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Uncertainty in the Middle East is rooted in deep ideological divisions and competing visions of regional order. Israel has steadily expanded its military and political footprint, while Iran has positioned itself as a counterweight through asymmetric alliances and regional networks. The United States, Israel's long principal strategic partner, continues to provide diplomatic and security backing despite criticism of Israel's expansionist rhetoric associated with the idea of “Greater Israel.” At the same time, Washington maintains extensive strategic partnerships across the Gulf, shaping its broader regional posture. The roots of recent confrontations stretch back to the Cold War. In 1945, as Soviet influence expanded toward Iran, the United States adopted a containment-oriented approach, drawing Iran into its strategic orbit. A critical shift occurred in 1951 when Prime Minister Mohammad Mossadegh moved to nationalize the Anglo- Iranian Oil Company. His government was overthrown in 1953, paving the way for Mohammad Reza Shah Pahlavi's rule until 1979. During the Shah's era, Iran became a close US ally. In 1957, under President Dwight D. Eisenhower's Atoms for Peace initiative, Iran launched its first civilian nuclear program. This partnership collapsed in 1979 following the Islamic Revolution led by Ayatollah Ruhollah Khomeini. The seizure of the US Embassy in Tehran and the 444-day hostage crisis involving 52 American diplomats marked a historic rupture in bilateral relations. In response, the United States imposed sweeping sanctions, including Executive Order 12170, freezing Iranian assets and banning oil imports. Since then, economic pressure has remained a central pillar of US policy toward Iran.

The Iran–Iraq War (1980–1988) further entrenched hostility. Although Washington officially remained neutral, it provided intelligence and economic support to Iraq. The conflict resulted in massive human and material losses, reshaping the region's security landscape. Tensions escalated further in 1984 when the United States designated Iran a state sponsor of terrorism following Hezbollah-linked attacks in Lebanon. In 1988, the downing of Iran Air Flight IR655 by a US Navy vessel, killing all 290 passengers, became one of the most traumatic incidents in US–Iran relations. Throughout the 1990s and early 2000s, sanctions intensified. In 1995, President Bill Clinton imposed additional restrictions over Iran's alleged nuclear ambitions and support for armed groups in the region. After 9/11, under President George W. Bush, diplomatic positions were further hardened. A brief diplomatic opening emerged under President Barack Obama. Between 2013 and 2015, negotiations produced the Joint Comprehensive Plan of Action (JCPOA), under which Iran agreed to limit uranium enrichment in exchange for sanctions relief. However, the agreement collapsed in 2018 when President Donald Trump withdrew the United States from the deal, reigniting tensions.

The situation deteriorated further in 2020 when General Qassem Soleimani, commander of Iran's Qods Force, was killed in a US drone strike in Iraq. By 2025, the conflict had entered a new phase, with US airstrikes targeting Iranian nuclear facilities and rising covert confrontations across the region. Diplomatic efforts briefly resurfaced through Oman-mediated talks in Geneva, with Washington suggesting that a new agreement might be within reach. However, this fragile momentum collapsed when escalation resumed on 28 February 2026, with the launch of Operation Epic Fury by the United States and Operation Roaring Lion by Israel, targeting Iranian military and nuclear infrastructure. The situation further escalated when Iran's Supreme Leader Ayatollah Ali Hosseini Khamenei was killed on 1st March 2026, and his son Mojtaba Khamenei assumed leadership on 9th March. Reports suggested the use of advanced artificial intelligence systems to process surveillance data and identify high-value targets, marking a new technological dimension in modern warfare.

Beyond military escalation, Iran's geopolitical significance lies in its vast energy resources. The country holds approximately 280 billion barrels of crude oil reserves, the third largest globally, and around 34 trillion cubic meters of natural gas reserves, the second largest in the world. Strategic assets such as the South Pars gas field, Kharg Island oil terminal, and the Strait of Hormuz form the backbone of global energy security. Nearly 25 percent of global trade passes through this chokepoint, making it one of the world's most critical maritime corridors. Israel remains deeply embedded in the conflict dynamics. Since October 2023, it has conducted over 35,000 military strikes across multiple regional theaters. Prior to the Gaza ceasefire on 10th October 2025, more than 65,000 deaths were reported in Gaza, followed by hundreds more casualties afterward. Israeli operations have continued in Lebanon and other neighboring areas, intensifying concerns over territorial expansion linked to the concept of Greater Israel. Israeli Prime Minister Benjamin Netanyahu has played a central role in urging stronger US involvement against Iran, warning that Tehran could rapidly advance its nuclear capabilities without intervention. His repeated diplomatic engagements in Washington reflect the depth of US–Israel coordination during the crisis.

The economic consequences have been severe. Regional production disruptions have reduced energy output, while Qatar Energy estimates that repairing damaged infrastructure could take up to three to five years. The International Energy Agency has described the situation as the largest supply disruption in global oil market history, while the IMF warns of long-term structural damage to the global economy. Amid escalating tensions, Pakistan emerged as a diplomatic facilitator, hosting US and Iranian delegations for direct talks in Islamabad. After a 21-hour negotiation session, both sides indicated progress toward a potential agreement. However, disagreements over sanctions relief, nuclear limits, and maritime security prevented a breakthrough. The joint US–Israel strikes in early 2026 triggered immediate Iranian retaliation. Tehran launched attacks on US bases in Bahrain, Qatar, Cyprus, Saudi Arabia, and the UAE, while also closing the Strait of Hormuz. This action caused a sharp surge in global oil prices, with crude rising by over 50 percent to $100–$120 per barrel. The process collapsed after renewed escalation and a blockade of the Strait of Hormuz, prompting Iran to withdraw from further negotiations. The breakdown underscored the fragility of diplomacy in an environment dominated by military pressure and mistrust.

At its core, the Iran–US–Israel confrontation is not merely about survival but about regional order and strategic dominance. Iran seeks to preserve its influence in the region and deterrence strategies, while Israel aims to secure its strategic environment through military superiority and regional restructuring. The United States continues to balance alliance commitments with broader geopolitical interests. The economic stakes are equally profound. Oil price shocks, supply chain disruptions, and regional instability have already triggered global repercussions, with potential long-term consequences for inflation and growth worldwide. Pakistan has been able to take a balanced approach to prevent the escalation between regional countries despite having a Strategic Mutual Defence Agreement with KSA. Pakistan provided a good office for ceasefire and the peace talks. The US and Iran, too, acknowledged the efforts of Islamabad in this regard. For Pakistan, stakes are high, particularly keeping in view its strong relations with KSA. Furthermore, if peace efforts result in US lifting the sanctions on Iran, it can open economic, trade and energy corridor for Pakistan, as Iran is its immediate neighbour. Pakistan can revive the Iran-Pakistan Gas Pipeline, through which its demand for energy can be addressed. Iran can also become an emerging trade route to Central Asia.

Ultimately, the Iran US crisis underscores a fundamental reality: military escalation cannot resolve deeply entrenched geopolitical rivalries. Sustainable stability will require structured diplomacy, regional security frameworks—particularly for the Strait of Hormuz—and a recalibration of nuclear negotiations that balance security concerns with economic realities. Without such steps, the region risks entering a prolonged cycle of confrontation whose consequences will be extended far beyond the Middle East.

References

1- https://www.collegesimplified.in/post/how-global-wars-affect-international-trade-economic-impact-explained

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