Necessary, Not LessThe failure of the Islamabad MoU should not be interpreted as evidence that diplomacy itself has failed. Rather, it demonstrates that temporary understandings without credible implementation mechanisms cannot substitute for sustained negotiations. A workable diplomatic process need not initially resolve every dispute. The immediate objectives should be narrower: restore reliable communication, prevent attacks on commercial shipping, establish rules for military encounters, preserve Oman’s intermediary role and introduce reciprocal confidence-building measures. The nuclear issue, sanctions relief and long-term security of Hormuz will require more difficult negotiations. But preventing another round of warfare must come first. Both countries also need a formula that permits compromise without public humiliation. Diplomacy succeeds not when one party forces the other onto its knees, but when both conclude that compromise costs less than continued confrontation.

The Choice Between Pressure and PeaceThe US–Iran war appears to be receding militarily while becoming more dangerous strategically. Washington’s shift towards economic warfare may reduce major strikes, but sanctions, blockades, threats, and Iranian pressure around Hormuz keep the risk of escalation alive. The expiry of the MoU has removed an already fragile diplomatic framework. Washington believes economic pressure will eventually force Tehran to compromise, while Tehran hopes prolonged resistance will compel Washington to soften its demands. Both calculations may prove wrong. Wars often expand not because governments deliberately choose catastrophe, but because each believes one more sanction, threat, missile or retaliatory strike will force the other to retreat. Washington and Tehran therefore need diplomacy more urgently than before. The real choice is no longer between victory and compromise, but between managed compromise and unmanageable escalation. The present lull should not be mistaken for peace; it may simply be an interval before both sides decide whether the next chapter is written at the negotiating table—or again onthe battlefield.

( DAILY WORLD )