The Cost of War: The Window of Diplomatic Opportunity Emerging Around Iran and Its Strategic Significance for Armenia

The conflict between Iran and the United States appears to have entered a phase in which the continuation of military operations is becoming directly tied to their cost. The issue is no longer simply which side has the capability to launch the next strike. A protracted war is generating military, economic, and political consequences that are narrowing the room for maneuver not only for Washington and Tehran, but also for other regional actors in the Middle East. Under these conditions, a window of diplomatic opportunity is emerging.

This does not yet mean that the war is coming to an end, still less that the parties have reached an agreement. The Strait of Hormuz remains closed, Iran continues to make demands of Washington, and military strikes have not ceased entirely. Nevertheless, several parallel developments suggest that continuing the war is becoming disproportionately costly for all sides, pushing them toward negotiations.

First, the United States has not carried out any new major strikes against Iran since July 29. At the same time, on August 6, President Donald Trump stated that the war could end “very soon”. Second, negotiations between Iran and Oman over the Strait of Hormuz have reached a stage where the discussion is moving beyond political statements toward concrete mechanisms for navigation and the reopening of the strait. Third, regional states, which have found themselves in an economic and security deadlock as a result of the war, are more than eager to reach stable arrangements with Iran. This is, of course, still a fragile process, but its contours are becoming increasingly clear.

The New Logic of Escalation

Iran’s behavior has changed significantly over the course of the war. In its initial phase, the parties’ actions were largely based on a “tit-for-tat” principle: a U.S. strike was followed by a commensurate Iranian response, which could then prompt another U.S. action. In practice, Washington maintained escalation dominance, unilaterally dictating the course of the war.

In the latest phase, however, Tehran has become more proactive. The geography of Iranian strikes has expanded to include sites associated with the U.S. military presence in Jordan, Kuwait, and Bahrain, as well as other parts of the region. At the same time, Iran-linked actors have become more active, including the Houthis in Yemen. In early August, Saudi Arabia reported that civilians had been injured in Houthi attacks.

This shift points to a fundamental change in the logic of escalation. Iran is no longer limiting itself to responding to U.S. strikes; it has begun launching pre-emptive strikes against U.S. partner states and countries hosting the American military presence in the region. Through this approach, Iran is seeking to demonstrate that, despite its clear military superiority, Washington no longer holds escalation dominance in this war. This tactic allows Tehran to use military means to secure a more favorable position at the negotiating table.

A key factor is also the availability of U.S. military stocks. According to a number of analyses, the United States still has sufficient capacity to continue the war against Iran. Nevertheless, prolonged military operations have significantly depleted stocks of certain critical, high-value weapons. According to assessments by the Center for Strategic and International Studies (CSIS), U.S. inventories of interceptors for Patriot systems have fallen below 1,000, while those for THAAD systems have fallen to around 250. At the same time, stocks of long-range strike capabilities, including Tomahawk and ATACMS missiles, have also declined.

The significant reduction in missile arsenals is only the most visible layer of the problem. In practice, rapidly replenishing some of these systems is extremely difficult. The production of modern, high-tech weapons requires lengthy manufacturing cycles and complex supply chains, at critical points of which the United States continues to depend on China. Consequently, even a rapid expansion of production capacity does not guarantee the quick replenishment of depleted stocks, while the same munitions are needed not only on the Iranian front but also across other strategically important theaters for the United States.

Thus, with each successive phase of the war, its continuation is acquiring not only an operational cost but also a growing strategic opportunity cost.

Hormuz: The Central Node of the War

Tehran has effectively demonstrated that it is capable of significantly disrupting energy and commercial flows passing through the strait. As a result, what was initially viewed as a lever for putting pressure on Iran has evolved into a serious challenge for the global economy. Before the war, approximately 20 million barrels of oil and petroleum products passed through the Strait of Hormuz each day, accounting for roughly one-quarter of global seaborne trade in these commodities. The main destinations of these flows are Asian countries. Alternative pipeline routes are capable of replacing only a fraction of these volumes.

