Seventy-eight per cent of Americans support ending the war with Iran, while 57 per cent believe it has created more problems than it has solved. At the same time, the US economy continues to grapple with inflationary pressures linked to the war and energy markets, with inflation remaining elevated owing in part to supply disruptions associated with the conflict in the Middle East. Against this backdrop, the US administration strongly favours an agreement with Iran to bring the war to a definitive end. That preference was reflected in the framework agreed by the two countries and announced a few days ago. Yet the agreement has also fuelled Israeli discontent amid growing divergence over the “day after” arrangements. Against the backdrop of these developments, opinion in the United States remains divided over the agreement, not only between Republicans and Democrats, but also within each party, reflecting the complexities surrounding decision-making in Washington. So where do relations between the two close allies, and political dynamics within the United States itself, now appear to be heading?

The war drove up oil and energy prices, fuelling inflation. In turn, inflation has increased pressure on the Federal Reserve to raise interest rates, automatically pushing up yields on newly issued government bonds amid mounting concerns over the federal budget deficit and public debt. Persistently high inflation has also made the Federal Reserve less inclined to cut interest rates, with institutions such as Bank of America and Deutsche Bank now anticipating a rate increase later this year.

Should the war resume, the most likely scenario is a renewed rise in oil prices, particularly if shipping through the Strait of Hormuz remains disrupted. That would keep inflation elevated, sustain higher interest rates, and push bond yields further upwards.

Should the war resume, the most likely scenario is a renewed rise in oil prices, particularly if shipping through the Strait of Hormuz remains disrupted. That would keep inflation elevated, sustain higher interest rates, and push bond yields further upwards.

Conversely, if the agreement holds and the war comes to an end, oil and petrol prices are likely to continue declining, allowing overall inflation to ease more rapidly, bond yields to fall gradually, and the US dollar to stabilise.

The Israeli leadership has made little attempt to conceal its dissatisfaction with the agreement, particularly the provisions relating to Lebanon and what it sees as the premature economic relief granted to Iran before its compliance with the nuclear file has been verified. While it has become increasingly clear that ending the war and reaching an agreement with Iran serves US national security interests, several Israeli ministers have stated that their government will not be bound by the agreement. At the same time, the opposition has criticised Benjamin Netanyahu for failing to influence Washington, despite opposing the agreement itself. From Israel’s perspective, the agreement falls short of achieving its strategic objectives.

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© Middle East Monitor