Great news! Donald Trump has said the US and Iran are on the verge of a peace agreement. Oil prices are down, and the stock market is up. This comes only hours after Trump warned Iran was about to be struck “VERY HARD”, a threat that had sent oil prices up and stocks down.
It has been another ride on the Trump rollercoaster, keeping traders on edge, most of the world poorer, and people of the Middle East constantly whiplashing between fear and hope. But whether the ride veers up or down, the management always makes money.
This is the 39th time that the president has declared US-Iranian talks to be on the point of fruition (other counts have the figure higher – it depends on what you term a prediction or just a hint). On five of those occasions, the promise of peace has involved walking back the threat of mass devastation, including the destruction of critical civilian infrastructure, a near-certain war crime if carried out.
As he was menacing Iran with “very hard” strikes on Thursday night, Trump also pledged the US would take over “total control” of the country’s oil and gas markets and seize the island of Kharg. He has threatened the capture of Kharg, a focal point of Iran’s hydrocarbon industry, several times before, although in this instance the threat was made while actually bombing Iran, in a tit-for-tat exchange with Tehran in which a critical reservoir and water tanks were badly damaged in the drought-stricken south, a war crime if intentional.
By Thursday afternoon however, the prospect of mass destruction had evaporated as quickly as it had materialised.
“I have, as President of the United States of America, cancelled the scheduled strikes and bombings against Iran this evening,” Trump declared on his Truth Social platform as if providing his full capitalised title added any weight to the statement.
The air of optimism was reinforced on Friday afternoon by a White House briefing that a text was in place which both the US and Iran could live with. US officials echoed the president’s prediction that a signing ceremony could be held in a matter of days.
Iran’s foreign ministry was less definite, saying that the proposed agreement was being studied by the country’s “decision-making bodies”, but the oil price fell below $90 (£67) a barrel nonetheless.
No matter how many times Trump predicts conflagration or diplomatic breakthrough, the markets still obediently bob up and down like a trained seal. It is a guaranteed response that represents an opportunity to make big, easy money for anyone with advance knowledge of presidential announcements.
A recent BBC investigation found that multimillion-dollar trades have been made in global markets just before Trump makes major administration announcements, particularly involving oil trades on the futures market.
After so many false dawns and hoax Armageddons, why are traders still reacting to Trump’s rhetoric? One theory is that, while individual traders are no suckers, they suspect that some of their competitors might be, so react rapidly to presidential statements to get ahead of the curve.
An alternative explanation, suggested by the Australian-American economist Justin Wolfers, is what he calls the “known liar problem”. The markets know Trump is an unreliable narrator and heavily discount everything the president says, but the economic implications of war or peace in the Gulf are so enormous that even a heavily discounted reaction still moves the dial.
After all, one day there will be a deal. The president’s on-off signals are not being sent in a vacuum, but in the midst of talks between the two sides intended to turn the ceasefire, which has mostly held since April, into something more permanent.
According to reports from the region, the gaps in those talks are indeed getting smaller in the past few days. The focus is on a limited memorandum of understanding (MoU), putting off nuclear negotiations for later and focusing on opening the strait of Hormuz, a vital route for global trade.
The most immediate impasse has been about cash. Tehran has no confidence Trump would keep his word in any deal so wants to be paid up front from a $24bn tranche of an estimated $100bn of its assets frozen around the world, in return for lifting its blockade on the strait of Hormuz.
The US wants rewards to follow tangible progress, but the administration has a fundamental problem with releasing Iranian assets. Trump and other top Republicans have spent years lambasting Barack Obama for providing unfrozen assets to Iran in the form of pallets of cash as part of a 2015 nuclear deal, which was successful in curbing Iran’s programme until Trump walked out of it in 2018.
The workaround being discussed, according to a source briefed on the talks, involves a line of credit from a bank in a Gulf state issued against Iran’s $100bn of frozen assets as collateral. It will fool only those who want to be fooled, but that would include the administration’s defenders on the American political stage.
The second major sticking point is how much detail about nuclear issues should be included in the MoU. The US wants concrete parameters including a moratorium on uranium enrichment of 15 years or so, and arrangements for the disposal of Iran’s stockpile of highly enriched uranium.
