Iraq’s Coordination Framework, a body that brings together the various Shi’a parties especially those supportive of Iran, nominated businessman Ali Faleh al-Zaydi (or Zaidi) as the prime minister designate. His nomination resulted from a compromise between current Prime Minister Mohammad Shiya’ al-Sudani and former Prime Minister Nouri al-Maliki, who were both vying for the position.

Ali al-Zaydi

Mr Zaydi, heretofore largely politically unknown, now needs to present a cabinet in the next 30 days. He used to own the now-sanctioned Al Janoob Islamic Bank, according to Al Arabi TV, and currently runs a range of other companies. He has been on the board of the National Holding Company, Ishtar Medical Institute, and Al-Shaab University. He also led Dijlah TV, a popular TV channel formerly owned by the Sunni Karbouli family. This suggests ties across the political spectrum and considerable influence behind the scenes through finance and media. His former bank was banned from accessing dollar auctions through the Iraqi Central Bank following a visit by US Treasury officials to Baghdad, though our search did not find the bank nor Mr Zaydi listed on the OFAC website. Zaidi is also reportedly responsible for the distribution of rations cards, suggesting strong influence over patronage networks.

Credibility and defiance

The USA had been pressuring Iraq with the threat of further sanctions to compel the Iraqi state to distance itself from Iran-backed militias. In reality, these militias now run the Iraqi government. Appointing Zaydi must be seen therefore in the following light:

1. Maliki and Sudani picked a compromise candidate who lacks an independent power base. Their joint aim is to ensure that a strong PM does not threaten their own interests and powerbases.

2. By choosing someone relatively unknown, neither Maliki nor Sudani would be especially harmed if he fails to form a cabinet, or if his cabinet fails to meet public expectations. They can then return to their competition over who becomes PM.

3. By choosing someone almost sanctioned by the USA, they’re telling the Americans that they refuse to halt cooperation with Iran. Indeed, they’re confirming their alignment with Iran and with the militias.

Commercial Impact

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The Americans are mediating negotiations between Lebanon and Israel after having declared a ceasefire. These are the first direct negotiations between the Lebanese government and Israel since the early 1980s, where some factions of the Lebanese government held talks with Israel after it had invaded the country all the way to Beirut. Trump had previously imposed a ceasefire in Lebanon, declaring that Israel was “prohibited” from conducting further attacks. Of course, the Israelis ignored him. The war between Hezbollah and Lebanon is continuing, with Israel continuing to prevent Lebanese residents from returning to their villages and homes south of the Litani River and from some locations north of it.

The State of Lebanon

Lebanese President Joseph Aoun and Prime Minister Nawwaf Salam, who are both political novices who were severely overpromoted due to American patronage, believe that Lebanon can be a normal nation state. Of course, our readers realise that a diverse country with a Muslim majority is by definition incapable of functioning as a Westphalian nation state - unless it is under severely authoritarian rule. The cabinet that these two men run had had each of its members vetted by the American Embassy in Beirut to ensure their compliance. Furthermore, it does not include any major political figures, but, rather, disposable junior representatives, allowing the political leaders themselves to maintain distance and manoeuvring room to adapt to military realities. Therefore, the cabinet suffers from a combination of political naivete and weak legitimacy, with room for backtracking. The actual sectarian political leaders of Lebanon allowed the cabinet to issue decrees such as demanding that Hezbollah disarm. However, as Hezbollah continues to fight Israel with at least some effectiveness, they know that this is impossible to implement politically and militarily.

Israel’s view

The Israelis do not believe that peace with Lebanon is possible so long as the Lebanese Shi’a, who largely back Hezbollah, are armed. Moreover, the right wing factions in Israel which dominate the Netanyahu government are seeking territorial expansion. In the 17 May, 1983 abortive peace agreement, the Israelis essentially sought de-facto control, or at least heavy influence, over the Lebanese security forces, in order to compel Lebanon to fulfil its state responsibilities, both in the Westphalian sense and under current international law, by preventing non-state armed groups from attacking Israel. This objective has not changed.

