07.05.2026

Standoff amid talk of a deal

No surprise, the Tehran regime has survived. Nor has it been forced to sue for an unequal peace. But the country is economically on its knees and the latest Pakistani‑brokered deal could easily flounder. Yassamine Mather gives her assessment

The Persian Gulf is currently about as stable as a house of cards in a hurricane. By the time you finish reading this - if you have not already been distracted by the next crisis - the situation will have changed again. But, as of May 6, as I write, we are all witnessing Donald Trump’s strategic masterpiece that is the ‘pause’ or ‘cancellation’ of ‘Project Freedom’.

After the US navy managed to heroically escort a grand total of two American-flagged merchant ships (and one Maersk subsidiary) through the Strait of Hormuz, Donald Trump has decided to effectively ghost the operation. Apparently, the passage of three ships is enough to declare victory before claiming “great progress” in negotiations. Thousands of other commercial vessels are still sitting there.

This does not mean that the US has suddenly lost its military superiority: US naval power remains overwhelming. But it does show the limits of that power, when military escalation threatens wider economic disruption, fuel-price shocks, domestic political pressure and the possibility of a wider regional war. A superpower can send warships through the strait: what it cannot easily do is guarantee that such a move will restore normal commercial circulation, discipline Iran, reassure markets, maintain allied support and preserve the ceasefire all at once. In that sense, the reversal is a sign not of American collapse, but of imperial overstretch: Washington is strong enough to threaten and intervene, but not strong enough to impose a clean settlement. The fact that Trump had to dress up retreat as diplomatic progress through Pakistan underlines this shift.

Pakistan

Last weekend Trump publicly said he is “not satisfied” with Iran’s latest proposal, although he added that he had not read it! According to reports from Pakistan, Iran has now sent a number of responses to Washington’s amendments, but the details have not been made public. According to Al Jazeera, the latest Iranian proposal appears to centre on reopening the strait, delaying nuclear talks, and seeking sanctions relief, guarantees against further attacks, and other concessions. Taken together, this suggests that Washington is trying to shape any settlement on terms it can accept, while Tehran is still bargaining through its own counter offer, although according to the country’s foreign minister negotiations were still progressing in Pakistan (as of May 6).

According to the Financial Times, the world is caught in a race between two blockades: the United States restricting Iran’s oil income; and Iran threatening the Strait of Hormuz, through which a huge share of global oil flows. Markets have stayed relatively calm, because oil supplies were high before the crisis, inventories are still comfortable, and future prices suggest traders expect the disruption to ease. But if the standoff lasts, the impact will be much more serious. Although the world economy uses less oil per unit of output than in the past, that does not make the situation safer. Oil is now more concentrated in essential transport and freight uses that cannot easily be replaced, so disruption could hit hard and suddenly. In that sense, modern economies are more vulnerable than they look. However, Iran’s ability to suppress economic pain is also in doubt, even if it has often managed to endure hardship, using a combination of subsidies for the allies of the regime and repression of economic protests.

Those who follow the social media posts of the section of the Iranian left who were or have become uncritical supporters of the Islamic Republic, as well as the global supporters of the Iranian regime and its ‘Axis of Resistance’, will be very familiar with the quotes from two US academics: Jeffrey Sachs and John Mearsheimer. Sachs frames the Iran war as a symptom of a broader historical shift: in his view, it reveals “the limits of US power” and belongs to a longer process, in which western hegemony has been steadily declining since the end of World War II and the cold war’s unipolar moment. Mearsheimer makes a complementary, but more operational, argument, saying the war is “not going well for the United States”, that Washington lacks a credible “off-ramp” and that no decisive victory has been achieved; he therefore describes the conflict as tending toward a war of attrition rather than a clean American success. Taken together, the remarks suggest that the conflict is best understood less as a demonstration of US control than as evidence of strategic overstretch, Iranian resilience and the erosion of Washington’s ability to impose a rapid or decisive settlement. Others like Robert Pape speak of Iran’s emergence as a fourth global power that controls the Strait of Hormuz.

