As Trump cancels his envoys’ flight to Islamabad and Iran insists no negotiations are planned with the Americans, a casual observer might conclude this war is heading nowhere good. They would be half right. The current diplomatic impasse is the most dangerous phase of the conflict — but paradoxically, it is also the phase most likely to produce a deal.

The reason lies in the structure of the game itself.

Strip away the rhetoric and what you have is a multi-player strategic interaction with five principals: the United States, Iran, Israel, the Gulf Arab states, and Pakistan as mediator. Each has a distinct set of objectives. Each is operating under radical uncertainty. And each, whether they recognise it or not, is watching its leverage erode by the day.

The scenario matrix contains four outcomes, and the probabilities are not evenly distributed.

The Lose-Lose: Escalation Spiral

This is the Prisoner’s Dilemma in its starkest form. Both sides defect because neither trusts the other to cooperate. The Strait of Hormuz remains closed, oil prices spike further, Iranian civilians face deepening food insecurity and unemployment, US military costs balloon, and Gulf states absorb collateral damage from a war they never chose.

Economist Steve Keen, speaking on The Diary of a CEO in April, laid bare just how catastrophic this spiral could become. The Strait’s closure does not merely raise oil prices — it severs 20 to 30 percent of the world’s fertiliser supply, threatening a global famine within months. India alone could face critical fertiliser shortages within months, potentially jeopardising its June Kharif planting season. The same chokepoint controls roughly 30 percent of global helium production, without which semiconductor manufacturing halts — South Korea, which produces two-thirds of the world’s memory chips, has already launched an emergency investigation into the shortage. Australia, with only 30 days of oil reserves, cannot transport food from farm to city once supply is cut. As Keen argues, people think this war threatens their petrol prices; in reality, it threatens their food supply.

I assign this scenario roughly a one-in-four probability, but the tail risks nested within it are what make it truly terrifying. Keen identifies five ways the military conflict could unfold, and four of them live inside this lose-lose quadrant. First, nuclear annihilation of Iran — requiring hundreds of warheads to subdue a country the size of Western Europe with its military dispersed across 31 provincial commands, producing extinction-level consequences. Second, Iran’s systematic destruction of Gulf power infrastructure, rendering Saudi Arabia, Qatar, and the UAE uninhabitable — a scenario Keen considers highly likely given that Iranian drone strikes have already disabled critical LNG production facilities at Qatar’s Ras Laffan complex — the world’s largest LNG producer — while separate strikes hit Saudi Arabia’s East-West pipeline and Jubail petrochemical complex. Third, the Samson Doctrine — Israel’s stated policy of massive nuclear retaliation if it faces existential defeat, triggering worldwide devastation. Fourth, Iran developing its own nuclear weapons, which might stabilise the region through mutual deterrence but would trigger cascading global proliferation.

Only Keen’s fifth scenario — Iran conventionally neutralising Israel’s nuclear capability through precision strikes — offers a military path that avoids civilisational catastrophe, and even that carries enormous uncertainty.

The defining feature of this equilibrium is that it is stable — both sides are locked into mutual defection — yet ruinous for everyone, including bystanders on the far side of the planet.

The Win-Lose: Imposed Capitulation

This is Trump’s stated preference — his initial demand for Iran’s “unconditional surrender.” Iran dismantles its nuclear programme, surrenders the Strait, and accepts regime constraints dictated by Washington. On paper, it delivers maximum American and Israeli payoff. In practice, it fails the most basic test in game theory: it is not a Nash Equilibrium.

Iran’s payoff from total capitulation is so catastrophically negative — regime collapse, national humiliation, loss of all strategic leverage — that Tehran will always prefer continued resistance, no matter the cost. Parliament Speaker Ghalibaf has warned of “new cards on the battlefield.” The judiciary chief has urged all forces to maintain “100 percent readiness” against the possibility of further attacks. A cornered adversary with nothing left to lose is the most dangerous configuration in any strategic game. When one player’s minimum acceptable outcome exceeds anything on offer, the game becomes unsolvable on those terms. Even if capitulation were temporarily imposed, the resulting arrangement would be time-inconsistent — Iran would cheat, rebuild, and retaliate at the first opportunity, as every imposed peace in history eventually demonstrates.