That said, for the factions in Israel that aspire to territorial expansion, these negotiations are merely a mechanism to humour Trump until political and military realities permit them to proceed with the expansionist agenda. They will likely refuse any agreement that forces them to withdraw from South Lebanon. Rather, they are using negotiations as a pressure tactic to drive an even deeper wedge between Hezbollah and Lebanese officialdom.

Commercial Impact

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Iran’s troubles

The Iranians are facing a severe maritime blockade. Although some ships are getting through, other ships owned by Iran and sanctioned by the USA are being seized. Iran is likely to struggle to replace these ships. Over time, if the American blockade remains, Iranian energy exports will likely collapse, even though current reporting indicates that some Iranian ships are getting through.

Furthermore, the Iranian currency is collapsing, food inflation was soaring even before the war started, and Iran is highly dependent on food imports. Although Iran had tried to stockpile before the war began, a long siege is guaranteed to raise prices significantly and cause widespread shortages. It is likely that Russia would assist Iran, but the amounts that can be exported through the Caspian or overland will be smaller and dearer.

Additionally, the Iranians do not trust that the Americans will negotiate in good faith. Iran was attacked twice during negotiations. The ongoing American military build-up, including a third aircraft carrier arriving in the region and reportedly more air transport flights than before the actual war, suggests that the Americans plan on going to war again anyway.

America’s difficulties

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The story, summarised, is this: Prime Minister Sir Keir Starmer, rather than accept the blame for appointing the disgraced Lord Peter Mandelson as Ambassador to the United States, is trying to blame senior mandarins in the civil service. Starmer is alleging that civil servants did not inform him that Lord Mandelson had failed the vetting process typical for all Foreign Office appointments, such as ambassadors. Lord Mandelson had to be dismissed from his post following revelations that he was one of convicted paedophile Jeffery Epstein’s closest friends, and that he had shared with him market-sensitive state secrets. Lord Mandelson, through his consultancy, was also working for companies linked to the Chinese and Russian governments. This was likely one of the reasons he failed his vetting.

Sir Keir, in an attempt to shift the blame, dismissed the most senior Foreign Office civil servant, Sir Oliver Robbins. Sir Oliver then testified to Parliament that it was Sir Keir’s personal office who repeatedly pressured the Foreign Office to approve Lord Mandelson’s appointment, and that they never wanted him to be vetted in the first place.

Regime legitimacy crisis

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Trump’s reasoning

Trump likely saw that the first forty days of war could not prevent Iran from retaliating. Shortages in critical ammunition stockpiles likely also convinced him to delay. Now, he’s hoping to create a situation of continuous pressure on energy markets and reap rewards from that for the USA, without continuing the military conflict openly.

For Trump, America benefits from this energy disruption, as it forces more investments in the USA, which remains the most energy secure industrial country in the world. This aids his re-industrialisation agenda, as we discussed in our earlier piece.

How will Iran respond?

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The Iranian delegation for talks with the USA has yet to arrive in Islamabad, Pakistan. The Iranian Supreme Leader’s representative to the Islamic Revolution Guards Corps (IRGC) said that Iran will not negotiate on America’s terms.

Iran’s reasoning

For some in Iran, there is no reason to negotiate with the USA to begin with - the Americans have twice used talks as cover for launch strikes. Additionally, the Americans maintained the blockade on Iran even after Iran said it was willing to re-open Hormuz (although Iranian Foreign Minister Abbas Aragchi likely deliberately left out that the Iranians were still intending to charge passage fees). From Iran’s perspective, this means that the Americans want to continue the war. Moreover, American demands, in Iran’s view, remain very unrealistic. Therefore, another round with the USA may be necessary to convince the Americans to back down.

America’s reasoning

From America’s perspective, an agreement with Iran would confirm that Iran is the regional hegemon, and that the Americans are unable to protect GCC states from Iran. The US presence in the region would be useless. Israel would grow more isolated and would need to be severely restrained. Turkey would see that Iran’s strategy was successful and would mimic it, as would other middle powers.

