Ananta Insights | Early Implications of the Iran War | Ambassador Mahesh Sachdev | April 2026

The Iran war, triggered on February 28 by the US and Israel, is currently under suspended animation, with an unofficial ceasefire in place since April 8. The first round of talks between the US and Iran in Islamabad on April 11-12. were inconclusive, and the second round has not yet been scheduled. Despite vigorous efforts by Pakistani mediators led by Field Marshal Asim Munir, the mutual trust deficit and wide gap between their maximalist stated negotiating positions have remained unbridgeable. Under the circumstances, even if further talks are held between the two belligerents, their successful conclusion may remain elusive. Consequently, nearly two months after the conflict began, its resumption cannot be ruled out. All the same, the 39-day war – and three weeks of edgy ceasefire – have had a profound impact not only on the three combatants but the region and the world. This paper attempts to analyse the implications of the conflict so far on them based on the scenario that the conflict may end in either a partially/imprecisely negotiated, vague JCPOA+ settlement allowing both sides to claim victory, or informally peter down to a low-intensity battle of attrition, with some modus vivendi found to regulate the maritime traffic through the Strait of Hormuz. While more extreme scenarios can also be built around decisive victory by one of the two sides, these appear less likely – and their fallout even less predictable.

 Part 1. Implications for the belligerents:

(a) Iran: 

• Despite the decapitation of its political and military hierarchy and pulverisation of much of its infrastructure, Iran’s theocratic regime would celebrate its survival as a great victory. With the ascent of new personalities and a politico-strategic restructuring, the regime would need to reset the equilibrium between its various pillars (Executive, Legislative, Theocracy and Judiciary) as well as the ultra-nationalists led by the Pasdaran (Islamic Republican Guards Corps) and the moderates. Furthermore, the shotgun appointment of Mujtaba Khamenei (said to be incapacitated) as Rahbar (Supreme Leader) would need to be followed through with appropriate downstreaming and setting new political traditions. The new Rahbar’s relatively lightweight theocratic credentials would create a symbiosis with the Pasdaran, at least initially.

• According to credible preliminary estimates, the ongoing war has destroyed around $270 billion worth of Iran’s total assets – equivalent to nearly two-thirds of its   current GDP. The IMF expects Iranian GDP to decline by (-) 6.1% in 2026. Its economic recovery would depend on the concessions Tehran can extract from Washington, in terms of loosening of “maximum pressure” sanctions, lifting of the maritime blockade and sequential release of the frozen assets. Although Tehran may prefer to continue its policy of self-reliance, the probability of these concessions being linked to deals with American companies cannot be ruled out under the current transactional approach of President Trump. Either way, given the extensive damage of long-term sanctions followed by the two wars, it would be a long haul to normalcy. 

• If the population’s expectations for a peace dividend are not meaningfully fulfilled, social unrest on a scale even larger than that witnessed in January 2026 could follow. Therefore, the regime would need to redress the popular angst from stagflation[i], extreme unemployment[ii], crony capitalism, economic mismanagement and rampant corruption. 

• While the Ethnashari (“twelevers”) sect of Shia theocracy under Vilayat ul-Faqih (Rule by the Jurists) may continue to prevail, more liberal socio-ethnic norms may be required to forestall frictions. Most Iranians were born after the 1979 revolution. Moreover, it is also a multi-ethnic society. Consequently, the past one-size-fits-all socio-moral prescriptiveness led to avoidable social tensions, such as Niqab protests,

  migration of liberal intellectuals and alienation of minorities such as Kurds and Sunnis. This would need to be avoided in the post-war phase to maintain national cohesion and prevent foreign meddling.

