Could the Middle East conflict go nuclear?

Key Markets report for Thursday, 12 Jun 2025

The negotiations between the United States and Iran hit a snag and President Trump has signalled readiness to resort to military means. After initially agreeing to “allow” Iran enrichment of uranium below weapons grade threshold, the United States reversed its stance and demanded that Iran cease uranium enrichment altogether which would effectively deprive Iran of autonomy in its nuclear development program. As a signatory to the NNPT (Nuclear Non-Proliferation Treaty), Iran is within its right to pursue peacetime nuclear technology, so Trump’s demand is an overreach and an infringement on Iran’s sovereignty.

Iran turns tables on Trump

The result is that Iran has not only refused to comply with Trump’s demands, they also diplomatically turned the tables on the US by offering to commit to low enrichment threshold, provided that the US removes Israel’s nuclear arsenal and commits to a nuclear-free Middle East. If the whole objective of these negotiations was to secure peace and stability in the region, Iran’s offer would be perfectly reasonable. But since peace is not and never was the real objective, the Iranian offer was taken as a brazen challenge to the hegemon.

The real objective of pressure on Iran is to ultimately remove any opposition to Western hegemony in the region and Israel, since its creation, has served primarily that purpose. Therefore, what is being asked of Iran is to stand down, disarm, and put its nuclear program in the hands of Western arbiters who have an almost perfect track record of breaking every agreement they ever signed almost as soon as doing so becomes expedient. That has made it difficult to get concessions from other nations, except under duress.

Pressure tactics backfired

But the Iranians have already endured years of maximum pressure sanctions and have by now had more than 20 years to prepare for the clash with the empire, which they assumed was inevitable. And while it is clear that Trump doesn’t want war against Iran, his transactional approach in international relations is nevertheless inching the US ever closer to an actual confrontation. Trump is feeling frustrated with the Iranians because their attitude in the negotiations has changed (translation; they’re no longer cowed) and have taken a much more assertive stance in negotiations against the US. But from there, Trump’s way of persuading them might prove counterproductive.

Transactional Trump perhaps thought it would be clever to ask his military advisors to prepare a range of military options, including the nuclear one, and to air this in public. It seems that his idea was to signal to the Iranians that the US is serious and determined, so they should be afraid and buckle under the pressure. To reinforce the message, Trump authorized the evacuation of all non-essential staff from US diplomatic and military outpost from the entire region, stating that it could become “a dangerous place.”

The risk of opposite outcome and unintended consequences

The problem with this transactional approach - squeezing and intimidating your opponents until they accept your deal - is that they might call your bluff, and if they do, you could be forced to make good on your threats or lose face and your credibility. In business deals, that could cost you the deal, but in international relations the damage could be much more extensive and long lasting. It is highly doubtful that either the United States or Israel have the means or the ability to inflict substantial damage on Iran’s nuclear program. It is still less likely that they could inflict a strategic defeat on Iran. But if they try, the Iranians do have the means to inflict massive damage, both on Israel and on US assets in the region.

Furthermore, it could result in a domino effect and the collapse or mutiny among the friendly regimes in the region, like Turkey, Jordan, Saudi Arabia and Egypt. In all, it could boomerang 10-fold on the US and its allies.

And not to forget, the consequences of a military conflict with Iran could be a huge economic dislocation. The price of oil could skyrocket far into triple-digits, but it’s not just oil: commodities in general might all rally, including precious and industrial metals as well as agricultural commodities. Interest rates would also spike, the price of bonds would collapse and inflation in the West would soar. Wars are easy to start, but once they get going, their unfolding is impossible to predict and they tend to be very hard to stop.

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