Additionally, Trump has no choice but to try to win or prolong the war. He has halted mass deportations and decided to allow more visa routes for employers. The Supreme Court thwarted his tariff policy. He is not pursuing the Democrats forcefully to permanently weaken them. He had to be forced to release the Epstein files, having initially falsely claimed that they’re a hoax, and that there was nothing there.

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American President Donald Trump has likely decided to continue the war, perhaps indefinitely. His options are constrained. If he returns to attacking Iran, even more oil and gas infrastructure will be destroyed, and his domestic support will plummet further. Moreover, Iran would be certain to close Bab al-Mandab, as it matches escalation with counter-escalation. Additionally, Trump cannot afford a ground campaign, as that would be immensely unpopular. And if he allows Iran to collect fees for transit through Hormuz, actually opening the Strait, then the American presence in the region would be pointless, and, indeed, a sign of impotent humiliation.

Iran knows how constrained the Americans are. As a result, they are unwilling to make more concessions in the ongoing talks than they made before the war started. This means that Iran is willing to dilute its nuclear stockpile, refrain from building additional stockpiles of enriched uranium, and to accept surveillance over its programme. But it is unwilling to give the nuclear programme up, let alone give up the missile programme and the support for proxies.

Trump has now shifted to blockading Iranian ports. Notably, he continued to do so even after Iran announced it would unblock Hormuz, but continue to assert its sovereignty over it This poses a huge set of challenges, as discussed earlier.

However, it also makes it much more likely that the war will resume - there is no reason for Trump to blockade Iranian ports if his intent was not to resume the war. That, in turn, would likely force American ships to back away from their blockade line against Iran, permitting more ships to pass at Iran’s discretion.

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Blockading Iran will solve nothing.

Iraq was placed under a comprehensive embargo from 1990 to 2003. The regime survived, and only a ground campaign provided a “solution”. Even then, the “solution” could not defeat geography and demographics. Iran came out on top in Iraq due to these factors.

In Iran’s case, the matter is complicated by Iran having direct access to China’s Belt and Road Initiative, access to Russia via the Caspian, a far more defensible terrain than Iraq’s, a much larger population, access to the sea along a 900-mile coast, and an incomparably more capable military. Not to mention Iran’s ability to shut down Gulf Arab oil, and the Red Sea, risking a major global financial crisis far larger than that of 2008.

American President Donald Trump, by his nature, and given his need to rebuild his broken right wing coalition together, wants this blockade to produce quick results. As we have said, a full blockade is likely not sustainable, and will partly fail, all while risking escalation with China.

The question then becomes, does Trump decide to kick the can down the road, keeping negotiations ongoing while the USA completes another military build-up, or does the conflict resume, and, if so, when, and with what intensity?

Commercial Implications

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Trump’s statement followed the failure of negotiations between Iran and the USA in Islamabad. The precise details of the disagreements are unclear, but apparently they relate to the nuclear programme - Iran almost certainly refuses to fully give up enrichment - and tolls over Hormuz. It is also very likely that Iran demanded full access to its frozen funds. Simply, Iran believes it has a very strong hand, and sees even less reason to compromise. Hence Trump’s response. This response is well short of a resumption of hostilities. This may be due to the need to resupply American forces and maintain equipment ahead of the next round, or the realisation that further attacks on Iran are pointless.

Unintended Consequences

Trump has gone from threatening to wipe out the Persian civilisation to trying to beat Iran at its own blockade game. This shows the limits of his options. Of course, he can resume the war, in the hope that this will make the Iranian negotiating position more flexible, while accepting the risk of more permanent global economic damage. That he has not done so reflects the extent of international pressure he must be under to prevent this outcome. It is precisely these pressures that led Trump to opt for this strange and risky policy, perhaps in an attempt to put pressure on oil purchasers to turn against Iran. This policy imposes a set of questions, addressing which helps clarify its commercial impact.

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There is no evidence of Hormuz re-opening, despite the ceasefire. Rather, Iran has said that there may be mines in the Strait, and told all ships to coordinate with the Islamic Revolution Guards Corps - Navy to coordinate safe passage.

This is in line with what we had said in yesterday’s update, that Iran will continue to use Hormuz for leverage, and at most allow a partial re-opening.