The problem with such assertions is that in reality the situation can change quickly and dramatically. Washington is not retreating because it has become weak in military terms: it is being constrained because military escalation now carries serious economic and political costs. Iran’s survival so far should not be interpreted as victory. Such assessments ignore the disastrous internal situation after weeks of war and a new blockade that can potentially change the situation dramatically. Iran’s employment sector is grappling with its most catastrophic wave of contract terminations and rising joblessness in recent memory. A combination of a serious economic slump, ruined industrial assets, extended digital blackouts and plummeting consumer demand has forced numerous businesses to downsize staff or cease activities entirely.

Economy

In addition, the economic outlook is very bleak. According to an April 2025 report from the Statistical Centre of Iran, the annual inflation rate has just surged to 53.7%. This burden is felt most acutely by those with the lowest income, who face a rate of 58.2%, while food prices have skyrocketed by over 115%. Reports from industrial zones and the tech sector suggest that the combination of military conflict, inflation and severed trade routes has triggered a domino effect of layoffs and insolvency across both major corporations and small enterprises.

Ahmad Meydari, the minister of labour, noted in early May 2025 that over 150,000 individuals filed for unemployment benefits in a matter of weeks. Alireza Mahjoub of the House of Labour has mentioned the loss of 700,000 jobs, specifying that 130,000 resulted directly from military strikes, while 600,000 were indirect casualties of the conflict. Providing an even grimmer outlook, Gholamhossein Mohammadi, deputy minister of labour, estimated that the war has obliterated over one million jobs directly, with the total number of affected workers - both direct and indirect - reaching approximately two million.

The recruitment site, JobVision, recorded a staggering 318,000 job applications in a single day - a 50% spike. At the same time, the unemployment insurance system is buckling. Hassan Sadeghi of the Labor Community Veterans Union observed that, since the attacks began, the pool of applicants surged toward one million, overwhelming a fund that previously serviced only 180,000 people. In response, the state has launched the ‘Reducing layoffs’ initiative, which provides new credit for the insurance fund and temporary tax breaks for companies that avoid further staff cuts. Postwar data reveals a fragmented landscape regarding Iranian employment. While certain regions are in shock, others have maintained a level of stability.

The western provinces are struggling most significantly, as the missiles and bombs landed mainly in these regions. Kermanshah officials talk of a 15.2% unemployment rate, followed by Kurdistan at 13.7% and Khuzestan at 13.3%. These areas, already facing structural issues, were further crippled by infrastructure damage and supply chain failures. Lorestan has an unemployment rate of 11%. Conversely, Mazandaran and Yazd have shown more resilience (credited to Mazandaran’s agricultural diversity and Yazd’s mining and manufacturing sectors). However, even here, declining economic participation suggests that many discouraged workers are simply exiting the workforce.

The unemployment surge is the result of long-standing structural weaknesses meeting the sudden shock of war. Beyond direct combat damage, government policy failures - specifically regarding power stability and persistent internet outages - have played a significant role. Industrial hubs report that power cuts have made operations untenable for heavy industries, which form the backbone of the national supply chain.

Mehdi Ghodsi, an economist at the Vienna Institute for International Economic Studies, believes the Iranian economy is suffering from simultaneous inflation and recession. He points out that the destruction of ‘upstream’ sectors like steel has caused a ripple effect, starving ‘downstream’ units of materials and forcing closures. Ghodsi also emphasises the ‘neither war nor peace’ atmosphere. This political limbo has caused both investors and consumers to retreat, pushing the economy into a critical state that can likely only be resolved through de-escalation and a reopening of the economic environment.

Small and medium-sized enterprises are perhaps the hardest hit. Reports from industrial towns like Pakdasht and Alborz show employers preparing layoff lists immediately following the holidays. The internet blackout has specifically devastated online retailers and freelancers, essentially zeroing out their income. Even giants like Digikala reportedly laid off hundreds of staff across administrative and logistics sectors. The media industry has not been spared: the ILNA news agency has moved to a freelance-only model after dismissing its permanent staff, reflecting a broader trend of media outlets facing imminent closure. There have been displays of euphoria about the war by regime supporters on the street, but all this can change quickly if the economic crisis worsens.

