US, Iran face rising war costs as mediation continues over Hormuz

After seven months of war, the United States and Iran are increasingly confronting the costs of continuing the conflict, with both sides showing signs of fatigue and renewed efforts underway to find a way toward a settlement.

Iran’s economy has been badly hit by sanctions and the U.S. blockade of its ports, while Iranian airlines have also been forced to halt flights. The United States, meanwhile, has spent an estimated $43 billion on the war, according to the discussion on Kamran Khan’s On My Radar.

The prolonged conflict has also driven up costs in the United States. Diesel prices have reached $7 per gallon for the first time in American history, mortgage rates have reached 7% and inflation has continued to rise. The longer the war continues, the greater its economic cost becomes.

Against this backdrop, both sides are being pushed to look for a way out of the conflict. President Donald Trump rejected Iran’s offer to reopen the Strait of Hormuz and end the war within seven days, but shortly afterward told Axios that he expected talks with Iran to begin this week. Current reporting confirms that indirect contacts through mediators have continued despite Trump's rejection of Tehran's proposal.

The diplomatic effort gained momentum last week when Iranian President Masoud Pezeshkian and Foreign Minister Abbas Araghchi traveled to New York for the United Nations General Assembly. Both repeatedly said they had come to seek a path to peace rather than war.

Araghchi said Iran’s conditions were clear and that reopening the Strait of Hormuz would depend on those conditions being accepted.

“If the United States really wants an agreement to open the Strait of Hormuz, there is still an opportunity,” Araghchi said.

Iran presented the United States with a seven-day peace plan on the sidelines of the U.N. General Assembly. Under the proposal, the Strait of Hormuz would be reopened within five to six days, followed on the seventh day by negotiations on a permanent peace formula. The proposal was delivered to U.S. officials through Qatari mediators.

In return, Iran demanded an end to the U.S. naval blockade of its ports, the lifting of restrictions on Iranian oil sales, the release of nearly $12 billion in frozen Iranian assets and guarantees of a broader ceasefire across the region, including in Lebanon and Yemen.

The terms are broadly similar to those contained in the Islamabad memorandum of understanding, according to the discussion.

Trump rejected the proposal Saturday, saying Iran wanted an immediate agreement to reopen the Strait of Hormuz because it was under severe pressure from the war.

“Iran wants a deal to open the Strait of Hormuz immediately because they are losing badly,” Trump said.

Even after Trump’s rejection, mediators continued their efforts and Iran did not treat the decision as a final answer.

Araghchi said mediators had not yet informed Tehran that the United States had formally rejected the Iranian proposal.

“There is a workable plan on the table,” Araghchi said. “If the United States rejects it without any reason, the responsibility will also lie with Washington.”

Mediation efforts between the two countries are continuing, with Qatar playing an active role. Recent reports indicate that Qatari mediators have been holding or arranging separate discussions with Iranian and U.S. officials as they work on an amended version of Iran’s seven-day proposal.

China has also supported Qatar’s mediation efforts, saying it accepts the agreement reached in Islamabad between Trump, Pezeshkian and Prime Minister Shehbaz Sharif.

The central question now is how much flexibility Washington and Tehran are prepared to show on their respective conditions. The desire to end the war remains one issue, but the terms and price of peace have yet to be agreed by either side.