Why the United States is More Likely to Escalate the Iran Situation Rather Than Withdraw

Roubini believes that if Trump chooses to withdraw from the Iran conflict at this time:

1. Long-term shipping and oil price risks: The threat to shipping through the Strait of Hormuz will not disappear, and the risk premium in oil prices will be "embedded" (retaining at least around 20%), making inflation pressures more sticky.
2. Increasing political pressure: Before the midterm elections, his political support will continue to erode, further worsening his political situation.
3. Normalization of Iran threats: The Iranian regime's survival may lead to accelerated development of nuclear capabilities and missile systems under security pressure, gradually normalizing threats to the Gulf, Europe, and even the global economy.

Therefore, withdrawal cannot solve the problem and instead amplifies uncertainty. Escalating the conflict becomes a more internally consistent choice.

II. Goals and Pathways of Escalation

The core objectives of escalation are:

1. Control of Kharg Island (a key hub for about 90% of Iran’s energy exports)
2. Continue strikes to weaken Iran’s leadership and military command; if a substantial collapse of the Iranian regime can be achieved within months, it will significantly reduce long-term uncertainties in the Strait of Hormuz and alleviate the "choke point risk" in the global energy system;
3. If only key facilities are controlled but the regime remains intact, the risk will shift to a long-standing stalemate, and the global economy could slide into a stagflation environment similar to the 1970s.

III. Economic Consequences and Regional Divergence of the Conflict

1. Time dimension: The longer the conflict lasts, the greater the likelihood that prices of key commodities like oil, natural gas, and fertilizers will remain high. If Gulf energy facilities are heavily damaged, stagflation pressures will further transmit to global stock markets, bond markets, and credit markets.
2. Regional dimension:
- Asia: Will face dual shocks of prices and supply, with the most direct economic pressure.
- Europe: Deterioration of trade conditions and rising inflation risks, but energy supply constraints are relatively manageable.
- United States: As a net energy exporter, trade conditions marginally improve, but it remains difficult to avoid a "higher inflation + lower growth" scenario. Rising energy prices will squeeze household and corporate spending.

IV. Key Misjudgments and Market Expectations

Initially, the US and Israel made two misjudgments:
1. Believing that a quick "decapitation" could cause the Iranian regime to collapse in the short term.
2. Assuming Iran could not effectively disrupt the Strait of Hormuz and the Gulf energy system.
As these assumptions were disproved by reality, markets once bet that Trump would hold back, but Roubini points out that this expectation lacks a stable foundation, and escalation remains the more rational choice.

V. Final Conclusion

The market is truly pricing in "an outcome that no longer poses a sustained threat to global economic and financial stability." Therefore, continuing to push forward and attempting to "finish this war" (escalate the conflict), although accompanied by short-term volatility, is more internally consistent than maintaining an unstable status quo. If the path proceeds smoothly, it could even lead to longer-term stability, though the mid-term will require enduring higher volatility and tail risks.