The International Monetary Fund warned in July that although the initial shock from supply disruptions in the Strait of Hormuz had been partially mitigated by strategic reserves, a significant portion of these buffers for securing alternative supplies and reallocating demand had already been depleted. Moreover, the economic significance of Hormuz extends far beyond oil. Disruptions to the strait’s maritime traffic simultaneously generate shocks across several interconnected markets. The strait carries around one-third of the global seaborne trade in fertilizers, while disruptions to the Gulf’s energy infrastructure directly affect global helium supplies.

Thus, the Hormuz crisis is evolving into a simultaneous shock to energy, food, and industrial supply chains. This is precisely why the Hormuz issue is no longer merely a matter of bilateral U.S.–Iran relations. It has become a global challenge to the international economic system.

Gulf States Facing a Dilemma

This reality is particularly evident in the case of the Arab Gulf states. Countries across the region are facing dual pressure: on the one hand, they must contend with the risks of being directly drawn into the war, given Iran’s military capabilities and the presence of U.S. forces on their territory. On the other hand, the paralysis of the Strait of Hormuz is directly undermining their economic interests.

Saudi Arabia is a particularly telling example. According to a July 30 report by The National, the Saudi economy contracted by 4.8% year-on-year in the second quarter of 2026, marking its sharpest decline since the COVID-19 pandemic. The contraction in the oil sector was a record 24.7%. Analysts directly link this economic downturn to restrictions on oil exports resulting from the war around Iran and disruptions to shipping through the Strait of Hormuz.

This marks a fundamental shift in regional calculations. For the Gulf states, the challenge is no longer simply how to protect themselves from Iran; restoring oil export flows and halting economic decline have become equally vital. In other words, the war has placed them before simultaneous security and economic challenges. Resolving both increasingly depends on the need to reach effective and sustainable arrangements with Tehran.

This is precisely why the diplomatic process unfolding around the Strait of Hormuz should be viewed not only through the lens of the U.S.–Iran negotiating dynamic, but also in the context of converging vital economic interests among the states of the region.

The Hormuz Shock Extends Beyond the Middle East

Japan is one of the clearest examples. Traditionally, more than 90% of Japan’s crude oil imports came through the Hormuz route. Following the outbreak of the war, Japan was forced to draw on its strategic reserves and rapidly reassess the geography of its supplies.

In April, Japan’s crude oil import volumes fell sharply, while by June, import costs had risen significantly due to higher oil prices and the closure of the Strait of Hormuz. The Bank of Japan, in turn, warned that if the crisis were prolonged, disruptions to crude oil supplies could lead not only to fuel shortages but also to shortages of petrochemical feedstocks, affecting a range of industrial sectors.

The key here is to establish the causal relationship clearly: the disruption of the Strait of Hormuz does not, in itself, explain all of Japan’s economic difficulties. It does, however, demonstrate how the paralysis of a single chokepoint can trigger a much broader chain of economic consequences:

oil shortages and price increases → rising energy costs → higher import costs → industrial and financial pressure → slower economic growth.

And it is precisely at this juncture that the economic burden of the conflict begins to affect the United States as well. Washington cannot fully insulate itself from the economic consequences of a disruption of this scale in global energy markets.

The Region’s Security Architecture Is Changing

The U.S. military presence remains an important component of the Persian Gulf’s security architecture. Yet the conflict has made clear that states hosting U.S. forces are being placed in Iran’s line of fire precisely because of that presence. This trend was particularly evident in Jordan. Following Iranian strikes, tensions over the U.S. military presence intensified, followed by domestic calls for the withdrawal of American forces from the country.

At the same time, regional actors are beginning to play a more active role in shaping new frameworks for mutual security. On August 7, Turkey, Saudi Arabia, and Pakistan signed the Mecca Joint Defence Agreement. Turkish Foreign Minister Hakan Fidan described it as a mechanism whose practical logic is close to NATO’s Article 5.

These developments do not yet indicate a complete U.S. withdrawal from the Middle East. The most visible shift is the diversification of security dependencies, indicating that a process of reassessing the region’s security architecture is already underway.

From Efficiency to Resilience

The closure of the Strait of Hormuz as a result of U.S.–Iran military operations, together with the situation around the Bab el-Mandeb Strait stemming from Houthi activity, highlights the vulnerability of major energy routes.

