Trump weighs escalation or deal as Iran war enters 5th month

The US-Iran conflict has reached a critical inflection point as President Trump weighs a major military escalation against a negotiated exit from a war now in its fifth month.

President Trump said the US has two paths in the five-month-old Iran war — intensify military strikes or negotiate a deal — as crude oil prices swung above $100 a barrel before settling near $92. "Iran is not ready yet" for an agreement, Trump told reporters at the White House, while confirming that the US and Iran remain in active talks.

"The situation is getting out of control," UN Secretary-General António Guterres told the Security Council. "The region is being pulled into an ever-widening circle of confrontation. One crisis feeds another. One escalation triggers the next."

The US has conducted 13 consecutive nights of airstrikes against Iranian targets, while Iran has retaliated against US assets in the Gulf. The national average for regular gasoline in the US has climbed to $4.10 a gallon, up 17 cents from a month ago, according to AAA. The Houthi rebels, a key Iranian ally, attacked Saudi tankers in the Red Sea this week, prompting Trump to threaten "major military punishment." The UK announced it was temporarily withdrawing diplomatic staff from Iran, and Qatar Airways suspended flights to Bahrain, Kuwait and Irbil through the end of July.

The dual-track approach — simultaneous talks and strikes — creates acute uncertainty for energy markets. A major escalation could push oil above $100 again, while a diplomatic breakthrough would likely trigger a sharp selloff. The next decision point comes as Trump weighs what he described to Axios as a "massive attack, bigger than ever before."

Strained Alliance and Domestic Pressure

The prolonged campaign has strained Trump's relationship with Israeli Prime Minister Benjamin Netanyahu, with senior administration officials telling the Wall Street Journal that Trump has become reluctant to speak with or meet the Israeli leader as differences emerge over the direction of the military campaign. The cooling of ties marks a notable shift after months of close coordination between Washington and Tel Aviv.

Domestically, the war is increasingly weighing on the White House. Senior advisers fear the conflict is pushing up energy prices, fueling inflation and steadily eroding Trump's approval ratings, potentially hurting Republican candidates in next year's midterm elections. The last time a US president faced a prolonged Middle Eastern conflict during a midterm cycle — George W. Bush during the Iraq War in 2006 — Republicans lost 30 House seats and six Senate seats.

Oil at the Center of the Cross-Asset Chain

Brent crude briefly breached $100 a barrel on Thursday for the first time since May before retreating to $92 on Friday, reflecting the market's struggle to price in the binary outcome of escalation versus de-escalation. The Strait of Hormuz, through which about 21 percent of global oil trade passes, remains a flashpoint, with Iran asserting its control and the US maintaining a naval blockade on Iranian ports.

Iranian Foreign Minister Abbas Araghchi said the country "will not bow to US bullying" and "will under no circumstances respond to the language of force, pressure and threats," according to state media. He also held "detailed" talks with the foreign ministers of Russia and China, signaling potential diplomatic channels beyond Washington.

The personal stakes for Trump have also risen. US intelligence agencies warned the president of possible Iranian assassination threats, leading him to abandon plans to fly aboard the newer Air Force One and return to Washington on the older presidential aircraft. Trump was reportedly enraged after the New York Times disclosed the reason for the aircraft switch, viewing it as a national security breach.

For now, according to people familiar with his thinking, Trump sees little room for compromise and appears prepared to continue the campaign despite mounting domestic and international pressure. The question for markets is whether the next phase brings a ceasefire — or a conflict far larger than the one already underway.

This article is for informational purposes only and does not constitute investment advice.