Iran’s ambassador to Pakistan, where negotiations are set to take place, first posted a tweet, then deleted it, saying that an Iranian delegation would be arriving in Islamabad for talks. It is unclear whether talks will go ahead. Rather, the Iranian power play is to make the Americans arrive for talks, then wait. Trump’s own ramblings about his demands from the talks appear irrelevant.

In what we can only describe as a spite attack, Iran seems to have struck the East-West Pipeline in Saudi Arabia, which has become the country’s only export route, as well as Abqaiq facility, which is critical for Saudi Arabia’s entire oil production operations. NASA satellite imagery that monitors fires around the world shows unusual amounts of heat energy coming from these locations, so hot that it precludes the possibility of flaring or normal activities.

Meanwhile, after a brief pause in its operations, and with Israel rejecting any ceasefire, but, rather, intensifying its attacks on civilian targets in Lebanon, Hezbollah has resumed the war with Israel.

Commercial Impact:

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President Donald Trump announced that an extendable two-week ceasefire had been reached with Iran, allowing talks to proceed in Islamabad, Pakistan. Both the USA and Iran declared victory.

Negotiations

The two-week period will be used to negotiate ten points, formulated by Iran. Talks will begin on 10 April. The points to be negotiated do not mention the nuclear programme, the ballistic missile programme, and Iran’s relations with its proxies - the ostensible reasons for the war, and the main threats to Israel and the region. Iran’s ten points include:

• A full American withdrawal from the region.

• A ceasefire in Lebanon and other theatres, not just Iran, heavily constraining Israel.

• Allowing Iran to collect fees from ships traversing the Strait of Hormuz, in coordination with Oman.

• The full removal of sanctions on Iran, as well as paying Iran compensation.

The Art of the Deal supposedly involves beginning with maximalist demands to reach a compromise. In this case, the starting point of the talks is completely set by Iran, and favours it decisively. Not to mention that the regime survived, and maintains full control over Iran. Indeed, the regime’s legitimacy has only increased due to the war.

Moreover, if the ceasefire holds, Iran will be the de-facto hegemon of the Gulf. The Arab states had their energy infrastructure and military bases on their territory pounded, and they did not respond even with full American backing. Now, they are effectively under Iran’s thumb, and it is evident that the Americans will not protect them.

Stable ceasefire?

There is a discrepancy between Farsi and English versions of Iran’s ten points, as the Farsi version includes a right to enrich uranium. The Iranians have sensed American weakness. They will not back down. Rather, the logical course of action for Iran is to insist on maintaining the ability to enrich in the hope of building a nuclear weapon.

It is still conceivable that Iran will allow its enriched uranium to be removed, as had been agreed with Omani mediators, while keeping the option to enrich. However, there is no chance of any concessions on the ballistic missile programme and the relations with proxy - making this a complete defeat for Israel.

Therefore, Israeli efforts to scuttle the ceasefire are a certainty - as we were writing this note, Netanyahu said that he would continue the conflict in Lebanon, in violation of the US-Iran agreement. Iran is likely to fire some more missiles to force Israel’s hand. It is unclear how the Americans would react, but they clearly want out of the war. However, the division within the administration makes the exact outcome highly unpredictable.

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Trump clarified his threats to say that every bridge and power plant will be destroyed, saying that he did not want …

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While shake-ups of command roles are to be expected given the differences between Hegseth’s ideology and that of the establishment, the dismissal of General George and Major General Green is more significant. This likely reflects differences on deploying ground forces to Iran and/or attacking civilian targets as part of President Donald Trump’s and Sec Hegseth’s promise to send Iran back to the stone age. The religious role of Maj Gen Green is significant, given how Trump and his allies have been selling the war on religious grounds, where Trump is saving the Jewish people from Iranians like Esther, and is being compared to Jesus Christ.

Furthermore, Bloomberg reports that Trump is planning to wage the 2026 midterm elections on the basis of building a war economy, with a 50% increase in defence spending to USD1.5 trillion dollars in the 2027 budget. Furthermore, Trump raised tariffs on aluminium, steel, and copper, with discounts for articles made overseas but from American steel, aluminium or copper.