For more than four decades, the US has used sanctions against Iran as a tool of pressure, beginning in 1979 and intensifying in later waves. In practice, these measures do not simply ‘punish’ a state: they squeeze ordinary people first, fuelling inflation, shortages, poverty and social tension. They also create space for profiteers, black-market networks, and rent-seeking elites who grow rich from scarcity, while the rest of society is pushed deeper into hardship. That widening inequality breeds resentment, anger, protests and, at times, unrest. This is why sanctions are often seen not just as economic warfare, but as part of a broader strategy of destabilisation that can be exploited for regime-change ambitions, even if that goal has not been achieved so far. No-one should assume it could never happen.

The point, then, is not that Iran is winning, nor that the US is simply losing. Such a reading would flatten a contradictory situation into propaganda. Iran’s ability to endure pressure, disrupt regional calculations and survive military escalation does not amount to victory, when its own society is being pushed deeper into inflation, unemployment, repression and uncertainty. Equally, Washington’s retreat from a clean military or diplomatic settlement does not mean the end of American power. The US remains militarily dominant, but it is increasingly forced to exercise that dominance through sanctions, blockades, threats and destabilisation rather than stable leadership.

What we are seeing is therefore a crisis in the form of imperial power itself: a shift from confident hegemony to coercive management of decline. This is why the immediate conflict in the Gulf has to be placed inside the wider structure of imperialism, energy control and inter-capitalist rivalry.

Imperialism

The history of global power does not move in a straight line from strength to collapse. It changes unevenly, through decline, adaptation and reorganisation. The US remains the strongest single state in the world, but the form of its power has changed.

Giovanni Arrighi and Immanuel Wallerstein both help explain why decline does not necessarily look like sudden breakdown. Arrighi’s account links US decline to financialisation and military overstretch, while Wallerstein argues that the US has been “fading as a global power” since the end of the Vietnam War. The important point is that decline does not end an empire at once: it often pushes that empire toward more coercive methods of rule. In that sense, the crisis of hegemony does not remove imperial power: it changes its form. This matters if we consider imperialism not as a final and abnormal stage of capitalism, but a system built into capitalism’s normal functioning, dependent on states, hierarchy and competition between political units. Imperialism is therefore not just a symptom of late decay: it is a mode through which capitalism manages crisis and reproduces itself across unequal territories.

Modern imperialism is not driven by one factor alone: it works through several linked systems. Unequal exchange transfers value from poorer regions to richer ones through trade, investment and supply chains. Dollar power allows the US to discipline other states through finance, sanctions and debt. Military reach secures bases, routes and chokepoints. Ecological crisis is also pushed outward, with the costs of extraction and pollution shifted onto the global south. In David Harvey’s framework, this is part of the wider logic of “accumulation by dispossession”, while Ellen Meiksins Wood argues that capitalism creates a new form of domination by “purely economic means”, alongside “unlimited militarism”.

The energy question belongs inside this structure. Timothy Mitchell’s argument in Carbon democracy is especially useful here. He shows that oil from the Middle East gave western powers a way to rely on “cheap and abundant energy”, and that this helped produce a political order that became “dependent on an undemocratic Middle East”. The point is not that oil matters only as a commodity: it matters because control over energy helps shape the wider organisation of power, production and dependency. In the current context it is far more important to deprive China of access to cheap oil.

As US hegemony weakens, ‘multipolarity’ has been presented as an alternative - and at times a positive one. Samir Amin argued that poorer countries need the ability to “sever connections with the main mechanisms of imperial dominance”. In his view, this required “delinking” from the logic of the world market, so that domestic development could take priority, and a more plural world might create space for autonomous development. His arguments have some supporters among sections of the Iranian left, hence the need to argue against it.

