The United States and Iran remain locked in an escalating cycle of attacks, with a fifth consecutive day of US strikes met by Iranian retaliation against Gulf nations and Jordan. Both countries have now declared that the memorandum of understanding they signed in June, meant to extend a ceasefire and pave the way for talks, no longer holds, even as each side insists it remains open to diplomacy.
Pakistan, acting as the principal mediator between Washington and Tehran, urged both sides on Thursday to halt the latest wave of violence and return to the negotiating table. Foreign Ministry spokesman Tahir Andrabi told reporters in Islamabad that Pakistan "firmly believes that there is no alternative to sustained engagement, dialogue and diplomacy in pursuit of the shared objectives of lasting peace, stability and progress".
Yet public statements from both capitals suggest neither is in a hurry to give ground. US President Donald Trump has repeatedly claimed in recent days that Iran is "desperate" to strike a peace deal with Washington, while insisting he does not trust Tehran to honour any agreement it signs. Iranian officials, meanwhile, have struck a defiant note. Lead negotiator Mohammed Bagher Ghalibaf said on Wednesday that Iran was "in an existential war with America" and saw no reason to continue observing the peace agreement.
The question now is whether either side can genuinely sustain a war that has already dragged on for months. Here's a look at the economic and political pressures bearing down on both nations.
Iran's economy has been under severe strain, not only from the ongoing conflict with the US and Israel but also from decades of American sanctions.
Iran remains one of the most heavily sanctioned countries in the world, with US measures choking oil exports, restricting access to global finance, and freezing assets. The toll shows: Iran's GDP per capita has fallen from $8,000 in 2012 to just $5,000 in 2024, while oil exports have dropped from 2.2 million barrels per day in 2012 to 1.5 million barrels per day in 2025.
When the two sides signed the MoU in June, Washington lifted its naval blockade, granted a 60-day sanctions waiver, and pledged to unfreeze Iranian assets, prompting the rial to jump 15 per cent in value on the day of the agreement. That relief was short-lived, however, as the US reimposed sanctions this week, dealing a fresh blow to an already fragile economy.
Iran's military capacity has also taken a hit. Despite continuing to strike US installations in neighbouring Gulf states, its forces were significantly degraded during the earlier phase of the war, according to analysis by the Center for Strategic and International Studies (CSIS). By April 1, Iran had used up 30 per cent of its pre-war missile stockpile and 60 per cent of its drone arsenal, the CSIS found. Naval infrastructure, including ports and vessels, has been hit hard, along with weapons production facilities, while the US claims to have substantially damaged Iran's nuclear sites during the 12-day war in 2025.
The pressure has continued in recent days, with renewed US strikes pounding Iranian military sites, including the strategically important island of Greater Tunb on Thursday.
Relations with Gulf neighbours, already strained after Iranian strikes on the region in March and April, have deteriorated further amid the latest exchanges. The US maintains military assets across at least 19 locations in the Middle East, spanning Bahrain, Jordan, Kuwait, Qatar, Saudi Arabia, and the UAE. While Iran insists it is targeting only US military assets, its strikes during the war's first phase hit sovereign territory and caused civilian casualties, prompting Gulf states to tighten military cooperation through shared intelligence and coordinated early-warning systems.
The US, for its part, has faced considerable strain of its own, and has yet to force Tehran into submission despite Trump's repeated claims of progress.
Crude prices jumped 12 per cent following the latest round of US strikes, as fears resurfaced over disruption to shipping through the Strait of Hormuz, a waterway that once carried roughly a fifth of the world's oil supply before Iran's blockade sent energy prices climbing globally. Americans have felt the pinch at the pump, with petrol prices rising from $2.98 a gallon before the war to a peak of $4.63 in May.
That squeeze on household budgets has made the war deeply unpopular at home. A YouGov poll conducted this week found that 57 per cent of Americans believe the Trump administration made the wrong call in pursuing the conflict. With midterm elections approaching in November, the war casts an uneasy shadow over Republican prospects, and some polls already point to a modest Democratic lead.
Weapons stockpiles are also thinning, though not yet at a critical level, according to CSIS. Washington has relied heavily on seven of its most powerful and most costly munitions to strike Iran, with at least four of these seeing stockpiles halved during the war's first phase. Analysts warn that replenishing these supplies could take anywhere from several months to several years, even with Trump's recent invocation of the Defense Production Act to push private manufacturers to ramp up output.