Iran, for its part, is betting that the war will break the world economy before it has to give up.

Commercial Impact

Military Realities

• The mere threat of sending Iran to the stone age reflects a military failure: the Americans and Israelis have been bombarding Iran’s missile cities and attacking Iranian assets along the Strait of Hormuz. And yet, Iran keeps firing, and is in full control of the Strait.

• Therefore, the Americans have switched tactics, and, like Israel in Gaza, they are now targeting civilian infrastructure to break the will of the Iranian leadership. However, Iran will not go back to the stone age alone. And, just like Hamas in Gaza, it will fight until the war is politically unsustainable. However, as we discuss below, a long war may be precisely the point for the United States.

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Our interpretation of this chain of events is that Trump’s was implicitly offering Iran a deal: open the Strait in exchange for ending the war. With Iran refusing this proposal, Trump has now doubled down. In a speech late last night, Trump promised to bomb Iran into the stone age in the next two to three weeks, and to target their power generation, while threatening to target their energy production. As a reminder, Iran has more than 90 million people.

Unable to achieve his political aims, Trump has turned the war into a punitive campaign targeting civilian and dual use assets, hoping to break the will of the Iranian leadership before the global economy breaks. The Iranians are making the opposite bet: the world economy will break before they have to surrender. If our readers wish to understand the IRGC, they should think of the Taliban and the North Vietnamese. The IRGC are willing to fight twenty years if they have to, regardless of civilian suffering. And they want to force Trump into a ground campaign, knowing that that would eventually lead to a political change in America that favours them.

Therefore, the next phase of the war will be the most brutal and commercially damaging.

Commercial Implications:

• As the Americans escalate their targeting of civilian assets in Iran, the Iranians will now focus on eliminating the American and likely British business and diplomatic presence in the wider Middle East, including the GCC, Iraq, Jordan, and Lebanon.

• Furthermore, American and Israeli attacks on Iranian power are almost certain to lead to Iranian attacks on Israeli, Jordanian, Kuwaiti, and Emirati, power and water infrastructure. As the campaign escalates, Saudi Arabia also risks becoming a target.

  Ed: Given the humanitarian impact of the above, we left it free. If you are able to afford a subscription, please do become a paid subscriber. Below, we discuss the wider economic impact.

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Trump is pressuring his European allies to go open the Strait of Hormuz themselves, while his Secretary of State says that the administration will reconsider NATO membership, due to NATO’s failure in supporting the American war in Persia. The relationship with Europe has never been worse, as Spain, Italy, and France close their airspaces to the American military.

Meanwhile, the cascading effects of Iran’s closure of the Strait of Hormuz are becoming more evident. Countries are going into lockdowns due to energy shortages, inflation is soaring, and growth is stifled. Trump is faced with a choice between a ground operation and simply walking away, leaving Hormuz to be opened by others.

Tempting as it is to throw a temper tantrum and leave, however, this is not a realistic option, and, if taken, carries all manner of unintended consequences, as we explain below.

Implications

If Trump declares a halt to operations in his speech tonight:

1. Trump will have lost all leverage over Iran’s ballistic missile and nuclear programmes: Iran will likely attack the Americans next time they attempt to build up forces in the region to launch a campaign over these issues, preventing the concentration of enough forces to even have a hope of winning.

2. American bases in the region would have been severely damaged, especially in Kuwait and Bahrain and likely the UAE. Any attempt to rebuild them will probably result in resumed Iranian drone and missile attacks.

3. Iran will continue to charge ships fees to pass through Hormuz. They may charge American ships extra to humiliate Trump.

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Our baseline assumption is that this war is going to be long, easily lasting beyond the 2026 mid-terms, and that it will expand into a ground operation that slowly grows in scale and ambition.

