After Iran accepted a settlement to end the war with Iraq in the 1980s, it had to buy off a revolutionary base angered by what they saw as a sell-out. The same calculation may hold once again. ■ Sign up to the Middle East Dispatch, a weekly newsletter that keeps you in the loop on a fascinating, complex and consequential part of the world. This article was downloaded by zlibrary from https://www.economist.com//middle-east-and-africa/2026/06/18/war-has-strengthened- the-islamic-republic-peace-could-split-it

Middle East & Africa | Better than the alternative A flimsy deal will stop the bombing and restart the oil Whether it can do anything more will be the question that defines the next few months June 18th 2026 It was a moment both historic and anticlimactic. Overnight on June 17th, both Donald Trump and Masoud Pezeshkian (pictured) signed a memorandum of understanding (mou) that they claim will end their war. Never before, in 47 years of hostility, have American and Iranian presidents put their names to an accord. Yet they did so at a distance: Mr Trump in Versailles, Mr Pezeshkian in Iran. It is a bare-bones agreement, barely a dozen paragraphs. It will pause, not end, the hostility, and ultimately will be judged by what comes next. The Trump administration hopes it will transform America’s tortured relationship

with Iran. But in the Middle East, hopeful visions have a way of crashing into hard reality. After days of delay, America has finally released the text of the deal. The key points are as expected. The Strait of Hormuz should reopen. America and Iran will extend their truce and start 60 days of talks over a final pact to restrict Iran’s nuclear programme. Iran will receive limited economic benefits up front: a sanctions waiver allowing oil exports, and the release of billions of dollars frozen in foreign banks. The details of all this are vague and contested. America insists it will unlock Iranian assets only if the regime meets certain commitments over the next 60 days. No one can say what those commitments are. The mou mentions a plan for a reconstruction fund of “at least $300bn” to be developed “with regional partners”. Gulf officials say they are hardly keen to pour money into a country that spent the past months bombing them. Similarly, Iran has pledged in the MOU that it will never build a nuclear bomb. That promise seems important to Mr Trump, who touts it at every turn—never mind that an identical one appeared in the first paragraph of America’s previous deal with Iran, which he abandoned in 2018. Yet it is meaningless without a comprehensive accord that imposes real, verifiable limits on Iran’s nuclear programme. At best, then, this is a deal that allows oil to start flowing. In the short term, that should give both sides an incentive to abide by it. Mr Trump needs to get petrol prices down before midterm elections in November. Iran needs revenue to tackle a worsening economic crisis. Beyond the next two months, three starkly different scenarios seem possible. Most optimistic is a profound change in the region. “The coolest thing about the progress we’ve made over the last few weeks,” gushes J.D. Vance, the American vice-president, is hearing the Iranians say “The way that we’ve done business with the United States for 47 years is a mistake, let’s try something else.” In this scenario, Iran would agree to halt uranium enrichment, grant unfettered access to nuclear inspectors and stop trying to export its

revolution. America would lift decades of sanctions and allow Iran to integrate with the global economy. Instead of trying to topple the regime, Mr Trump would offer it a chance to become like its Arab Gulf neighbours: autocratic, yes, but prosperous and stable. Perhaps a few Iranian officials share Mr Trump’s sentiments. But “I don’t think the Revolutionary Guards dream about turning Tehran into Dubai,” says a diplomat in the Gulf. A second option, then, is that the interim deal congeals into something more permanent. The 60-day period of talks and truce can be extended indefinitely by mutual agreement. Iran could keep selling oil, and America could try to monitor Iran’s uranium stockpile from afar. Yet this seems an unstable equilibrium. America and its allies would retain well-founded fears about whether Iran was pursuing a bomb in secret. Iran would remain subject to a thicket of other sanctions. The reconstruction fund would be stillborn. Gulf states fear this would leave them vulnerable to endless Iranian extortion. That leaves the gloomiest scenario: the MOU proves a half-time break rather than a final whistle. Wars end when the combatants believe the costs outweigh the possible benefits. Today, Iran’s leaders feel triumphant. But a lengthy pause will force them to confront a people exhausted by conflict and collapse. “A system that has spent the last several months on war footing will now have to try governing after it,” says Ali Vaez of the International Crisis Group, a think-tank. That will be hard without sustained sanctions relief. The regime might see a new round of fighting as a way to force more American concessions. As for America, it will have an erratic president, perhaps humiliated by defeat in the midterms. He will have an eye on his legacy—and little to show for his war. Israel will try to convince Mr Trump that Iran deceived him, and that he risks unflattering comparisons to Barack Obama. For now, almost everyone in the region is breathing a sigh of relief. The mou may be flawed but the alternative was more war. And yet it is unlikely to be the end of the hostility—and time will tell if it is even the beginning of the end. ■