Hormuz and Bab el-Mandeb are among the world’s most important maritime arteries, and disruptions to either have an immediate impact not only on the surrounding region but also on global energy and trade flows. This gives rise to a new economic and security logic: maritime transport remains the most affordable and critical component of global trade, yet in times of crisis, relying exclusively on sea routes becomes excessively risky. It therefore becomes vital to create reliable alternatives and ensure logistical substitutability, so that when one route is blocked, cargo flows can be redirected through alternative routes.

It is precisely in this context that alternative overland corridors acquire particular strategic importance, including TRIPP, the “Trump Route for International Peace and Prosperity” initiative.

TRIPP in the Context of New Supply Routes

TRIPP should not be viewed simply as a route connecting Azerbaijan and Nakhchivan through Armenian territory. Its significance should instead be understood in light of a new reality in which the vulnerability of major communication and supply routes has become a key economic and strategic risk. From this perspective, the project’s role is considerably broader: it is strategic infrastructure integrating the South Caucasus into a wider transit and connectivity system.

At the same time, TRIPP’s value is not limited to economic efficiency. Its key strategic advantage lies in ensuring logistical substitutability—maintaining the continuity of supplies when major routes are disrupted.

From this perspective, the U.S. decision to double its funding for the TRIPP+ Enterprise Fund, from $201 million to $402 million, is significant not only because of the amount involved, but also as an indicator of Washington’s long-term engagement in regional infrastructure. It demonstrates that the United States is prepared to invest resources in infrastructure whose strategic value rises sharply precisely as the vulnerability of major maritime routes increases.

The design of TRIPP encompasses not only railway infrastructure but also road, pipeline, and communications infrastructure, transforming it into a large-scale economic and connectivity system. In this sense, the project fits squarely within the U.S. strategic economic agenda, where diversification of supply chains and reduction of dependencies are becoming increasingly important.

At the same time, TRIPP cannot, naturally, compete with maritime trade in terms of volume, capacity, or cost. Its fundamental strategic value lies not in becoming an alternative to maritime routes, but in strengthening the resilience of the system as a whole. Ultimately, the question is no longer simply where to find the shortest or cheapest route, but what alternatives remain when critical routes become inaccessible.

In this context, Armenia’s geography can become a strategic advantage. If the importance of transport projects in the South Caucasus was previously viewed primarily through the lens of regional economic integration, a new layer of logistical and strategic resilience is now being added. Armenia could become part of a land-based system connecting Central Asia, the Caspian region, the South Caucasus, and Europe, thereby reducing, to some extent, these regions’ dependence on individual vulnerable routes.

TRIPP and Iran’s Interests

Iran’s position toward TRIPP should also be viewed within a broader geopolitical calculus. Before an agreement was reached among Armenia, Azerbaijan, and the United States, the main dispute surrounding the proposed “corridor” in the region concerned not only the opening of communications, but also its legal regime and the preservation of Armenia’s sovereignty. At that stage, Iran was the only key regional state to unequivocally support the preservation of Armenia’s territorial integrity, stating that it opposed any route based on an extraterritorial logic and did not accept changes to the region’s international borders.

This position was not based simply on political solidarity with Yerevan. For Iran, the border running along southern Armenia is of strategic importance. The Armenian–Iranian border, along which TRIPP is planned to run, is approximately 44 kilometers long, and for Iran it simultaneously represents an issue of border security, a trade route, and an important gateway to the South Caucasus and, ultimately, European markets.

The Iranian side has repeatedly emphasized that maintaining a land connection with Armenia and preventing changes to regional borders are directly linked to its national security interests. This is compounded by the strategic relationship that has developed between Azerbaijan and Israel. Iran has repeatedly expressed concern over the possible use of Azerbaijani territory for Israeli intelligence or military purposes. In 2025, this issue even triggered a public dispute between Iran’s ambassador to Armenia, Mehdi Sobhani, and Azerbaijani authorities. Sobhani claimed that Israeli drones had entered Iranian territory from Azerbaijan, while Baku categorically denied the allegations.