Our reasoning is simple: the Iranian regime will not fall through an air campaign. And a limited ground operation will likely lead to more Russian and Chinese support to draw the Americans in further, in the hope of depleting America’s ability to contest Ukraine and Taiwan. Iran will focus on convincing the Americans that remaining in the region is more costly than leaving. The consequences of the US abandoning its campaign right now, however, would be for Iran to turn the Strait of Hormuz into a toll booth, gaining the ability to blackmail all Gulf states and taxing their energy exports. This would make Iran the dominant player in global energy markets, alongside Russia. Furthermore, if the US backs down now, Iran would also be able to constrain Israel’s freedom of action against Hezbollah, and perhaps even Hamas and the Palestinian Authority. With the Houthi entering the war, this would also mean that the Houthi can charge fees for passage through the Red Sea. America’s role as guarantor of global trade and policeman of the seas would be over.

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On Truth Social, Trump said: “In accordance with the request of the Iranian government, please regard this message as an…

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The Americans are likely to target either the islands in the Strait of Hormuz (most likely), or Kharg Island, deeper within the Persian Gulf. Their most likely staging grounds and launch points will be either the UAE for the islands in the Strait, or Kuwait for Kharg.

The Iranians have warned that any country that allows its territory to be used as a staging ground by American forces launching a ground operation will have its infrastructure destroyed. Our view is that the Iranians have the ability to make good on these threats. We also believe that they need to make an example of states that permit further attacks on Iran.

Commercial Impact

• We therefore see a severe risk to civilian infrastructure, including critically, power and desalination plants, in the UAE and/or Kuwait for the duration of ground any operations. The integration of Gulf power infrastructure means that power outages are unlikely initially. However, there is no integrated water network. We advise residents to prepare accordingly.

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There has been media reporting on talks between the USA and Iran via intermediaries. We make four points:

1. A stop to the war would collapse the American order in the Middle East.

2. The positions of the two sides are very far apart. Each is still asking for terms that, to the other, appear like surrender.

3. The Iranians are demanding other negotiators than Steve Witkoff and Jared Kushner, given their proximity to Israel and their failure to even bring a technical team to previous nuclear talks. That alone reflects their unseriousness in past talks.

4. The mediators are Turkey, Egypt, Pakistan, and potentially Oman. None of them has the ability to produce trustworthy security guarantees from the Iranian perspective. Only Russia or China can make such guarantees.

Ground operation vs negotiations

Meanwhile, the Americans are continuing a build-up of ground forces, by sea but also in Jordan and Israel. We make three points:

1. Trump appears to be buying time with negotiations to prepare for further escalation.

2. Even if Trump isn’t, the Iranians will assume as much, given past precedent.

3. All ground options against Iran are terrible.

Iran is built like a fortress. Persia has only been invaded by the Assyrians, Alexander the Great, the Muslims, and the Mongols. Pete Hegseth may share some of Genghis Khan’s moral views (though not on the sanctity of diplomacy), but not his military genius. Moreover, Iran’s geography means that none of the American options - capturing some islands, capturing the territory around Hormuz, or attempting to invade Iran via Jordan, Iraq, and Kuwait - are viable with the size of the forces currently deployed, or, even, ever. The American public will not tolerate sending half a million soldiers or more to defeat Iran.

Why ground operations and threats against power?

The threat to launch a ground operation is itself an act of desperation. The Americans likely believe that they could perhaps take out Iran’s underground missile bases and nuclear facilities through Special Forces - the preparations are not large enough for the deployment of regular infantry and mechanised or armoured formations. Iran’s missile cities must have proven to be resilient enough to air attack. Iran has demonstrated that it can still strike targets with precision when it wants to. Because the war has not achieved its aim of neutralising Iran’s missiles, Trump has threatened to strike power stations, which he may still do. And because Iran can still retaliate, he has temporarily backed down, and is now building up ground forces. However, we repeat, they are nowhere near the level required for a major operation.

The cost of ending the war

The problem facing Trump is that, having involved himself in this war of choice, exiting it is more costly than trying to see it through.

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Please find attached the link for a Teams meeting for all paid subscribers for Tuesday 31 March at 3pm UK time.

https://events.teams.microsoft.com/event/d4f6acf5-26d7-4e58-8bf5-6ddceff2ddfc@a…

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