New chokepoints, no off-ramp: What’s next for the war in Iran and the Middle East

22 Sep, 2026

Following a summer lull, the conflict in the Middle East has intensified and spread. In recent weeks the Houthis have made strategic gains around the Red Sea and have stepped up their strikes on Saudi Arabia. Saudi Arabia’s East-West oil pipeline was attacked by Iran-backed Iraqi insurgents on 10 September, shutting down as a result. The Strait of Hormuz remains at a relative standstill, with traffic heavily disrupted following a series of attacks on vessels and land targets by both sides over recent weeks.

With diplomatic progress on core issues remaining elusive, pressure building on new fronts, and both Iran and the US showing some willingness to escalate, we expect the conflict to continue at least until the end of the year, marked by recurring outbreaks of violence.

The state of play

Strategic Houthi gains around the Bab el-Mandab strait and Red Sea are threatening a key alternate route to Hormuz for shipping. The Houthis may not seek to “close” it in the same way as Hormuz, but they can make transit more dangerous and raise costs, potentially affecting shipping without even taking any further steps. Iran and the Houthis can now exert pressure on both ends of the Arabian Peninsula.

The attack on Saudi Arabia’s East-West oil pipeline is adding to the pressure. This systemic redundancy has been critical to markets’ ability to absorb the first six months of the war. 4-5mbpd (4% of global oil supply) had been moving along this pipeline. Repairs could take up to six weeks, and there have been no visible oil loadings at the Red Sea port of Yanbu since 16 September (low levels are exiting via Hormuz). This means that there are now three constraints on Gulf oil exports, two of which are new.

The US midterms on 3 November are likely to be a key inflection point. The war has become an election issue as fuel prices remain buoyant. Iran will maintain pressure ahead of the election to exact maximum political costs on Trump. The US President has suggested the war could end after the elections, although there is also the possibility that, with the elections safely over (and whatever the result), the US seeks to impose a higher cost on Iran for transgressions, possibly spilling over into full-scale conflict.

There are other wild cards. Israel is a significant potential destabilising factor in the period ahead. Israel’s election on 27 October has heightened the risk that the Iran conflict may prove a tempting vehicle for PM Netanyahu to reassert his defence credentials as Likud loses support. The Lebanon front is stable for now and diplomacy remains afoot, although it is weak.

Iran’s negotiating leverage has increased with Houthi control of Bab el-Mandab, but internal discord between hawks and pragmatists, coupled with the economic impact of the US blockade and continued US military presence in the Gulf, limits flexibility for talks. Sustained sporadic attacks remain likely, though Iran’s calibrated strikes suggest strategy rather than escalation, leaving room for negotiation at some point.

US unreliability is leading other parties to pragmatism on both the US and Iran. The new defence alliance between Saudi Arabia, Pakistan, and Türkiye illustrates how states are shifting to try to keep a lid on this crisis and to reshape regional security politics in the longer term as US presence declines. The meeting between the Iranian president and the UAE Crown Prince at the BRICS summit in Delhi earlier this month demonstrates that Gulf countries are ready to engage directly with Iran despite the broader context of tensions, although trust remains very low.

Scenario analysis

We set out three scenarios through the end of 2026. We see the first scenario below as the most likely path over the coming months. The second and third are less probable, but both remain live possibilities worth planning for.

Scenario 1: Persistent tensions with widening fronts

This is our base case scenario. We are set for a prolonged, variable intensity conflict. Hormuz will remain heavily constrained, with occasional attacks on shipping and retaliatory attacks by US forces on Iranian assets and military infrastructure. Pressure from the Houthis will continue to build, and the southern approach to the Red Sea will be utilised less by commercial traffic as insurance costs rise. Third parties will continue to attempt diplomacy, though with little sustained traction.

Scenario 2: Renewed hostilities at scale

A stimulus such as a mass-casualty attack or critical infrastructure damage could trigger major hostilities, or escalation could follow a deliberate US decision after the midterms. The US would attack regime sites, targeting offensive and defensive capabilities; Iran would retaliate against US and allied infrastructure across the region, intensifying cyber and covert activities. The conflict in Yemen would be likely to expand and internationalise further.

A US ground invasion remains unlikely: the strategic benefits are questionable and it would be difficult and costly to sustain. Our assessment remains that Iran’s current regime is not near collapse despite the pressure of the war.

Scenario 3: Return to diplomacy with a path towards a negotiated settlement

Diplomacy is unlikely to deliver a meaningful ceasefire before the end of the year, but the underlying stressors on each of the parties may force them together in coming months, should the patterns of violence not prevent it. Any talks are unlikely to achieve substantive outcomes before 2027. A recent second track attempt to gather GCC states and Iran for discussions in Oman appears to have failed.

Under this scenario, talks would result in a settlement – even if temporary – over freedom of navigation through Hormuz. Iran would likely be given a face-saving role of some kind in strait navigation. There would be associated sanctions and blockade relief, and the commencement of discussions on the key issues at the core of this war (nuclear, missiles, proxies). Shipping would start to normalise.

What this means for businesses

The war has become a test of economic and strategic endurance. Iran is suffering serious economic damage and the US is nowhere near achieving its objectives. Because of the resilience of the global economy to this crisis, Iran’s control over the strait has not delivered the knock-out blow Tehran had hoped for early on.

Any ceasefire – whenever it may occur – will not lead to meaningful changes in the short term. Damaged infrastructure, insurance, ship availability, and inventory rebuilding mean that commercial normalisation will take longer.

In our view, businesses should treat geopolitical frictions in the Gulf as a structural operational cost, at least until a resilient settlement is in place and thoroughly tested.

Businesses should plan around the following elements:

Supply chains will remain heavily disrupted and unreliable: commodity vessel transits through the strait have collapsed from 125 per day before the war to around 14, falling to single digits on some days. Improvements in transits can occur as we have seen over the summer, but are likely to be fragile and temporary.

Risk of a second energy shock: Europe’s gas storage sits at just 69%, around 15% below seasonal average, while Gulf gas exports are down over 85% year-on-year. Prices may increase further if winter demand spikes and Hormuz disruption persists. Governments will also be seeking to replenish strategic oil reserves used to buffer price increases earlier in the year.

Persistent energy inflation will weigh on the economic and political outlook in Europe and vulnerable Asian economies: UK and European interest rates are likely to be higher for longer. War-related risks are bedding into insurance pricing for the medium term. This may also have political implications – persistent tensions could heighten the risk of a recession at a key moment in electoral cycles in France and Germany. In Asia, Pakistan, Bangladesh, Sri Lanka, and, to some extent, India are particularly exposed.

Structural adaptation is taking place: the UAE is expanding Gulf of Oman infrastructure; Iraq and others are pursuing land routes through Jordan and Türkiye; and Saudi Arabia, Kuwait, and the UAE are stockpiling oil in Asian customer facilities. But alternative infrastructure takes years, not months, and itself presents a target.

Travel has recovered but escalation later this year could lead to renewed disruption: the Gulf has largely absorbed the impediments to travel, with Emirates Airlines operating at around 93% of pre-disruption capacity in the summer. But risks to air accessibility (especially brief closures of airspace) remain, in the absence of a negotiated and stable settlement to the conflict. Businesses should remain aware of potential disruption in scenarios 1 and 2 above when planning travel in the region.

This blog was written by Heidi Venamore, Senior Adviser, François-Joseph Schichan, Partner, and William Dashe, Consultant. Heidi is a former Australian diplomat and served as Ambassador to the UAE and Jordan. François-Joseph is a former French diplomat and leads Flint’s geopolitics practice. William is a consultant and geopolitical analyst at Flint.

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