First of all, multipolarity is not the same as anti-capitalism. Even if a nation ‘delinks’ from the US-dominated International Monetary Fund or World Bank, it remains trapped within the global law of value. If a country in the global south ‘delinks’, but continues to organise its domestic economy around profit and commodity production, it is still subject to the same systemic pressure. The competition between ‘poles’ (eg, the US vs China) often leads to a ‘race to the bottom’ for labour rights and environmental standards, as each pole tries to out-produce the other. Multipolarity is not the end of imperialism: it is the localisation of exploitation.

In reality a plural world is only a liberated world if that plurality exists in the form of socialist cooperation, not competitive accumulation - Amin’s vision of “autonomous development” is impossible under global capitalism. Because capital is international, any ‘delinked’ state that tries to build a socialist or even an independent social-democratic system will face immediate capital flight, sanctions or ‘scissors’ crises (where the cost of imported technology rises, while the price of exported raw materials falls). The key question is not whether US power is declining, but what kind of order is replacing it. Currently, China is a potential rival and there is no sign of multipolar centres. However, even if such a scenario were to exist, it would not mean a better, more equal world.

Strategic zone

The escalation toward war with Iran should be understood in this wider context. It is not about nuclear technology or Iran’s regional influence. It is about the strategic control of energy in a period of sharper rivalry between the US and China. The deeper issue is not oil in the abstract, but who can secure access to cheap energy, on what terms and under whose protection. In a world economy still shaped by hydrocarbons, that question has direct effects on industrial growth and long-term power.

This is why the Middle East remains central. It is a strategic zone, where energy production, shipping routes, military bases and financial power come together. Control over this region matters because it shapes the conditions under which other powers can grow. From this angle, hostility toward Iran is not simply a response to one state’s behaviour: it is part of a larger attempt to keep the region inside the strategic orbit of the US and prevent China from securing stable, cheap access to energy on favourable terms. That is the real political meaning of ‘energy security’.

When it comes to China and the current war in the Middle East, here we have a classic case of short-term geopolitical advantage colliding with long-term economic vulnerability. China has gained some strategic and diplomatic room from the conflict: Washington’s attention and military resources have been pulled deeper into the Middle East, while Beijing has tried to present itself as a sober mediator, especially through its behind-the-scenes role in encouraging Iran towards the April ceasefire talks. But the same conflict has also exposed China’s biggest structural weakness: its dependence on imported energy and on shipping routes through the Gulf. The war has distracted the US from the Indo-Pacific, at least temporarily, reducing some pressure on China over Taiwan and the South China Sea.

However, China has also lost. The conflict has hit energy security hard - the country’s crude oil imports reached a record 11.6 million barrels per day in 2025, and over 70% of its oil consumption depends on imports. The wider economic risks are also real. Higher oil prices, disrupted shipping and weaker demand in Europe and the US all threaten China’s export-led growth model. Chinese and Hong Kong markets have already shown sensitivity to the conflict. Reports in March said Hong Kong stocks fell sharply, as investors worried about stagflation, oil prices and weaker demand. Market instability could turn a geopolitical opportunity into an economic liability.

Meanwhile, if the conflict produced regime change in Tehran or a strongly pro-western Iranian government, Beijing would lose an important sanctioned-energy supplier and a strategic partner operating partly outside the US-dominated financial system.

Iran therefore stands at the centre of several overlapping contradictions. For Washington, it is a pressure point in the struggle to preserve regional dominance and restrict China’s access to cheap and secure energy. For Beijing, it is both a useful strategic partner and a source of dangerous exposure to Gulf instability.

But for the Iranian people, the conflict is neither a symbol of heroic ‘multipolar’ resistance nor simply a chess move in great-power rivalry. It is experienced through sanctions, inflation, unemployment, factory closures, internet shutdowns, repression and the constant threat of wider war. The survival of the Islamic Republic under pressure should not be mistaken for victory, just as the limits of American power should not be confused with emancipation.

The only genuinely progressive alternative lies in opposing imperialist aggression, while also refusing to prettify the Iranian state, and in placing the social needs, democratic rights and independent struggle of Iran’s working people at the centre of anti-war politics.