Sign up to the Middle East Dispatch, a weekly newsletter that keeps you in the loop on a fascinating, complex and consequential part of the world. This article was downloaded by zlibrary from https://www.economist.com//middle-east-and-africa/2026/06/18/a-flimsy-deal-will- stop-the-bombing-and-restart-the-oil

Middle East & Africa | Bombed out Iran’s battered economy will take years to recover from the war Its leaders want sanctions relief and aid for reconstruction June 18th 2026 The deal was a long time coming—far too long for many Iranians. American and Israeli bombs have damaged their infrastructure and industry; American warships have blockaded their ports. The memorandum of understanding (mou) between America and Iran sets out 60 days for negotiations over a final agreement, with big incentives (perhaps even $300bn in investment) if Iran co-operates. But how much it gets may become a sticking-point. For many Iranians, the pain has been acute. Last month inflation was 84% year on year, more than twice the rate in January. Food-price inflation, at 131%, was even higher. The blockade has affected imports, too. Some 3,000 containers destined for Iran have stacked up in Pakistani ports since mid-

April, and grain shipments to Bandar Imam Khomeini, Iran’s main hub for agricultural goods, have fallen by 40%. Poor Iranians are paying for meat and bread in instalments. Gholam-Hossein Mohammadi, the deputy labour minister, has said as many as 2m people have lost their jobs—up to 7% of the workforce. On May 18th Donya-e Eqtesad, an Iranian newspaper, reported that the number of applications for a single vacancy on JobVision, a hiring site, had doubled to 360. In late May Masoud Pezeshkian, the president, told businessmen in Tehran that “the main field of confrontation today is the economy and people’s livelihoods”. Some of this harm is self-inflicted. The regime cut off access to much of the global internet during protests in January and began restoring access only in May. Digikala, Iran’s biggest online retailer, laid off 3% of its staff. But American and Israeli attacks on factories, refineries, steel mills and—most recently—Iran’s biggest petrochemical complex caused most of the damage. Iran has suspended petrochemical exports (one-third of its non-oil exports) since Israel first hit the site in April. Rystad Energy, a consultancy, reckons repairing energy facilities alone could cost up to $19bn. The Foundation for the Defence of Democracies, a hawkish American think-tank, puts the total bill at about $144bn—roughly half of Iran’s gdp. With the mou now signed, America is meant to lift its blockade and offer sanctions relief. The end of that blockade is the first essential step. It has choked Iran’s oil exports and was intended to starve the Islamic Revolutionary Guard Corps (IRGC), Iran’s military elite, of its main source of cash. Vortexa, a ship-tracking firm, says Iran’s oil exports in May fell to 209,000 barrels a day, an 84% drop from April. On the eve of the deal, Iran’s usable crude storage was 83% full, according to Kpler, a data provider. Tanker loadings at Kharg island, Iran’s main export hub, dipped sharply, but could soon resume. The mou may also waive sanctions on Iran’s oil shipments. The regime is keen to charge tolls—levied under the guise of service fees—for ships passing through the strait.

But the biggest reward is said to be a $300bn investment package to rebuild Iran’s economy—a sum equal to its annual gdp. J.D. Vance, Mr Trump’s vice-president, has said that this is “the sort of thing they could have access to” if the talks proceed to the liking of America. The rial, which had lost a quarter of its unofficial value this year, has rallied since the mou was announced (see chart). On June 17th, however, Mr Trump denied that America would invest in the scheme (and said he had not asked Gulf states to create one). The proposal is typical Trump: offer to get cash flowing and the rest will sort itself out. Yet sanctions on Iran, which have long deterred foreign investors, would need to be unwound for them even to consider such commitments. And it would face fierce opposition from hawks in America. Lindsey Graham, a Republican senator, has compared the idea to “a Marshall Plan for Germany with the Nazis still in charge”. Mr Trump will have to tread carefully. Much of Iran’s industry is owned by the irgc, hence large-scale investment would mean lifting sanctions on the regime’s most hardline and powerful faction. Far milder sanctions relief enraged Republican critics of Barack Obama’s nuclear deal with Iran a decade ago. The regime could profit from its Trumpian deal. But the needs of the country’s immiserated population will be secondary. ■

Editor’s note: This story has been updated. Sign up to the Middle East Dispatch, a weekly newsletter that keeps you in the loop on a fascinating, complex and consequential part of the world. This article was downloaded by zlibrary from https://www.economist.com//middle-east-and-africa/2026/06/17/irans-battered- economy-will-take-years-to-recover-from-the-war