Donald Trump's Strait of Hormuz blockade could further undermine global economic confidence

Donald Trump's planned United States naval blockade of Iranian vessels in the Strait of Hormuz reveals the president once again playing loose with the fortunes of financial markets and the global economy as he struggles to find a way out of the war that he and Israel started.

The market reaction was swift, with oil prices immediately jumping more than 8 per cent and natural gas prices as much as 17 per cent in early Asian trading on Monday morning, and share markets down.

The spectre of two separate blockades of the strait — one by Iran and now one by the US — only increases the sense of jeopardy for any shipowner with stranded vessels in the Gulf.

Not only are they facing higher insurance costs, but increased danger to crews.

If we take the US position seriously, it has two immediate implications.

The first one is the impact it has on global economic confidence because it shows events moving even further away from the prospect of the strait being opened, and will further undermine confidence that the Trump administration has a strategy for de-escalation.

The second set of implications concern the countries that are Iran's biggest oil customers, which includes, overwhelmingly, China.

The superpower will not be pleased at the prospect of having its oil supplies cut off. Then again, it has stockpiled massive supplies of oil in recent years.

But the blockade is supposed to be aimed at putting pressure on Iran by starving it of income from oil sales, although analysts are overwhelming sceptical about how successful this tactic is likely to be.

Blockade is the next 'bright shiny object'

Veteran US State Department negotiator Aaron David Miller described the blockade as the next "bright shiny object" to attract the president's attention.

It's also notable that talk of either striking or taking Iran's primary export facility on Kharg Island has disappeared from the options being canvassed.

If Iran has been prepared to sustain so much direct punishment on its own territory for the past six and a half weeks, the argument goes, why would a blockade of dubious effectiveness make them change their mind?

While the US blockade is supposed to deal a blow to Iran's capacity to levy shipping for being allowed to get through the strait, Iran knows that the proposed blockade is a double-edged sword for the Trump administration for the very reason that it only escalates the damage to the global economy, and to US gas prices, economic growth and inflation.

That's before you take into account the devastating impact the blockage is having on the economies of Gulf states like the UAE.

That suggests it can't be sustained indefinitely, particularly since Iran still has in reserve the option of getting its Houthi allies to block the other choke point in the region — Bab el-Mandeb in the Red Sea.

The risk of escalation in the strait

Then there is the question of how attempts at blockading Iranian shipping would actually unfold.

The blockade potentially makes the Strait of Hormuz a new, much more deadly and intense war zone.

Until now Iran has been able to stop shipping mostly by a threat to attack.

But the blockade on the strait could bring Iran and the US into direct two-way assault in defence of its shipping, with Trump threatening that "any Iranian forces that fired on U.S. troops or commercial shipping would be BLOWN TO HELL".

And it raises the question: is the US military actually going to stop or sink Iranian shipping?

It is little surprise that in the perpetually moving field that is the US position in this conflict, that reports were emerging in the Wall Street Journal by Monday morning AEST that Trump was considering resuming air strikes in Iran — effectively bringing the loose ceasefire to an end.

When asked about the newspaper's report, the White House told the BBC all options were on the table.

"Anyone who is telling the Wall Street Journal that they know what President Trump will do next is purely speculating," White House spokesperson Olivia Wales told the BBC.

The fluctuating signals — and indeed intentions — of the US president in this conflict have now become a central aspect of the way it unfolds.

'A pressure tactic'

The underlying questions that must be asked are whether the US president is really committed to continuing conflict, or whether we continue to be subjected to ongoing verbal parlays now aimed at perpetually getting out of a sticky corner?

The latter question is particularly relevant since it has become apparent that Trump's original assessment — that there could be a quick and clear victory and toppling of the Iranian regime — has proved spectacularly wrong.

Veteran American journalist David Ignatius observed on Sunday that "after talking with people close to the negotiations, my sense is that the Islamabad impasse won't necessarily mean a return to war".

"The blockade is a pressure tactic, to be sure, but not primarily a military one," he said.

"Trump has no appetite for further armed conflict. He knows that the upsides are limited and the 'tail risk,' as financial traders like to say, is large."

It is not impossible to mount such a blockade.

Retired naval officer and senior researcher at the Hudson Institute, Bryan Clark, told the Wall Street Journal that "it's certainly well within the capacity of the forces that are there to mount a blockade".

However, "if Iran starts shooting at them or shooting at people that are operating these systems, then obviously it gets more difficult … You have to protect them with ships," he said.

The erratic nature of the US positions has only further crystallised the opinions of other countries that they don't want to get involved in an exercise like a blockade, despite Trump's assertion that "numerous countries" would be helping impose it.

The impact of Trump's style of diplomacy

The speed with which the outlook shifted from one based on a presumption that both the US and Iran were looking to de-escalate the conflict to one where the US president was winding things up again sent a shock wave around the world.

It took some hours for countries to start responding to the declaration by US Vice-President JD Vance that the talks were ending without resolution because Iran would not meet the US demand that it abandon all uranium enrichment.

That compares to the painfully drawn-out agreement reached in 2015 in which Iran agreed to not enrich uranium beyond a certain level, to cap its stockpile and transfer the rest offshore and agree to IAEA monitoring in exchange for sanctions relief.

The deal was scuppered by Trump during his first term and Iran subsequently escalated its nuclear program.

While Iran's nuclear ambitions had always been a focus of US war aims, the expectations surrounding the Islamabad summit had been more for a first-principles path to negotiation and/or some temporary accommodations on both sides.

Iranian Foreign Minister Abbas Araghchi claimed that the talks in Islamabad had come within "inches" of a memorandum of understanding but at that moment "we encountered maximalism, shifting goalposts, and blockade".

There was widespread speculation that this late shift was the result of an intervention by Trump himself.

Trump's particular style of diplomacy may be what is driving world events.

But it is also undermining any attempt at building trust with Iran, putting the global economy at risk and potentially escalating the risk to the lives of US military personnel, as well as civilians in the Gulf.

Laura Tingle is the ABC's global affairs editor.