The Lose-Win: American Retreat

The mirror scenario — US withdrawal, Iranian victory declaration — carries negligible probability under any realistic political calculus. No American president, least of all this one, absorbs the reputational and strategic cost of retreat after committing this level of military force. Include it for theoretical completeness; dismiss it as practically impossible.

The Win-Win: The Islamabad Process

This is the Pareto-optimal outcome — the only scenario in which no player can be made better off without making another worse off. And the current architecture, despite appearances, is stumbling toward it. The first round of Islamabad Talks lasted twenty-one hours across three sessions. Iran’s foreign minister claimed they were “inches away” from a memorandum of understanding. The issues are defined: the Strait of Hormuz, Iran’s nuclear programme, sanctions relief, frozen assets, and a long-term peace framework.

Here is how each player achieves a positive payoff. For the United States: Iran verifiably caps enrichment — not eliminates, and that distinction is the key concession — the Strait reopens under international monitoring, and Trump claims a historic deal. For Iran: phased sanctions relief, the return of frozen assets, sovereignty guarantees, and regime survival. For Israel: a nuclear threat that is capped and monitored, combined with Hezbollah’s degradation, delivers more durable security than the fantasy of total elimination. For the Gulf states — who have absorbed Iranian missile strikes on their soil and infrastructure throughout a conflict they desperately sought to avoid — a deal ends their involuntary exposure. For Pakistan: the “Islamabad Process” elevates its geopolitical standing to a degree not seen since the Cold War.

Where Keen’s Analysis Stops and Game Theory Begins

Keen’s five scenarios are invaluable for mapping the catastrophic landscape, but they share a critical blind spot: all five describe how the fighting ends, not how a deal gets made. They are military endpoints, not negotiated equilibria. What game theory adds is the architecture of exit — the mechanism by which rational actors, staring into the abyss Keen so vividly describes, find a path that avoids every one of his nightmare scenarios.

The solution is to convert the negotiation from a one-shot game into a repeated game — a series of conditional, phased steps where each side’s next move depends on the other’s compliance. Strait reopens, then sanctions relief begins, then enrichment caps are verified, then frozen assets are released. Each phase creates a credible commitment mechanism: defect at any stage and the sequence halts. This is the only structure that sustains cooperation among distrustful actors, because it transforms the incentive to cheat from a one-time gain into a recurring loss.

The deeper structural logic also favours settlement. The system has been pushed so far from equilibrium that the restoring forces — economic devastation, military exhaustion, the fertiliser and helium crises Keen identifies, domestic political pressure on every side — now overwhelm the escalatory ones. Continued conflict destroys value for all parties faster than any conceivable gain from holding out. The cost of the status quo has, for every player, exceeded the cost of compromise. It was precisely this calculus that forced Khomeini to accept UN Resolution 598 in 1988, ending the Iran-Iraq War — a decision he likened to drinking from a “poisoned chalice,” taken only when the cumulative costs of continued fighting finally exceeded any achievable gain.

Trump’s cancellation of the Islamabad trip is, in this framework, not a deal-killer but a bargaining tactic — an attempt to extract additional concessions by signalling indifference. Iran’s public refusal to negotiate is the mirror image. Meanwhile, IRGC Quds Force commander Esmail Qaani’s visit to Baghdad on April 19 — officially to coordinate with militia leaders and political factions — signals that Tehran is simultaneously shoring up its leverage on the ground while keeping the diplomatic door ajar through Islamabad. Both sides are positioning for the next round, not walking away from the table. Game theorists recognise this pattern: it is the penultimate move before agreement, not the final move before collapse.

The Islamabad game remains the rational play. Keen has shown us the cost of failure. Game theory shows us the structure of success. The only question is how much more value all sides will destroy before they make it.

© The Times of Israel (Blogs)