Trump considers new Iran offer as economists warn Strait ‘closed for longer’
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The news: US President Donald Trump is reviewing a new proposal from Iran to end the conflict but economists think the Strait of Hormuz closure has entered an entrenched phase.
The context: On Sunday morning (AEST), Trump told reporters before he boarded Air Force One that Iran had presented a new proposal to end the war and he was waiting on the “exact wording”. AP reported that two Iranian outlets had said a 14-point plan had been proposed through mediator Pakistan after Trump rejected an earlier proposal.
Over the weekend, though, economists were indicating a rethinking of the “Strait narrative”. Barclays economists said in a note, released before Trump’s comments, that the expectation has moved “from de-escalation to entrenchment”.
The economists said Trump’s decision to enforce a blockade “has seemingly changed the US strategy from trying to quickly force Iran to the negotiating table through the threat of overwhelming military force toward an approach aimed at cutting off its key trade and energy lifelines”. But they said the range of “potential scenarios” is wide and could include “a sudden resolution”.
But they said “we think the highest probability scenario is now one in which the Strait … remains closed for a few months”.
Commonwealth Bank economists on Friday said there is “little end in sight” with “both sides” at odds over the objectives of a peace deal. They said they “continue to expect the conflict to drag on a little longer, with a broader peace deal more likely later this month” but regardless the energy market disruption would “remain significant”.
AMP economists also said over the weekend it’s difficult to see how a deal would be reached “quickly” given the competing objectives.
The sources: Associated Press, Barclays, Commonwealth Bank note, AMP note