Therefore, for Iran, maintaining its border connection with Armenia is not merely a matter of geography. If an extraterritorial corridor were established in southern Armenia over which Yerevan had no effective control, Tehran could lose a significant part of the strategically important northern section of its border, becoming entirely dependent on Azerbaijan and Turkey in terms of security, economics, and transit. For this reason, Iran’s principled “red line” has been not the creation of new connectivity routes in the region, but their potential extraterritorial status and any restriction on Armenia’s sovereignty.

From this perspective, TRIPP’s current model differs fundamentally from the corridor logic pursued by Azerbaijan together with Russia, and opposed by Iran. The project is to be implemented under Armenia’s sovereignty and jurisdiction, and the Armenian side has presented precisely this point to its Iranian partners as the principal security guarantee. In March 2026, Iran’s ambassador Khalil Shirgholami stated that the Armenian authorities had assured Iran that the route would not have a military purpose and that Armenia’s sovereignty would be maintained along the entire route. In May, Armenia’s Foreign Minister Ararat Mirzoyan stated that Iran’s concerns regarding a possible security component of TRIPP had been dispelled.

Moreover, TRIPP’s economic and connectivity logic may also overlap with Iran’s own transit interests. The project would enable a railway connection through Armenian territory to Nakhchivan, from where it could connect to Iran’s railway network. According to Armenia’s Foreign Minister, Iran could use this route to gain access through Armenian territory to the Black Sea, effectively creating a broader Persian Gulf–Black Sea connectivity link. In this sense, TRIPP may not restrict Iran’s connectivity options toward Armenia, but rather expand its ability to reach northward and access European markets.

Economic cooperation between Armenia and Iran is already expanding in the energy sector as well. In late July, Armenian Minister of Territorial Administration and Infrastructure David Khudatyan stated that Armenia and Iran had reached a verbal agreement to at least double the volume of the “gas-for-electricity” programme. According to him, the capacity of the existing Armenia–Iran gas pipeline exceeds current supply volumes, while the launch of the third 400 kV power transmission line would make it possible to increase the volume of energy exchanged between the two countries.

All of this demonstrates that the American component of TRIPP, in itself, is not sufficient to turn the project into anti-Iranian infrastructure in Tehran’s eyes. If the route continues to operate under Armenia’s sovereignty and jurisdiction, has no military component, and at the same time expands connectivity from Armenia toward the north and west, then what matters more to Tehran is not who participates in the project, but what opportunities it creates for Iran. Under this calculus, TRIPP could be viewed as an additional opportunity to expand Iran’s economic and transit access through Armenia.

The War Is Not Yet Over

The current phase of the conflict around Iran still does not allow for the conclusion that final agreements have been reached. Nevertheless, a number of factors point in precisely that direction: the cost of continuing the war is gradually increasing not only for Washington, Tehran, and the regional states, but also for the global economy.

In this situation, the window of diplomatic opportunity is opening not because the parties to the conflict have abandoned their previously stated objectives, but because the cost of war is beginning to cross a threshold beyond which its political and economic benefits are no longer justified.

A possible agreement over Hormuz will be the first serious test of this shift in dynamics. If such an agreement is reached, the conflict could enter its final phase through a comprehensive package of interconnected agreements addressing the Strait of Hormuz, sanctions, Iran’s nuclear programme, and broader regional security. If not, the expansion of the conflict’s geography could expose the global economy to new and deeper shocks.

In that case, the conflict’s most lasting consequence may be not only a shift in the balance of power in the Middle East, but also the need for the world to fundamentally reassess the entire architecture of its energy and logistical dependencies.

On this new map, the South Caucasus – and Armenia in particular – could acquire a far greater strategic significance than could have been imagined before the war.

Author: Elen Hokhikyan

This version of the article was translated from the original Armenian with the assistance of artificial intelligence (AI) tools and has been reviewed for accuracy.

This article was prepared with the support of the Democracy Development Foundation. The content of this publication is the sole responsibility of the Women and Global Security Architecture (WGSA) Think Tank and does not necessarily reflect the official views of the Democracy Development Foundation.