Analysis-Iran's Hormuz leverage wanes as US economic squeeze bites

Six months after a conflict that shook markets, Iran finds itself under unprecedented economic strain from the United States. The tide may be turning against Tehran as Washington deploys an aggressive economic offensive, aiming to achieve what military force could not. Facing one of history's harshest sanctions, Iran is struggling to cope with a U.S. naval blockade and stringent financial measures.

These aggressive tactics have curbed oil exports, limited access to foreign currency, and exposed growing economic stresses. U.S. officials now believe mounting economic pressure could force Tehran to allow unrestricted passage through the Strait of Hormuz, which carries a fifth of global oil and LNG supplies.

Arash Azizi, an Iranian analyst, notes that Iran's leverage over the strait is diminishing due to its inability to fully close it. The U.S. naval blockade is severely impacting Iran, according to Azizi. Tehran had anticipated disruption in the strait to trigger a global economic shock, compelling Washington to return to negotiations. However, such an outcome has not materialized. Other nations have adapted, diminishing Iran's ability to inflict economic pain on the broader region.

While the pressure continues, Tehran has not conceded to demands for sanctions relief, access to frozen assets, or recognition of its security role in the strait. Concerns over economic deterioration, including rising prices, weakened trade, and pressure on household incomes, could reignite unrest in Iran. U.S. Treasury Secretary Scott Bessent describes the strategy as a "one-two punch," combining the naval blockade with "the toughest sanctions in history." He believes this approach will collapse the regime.

Some U.S., Israeli, and regional officials consider the economic strain as evidence of success, hoping it will trigger public unrest, create rifts within the leadership, and weaken the regime's grip on power. However, others remain skeptical, pointing to Iran's history of resilience against such efforts and its capability to suppress dissent. Former U.S. negotiator Dennis Ross argues that Iran may be overestimating its resilience, suggesting the regime could endure the economic hardship and continue to hold firm.

The resilience of Iran appears to hinge on public tolerance, as the economic squeeze fosters a wartime mentality among the population, bolstering support for the regime. A potential pathway to resolution may involve addressing Iran's demand for a toll to pass through the Strait of Hormuz. By abandoning this demand while retaining the right to charge for legitimate services, Tehran could achieve a measure of victory without appearing to capitulate.

This arrangement could offer both sides a claim to victory, allowing Iran to withdraw without conceding.