Facing an entrapment risk, United States (US) President Donald Trump has said that Iran and the US are on the brink of signing a peace pact. According to Trump, the signing may take place in Europe and would ensure that Iran never acquires a nuclear weapon. Iran, however, has insisted that despite repeated US claims, no final agreement has been reached, describing reports of a deal as speculative, while the US has postponed planned strikes pending the finalisation of documents and a potential signing in the coming days.

The oil price held below $90 today after having reached levels near $98 earlier in the week.

Earlier this week, this newspaper warned of an entrapment risk for the US administration, following the downing of an Apache helicopter and subsequent strikes that had threatened a fragile ceasefire.

That report argued that despite repeated US efforts to secure a deal, Iran has pursued a strategy of calibrated escalation and prolonged negotiations to widen divisions and extract concessions, exploiting differences in Western and non-Western negotiation approaches, and creating political and economic pressures, including strained oil markets, that could entrap the US in a politically costly conflict.

That report argued that domestically, the political fortunes of the US administration hinge on Republican confidence in managing the conflict and expectations of a peace deal, but prediction markets have bet on waning prospects for a near-term resolution, raising the risk that the conflict could drag on and damage political prospects ahead of midterms.

The Trump administration is therefore under great domestic political pressure to secure a deal, given that it has, in the main, secured its stated objective of knocking back Iran’s nuclear weapons capability while also making considerable progress in shifting the global balance of oil power westwards, away from the Middle East and toward the broader American region.

Throughout the conflict, The Common Sense argued that it was unlikely to trigger a global economic crisis, currency shocks, or market crashes – although of late the threat of stressed oil inventories risked spiking global energy prices.

The newspaper’s base scenario, published early in the war, anticipated a “strategic withdrawal” by the US and “controlled de-escalation” by Iran, driven by political and economic pressures on both sides.

If the latest American announcement plays out, then that will be exactly what has happened and ahead of the 4 July horizon predicted by this newspaper.

Throughout, The Common Sense has argued that media coverage has overstated the risks of nuclear escalation and global recession, while Iranian retaliatory attacks sharply declined after ten days.

To date, the evidence has borne out that relatively sanguine analysis. Global growth forecasts remained stable, stock markets have powered ahead, and oil prices stayed near historical inflation-adjusted averages as the conflict transitioned from warfighting into an economic and diplomatic stalemate.