US officials focus on these two factors in briefings to the American press, but when the Iranians have briefed diplomats and experts lately, they have said such matters have hardly been mentioned and are pressing for only vague references to nuclear issues in the memorandum, leaving them to be negotiated in Geneva in the weeks after an MoU is agreed.
Trump may have shown the way for a possible fudge by insisting that the deal will ensure “Iran will never have a nuclear weapon”. That is something Tehran might agree to. Iran’s renunciation of atomic arms was once reinforced by religious edict, or fatwa, but the supreme leader who issued that fatwa, Ali Khamenei, was killed by an Israeli bomb in the first seconds of the US-Israeli war on Iran on 28 February. Any Iranian pledge now is likely to be secular, and contingent on the MoU being upheld.
A compromise MoU along similar lines appeared close to agreement in late May, but Trump helped derail it by suddenly moving the goalposts, including the suggestion that the regional guarantors of the agreement normalise relations with Israel as a gesture of gratitude for the suspension of hostilities. The suggestion was greeted by a stunned silence across the Middle East.
Throwing last-minute surprises into negotiations has long been a Trump tactic in business and US politics. It has not worked in the Iran talks. Instead, the president has sometimes behaved as a finicky eater faced with a stark menu of two unpalatable options: all-out war or messy compromise. He has noisily wavered between choosing one or the other in the hope of being presented with something more to his taste, but that has yet to happen.
“You have an impasse. Trump doesn’t have any good options. He’s come close to accepting an MoU, but then he’s backed away because it’s difficult for him to politically sell it at home and claim victory,” said Vali Nasr, a former state department adviser, who is now professor at Johns Hopkins University’s school of advanced international studies.
Some observers believe Trump could give concessions to agree an MoU and ensure a peaceful backdrop to the World Cup, leaving the big gaps between the two sides to be addressed in the nuclear talks to follow.
The US administration’s explanation for the long delay in achieving an MoU is a divided camp in Tehran, in which Iran’s chief negotiator, the foreign minister, Abbas Araghchi, is constantly being second-guessed by Revolutionary Guards generals back home.
That may be true. The internal dynamics of the Tehran regime were murky before the bombing started, but now they are virtually a black box. The one certainty is that the Islamic Revolutionary Guard Corps, the principal target of US-Israeli decapitation bombing, has emerged stronger in relation to the other power centre. It is unclear whether Khamenei’s successor, his badly injured son Mojtaba Khamenei, is any more than a figurehead.
However it organises itself internally, the regime has shown itself to be remarkably resilient. Dead leaders have been replaced and domestic unrest has been suppressed. The war has arguably made that suppression easier. The brunt of the economic war being waged by the US is being borne by the Iranian people but that has yet to turn into decisive pressure on the leadership.
Peace is likely to be more dangerous to the regime than war, as there will no longer be an external enemy to blame for runaway inflation and high employment. Nasr said that is why Tehran is so insistent on getting funds up front in any deal.
Despite Iran’s dogged survival in the face of a US-Israeli onslaught, in which the US alone claims to have bombed 13,000 targets, the Israeli leadership and Washington hawks are continuing to try to convince Trump that one more big push will finally bring down the regime. Even if an MoU is agreed, the hawks are confident that the ensuing nuclear talks will break down over Iran’s insistence on its right to enrich uranium.
“I think the president eventually is going to do a much bigger kinetic military strike,” Darin Selnick, a former Pentagon deputy chief of staff told BBC Radio 4. “[US forces] never finished the target list. So they have about 20% of the target list. They can start taking out what will really hurt, which is the various oil facilities … They can take out another level of military leadership. They could have taken out those who are at the negotiating table, but they wanted to have someone to negotiate with. They can take those guys out as well.
“Then they can forcibly reopen the strait themselves. If this trade opens … Iran would really have no ability to do anything but surrender.”
For all Trump’s past threats of civilisational erasure if Iran fails to acquiesce, he has so far shown himself reluctant to double down on a military bet that has already failed.
Ali Vaez, Iran project director at the International Crisis Group, argued that Trump’s latest threat of devastating strikes was performative.
“Trump is using the threat either to force the Iranians to make last minute concessions, or to justify a deal that he knows would be criticised by the hawks,” Vaez said.
Richard Nephew, a former Iran affairs director at the US national security council and now a research scholar at Columbia University, said: “I think he is probably poised to try and cut some sort of deal. He’s going to want to describe some sort of Iranian concession as coming from how loudly he barked.