Beyond the financial cost running into billions, the human toll has also been significant: 14 US soldiers have been killed and 414 wounded as of July 14, according to an analysis by the Center for American Progress.
Despite the mounting pressures, neither country appears ready to blink first. Iran is determined not to appear weak in the face of American pressure and is unlikely to make concessions from what it sees as a compromised military position. On the weapons front, US media reports suggest Iran moved quickly to restart drone production after the April ceasefire, with some analysts estimating the country could fully rebuild its drone arsenal within months.
As for Washington, analysts suggest that concerns over its weapons stockpiles have less to do with the war against Iran and more to do with preparedness for a potential future conflict with rival global powers.
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Facts Only
* The US and Iran are locked in an escalating cycle of attacks.
* A memorandum of understanding signed in June is no longer considered valid by both parties.
* Pakistan acted as the principal mediator between Washington and Tehran.
* US President Donald Trump claimed Iran is desperate for a peace deal but distrusted any agreement.
* Iranian negotiator Mohammed Bagher Ghalibaf stated Iran was in an existential war with America.
* Iran's economy faces strain from conflict and US sanctions.
* Iran's GDP per capita fell from $8,000 in 2012 to $5,000 in 2024.
* Oil exports dropped from 2.2 million barrels per day in 2012 to 1.5 million barrels per day in 2025.
* The US lifted a naval blockade and granted a sanctions waiver upon the June agreement.
* Iran used up 30 percent of its pre-war missile stockpile and 60 percent of its drone arsenal by April 1.
* US strikes continued against Iranian military sites, including Greater Tunb on Thursday.
* Crude prices jumped 12 percent following recent US strikes.
* US military personnel losses are reported as 14 killed and 414 wounded as of July 14.
Executive Summary
The United States and Iran remain engaged in an escalating cycle of attacks, with the memorandum of understanding signed in June is currently considered invalid despite claims from both sides that diplomacy remains possible. Pakistan acted as the principal mediator, urging both nations to cease violence and resume negotiations, emphasizing the necessity of sustained dialogue for peace. Public statements reveal a divergence: the US President has suggested Iran is desperate for a deal while distrusting its honor, whereas Iranian officials have asserted they are engaged in an existential war against America and see no reason to adhere to the agreement.
Economic and military pressures affect both nations significantly. Iran's economy faces strain from conflict and decades of US sanctions, evidenced by falling GDP per capita and reduced oil exports, despite a temporary relief from sanctions lifted in June. Military assessments indicate that Iran has expended portions of its missile stockpile and drone arsenal, as well as suffered damage to naval infrastructure and production facilities during earlier phases of the conflict. Relations with Gulf nations have deteriorated due to Iranian strikes, leading to increased security cooperation among those states. Furthermore, global energy markets reacted negatively to US strikes, causing crude prices to jump, which impacted household budgets in the US through rising fuel costs.
Full Take
The narrative presents a dynamic where formal diplomatic agreements appear suspended, yet underlying material realities suggest continued conflict and mutual resistance to concession. The divergence between public statements from Washington, which frames the situation in terms of desperation versus mistrust, and Tehran's assertion of an existential war reflects fundamentally opposed risk assessments regarding negotiation outcomes. This tension is amplified by the divergent economic pressures: Iran is suffering from external sanctions and internal military depletion, while the US faces domestic political scrutiny over the conflict’s trajectory and concerns over its own military supply lines.
The pattern reveals a cycle where material constraints—economic fragility for Iran and strategic positioning for the US—resist the stated diplomatic path. The thinning of weapons stockpiles in Iran, coupled with renewed production capabilities suggested by media reports, suggests that the capacity for sustained conflict remains present regardless of ceasefire declarations. For external actors, the link between energy markets, military action, and domestic political shifts demonstrates how kinetic events translate into tangible economic costs and public opinion. The central implication is that entrenched positions create a stalemate where adherence to any agreement requires a fundamental shift in perceived existential risk or capacity for immediate escalation, rather than simply a negotiation of terms.
Bridge questions: How do the differing perspectives on 'existential war' translate into concrete policy goals for each side? What are the specific thresholds of economic pain or military loss that would force a material change in the willingness to engage, rather than merely reporting it? If capacity for rebuilding is high, how does that impact the perceived cost of future conflict?
Sentinel — Human
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