Strait jacket: Wall Street is worried President Trump has no good options for ending the war with Iran

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Trump has no good options for dealing with Iran

It is slowly dawning on Wall Street that President Trump has no good options for ending the conflict with Iran, according to research notes seen by Fortune. In fact, he may be stuck in an as-yet-unsolvable dilemma: He cannot reopen the Strait of Hormuz without handing a “victory” to Iran, and he cannot keep it closed because the midterm elections are approaching and the war is unpopular with voters who dislike rising gasoline prices.

Until the fighting restarted earlier this week, the U.S. had been attempting to usher ships through the Strait via a southern route that hugs the coast of Oman. The Iranians don’t like that. They want ships to use a northern route that hugs the coast of Iran, in order to extract tolls. That’s why Iran began attacking oil tankers earlier this week—they don’t want ships using the Strait for free.

“Iran recognized that if it didn't attack these vessels, it would risk being perceived as having lost the Strait as a tool of leverage,” according to Macquarie’s Thierry Wizman and Gareth Berry.

Iran's threats against ships that pass through the Strait without paying tolls all but force the U.S. to continue its strikes.

“Iran's strikes violated the one MOU [memorandum of understanding] provision Washington considered non-negotiable: keeping the Strait open,” Alpine Macro’s Dan Alamariu argued in an email to Fortune. “With Iran again choking the Strait, the U.S. has zero incentive to ‘play nice’; the closure negates President Trump's main motivation to deal: the lower oil prices he needs ahead of the midterms.”

One solution: “Domestic fallout is still too early to call, but Trump could pin the talks’ failure on JD........

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