• While Iran may prefer to keep the Strait of Hormuz under its control to have leverage over the global economy and extract tolls, etc., this may pose considerable challenges. Firstly, this would violate international law: the UN Law of the Sea regards the Strait as an international waterway with the right of innocent passage to all, with its jurisdiction is shared by Iran and Oman, the two littoral states. Secondly, the Iranian claim of sovereignty would conflict with the national interests of the coastal states inside the Gulf waters, as their sea-borne foreign trade would be adversely affected by any perceived illegal restrictions put by Iran on the passage through the Strait. In addition, most oil-importing countries could object to the Iranian control over the strait, as it would lead to uncertainty and higher costs for them as compared to the previous arrangement. Even now, no country has supported Iranian measures to control the strait. Thus, in the face of international opposition, Iran would have to eventually nuance its claim to control the strait in softer terms. Besides the legalities and international isolation, it may not possess the physical naval assets to enable it to do so, except by episodically attacking the maritime  activity. At a wider level, unless Tehran behaves “reasonably” on the   Hormuz question, it may lose the international sympathy it earned as an underdog victim of an unprovoked aggression and resisting it through asymmetrical warfare.

• Throughout the conflict, Iran attacked not only the US military bases in the Gulf Cooperation Council (GCC) countries and Jordan, but also their own valuable assets, such as hydrocarbon infrastructure, desalination plants, hotels, ships and ports, etc. It even identified the US-based new technology companies in GCC countries for attacks to retaliate against Trump’s threat to bomb power installations and bridges in Iran. These attacks were not specifically claimed by Iran but generically justified in terms of “insecurity for all” or rejecting their claims of neutrality in the conflict. While the GCC countries did not retaliate against Iran, these missile and drone attacks and the closure of the Strait of Hormuz have exacerbated the already tense relations between them. Once normalcy descends on the region, Tehran would need to act to smoothen the ties. Unless this is done, the GCC capitals may be compelled to seek security arrangements against Iran. This polarisation would go against the Iranian call to have the regional countries collaborate among themselves without foreign military presence, making Iran, the largest and still the most powerful Gulf country, the region’s primus inter pares. Iran seems to have recently made a     beginning in this direction by sending Hajj pilgrims to Saudi Arabia and its foreign minister visiting Muscat and phoning up several of his GCC counterparts.

(b) The United States:

• Despite President Trump’s social media overdrive, this conflict is turning out for him to lose. Hemay have won an overwhelming military campaign against Iran, but has failed to achieve any of the main goals of the war, viz., regime change, stopping the nuclear program, curbing missile range and support for the regional proxies. The Iranian blockage of the Strait of Hormuz is an additional reversal for the US strategy, with serious consequences for the global economy. The outcome also exposed the false US narrative, resulting in vastly diminished credibility, particularly among the pro-American Arab regimes. The GCC capitals resent him for having started the conflict without consulting them, and compounding it by failing to protect them against Iranian reprisals. Last but not least, he now seems to be desperate for an off-ramp, which would leave the GCC states to manage a triumphant Iran.     Thanks to Trump’s “war of choice”, the GCC and Iraq face Iranian control of the Strait of Hormuz, an additional existential threat!

• Hence, the US diplomacy has an onerous task to pick up the broken China along multiple axes. First, White House has to reach a vaguely worded deal with Tehran that kicks the can down the road and allows an off-ramp to both sides on contentious issues such as proliferation, missiles, proxies, asset freeze and Hormuz. If such a deal is not possible, WH has to find a second-best alternative: a low-burn war of attrition. Secondly, it must urgently reassure the Gulf Arab allies that, despite the past inelegance, Washington can be re-entrusted with Gulf security against Iran. Thirdly, the WH has to act like a trapeze artist: assuring the Israeli security establishment of its fidelity, while assuring the recalcitrant Americans that Trump does not mean “Israel First.” At a different level, WH has to reconnect with many of its past allies, which it needlessly alienated during the Iran war.

• The Trump administration has to act with dispatch to contain the economic consequences of the war, both at home and abroad. The global energy crunch triggered by the Iran war is already being called “the worst in human history.” Unless it promptly restores the global oil supplies by removing its unilateral sanctions, the international economic crisis could cause irreversible harm. This is also badly needed to shore up the US economy, where rising inflation and slackening growth are further dampening MAGA support for Mr Trump as the run-up for the crucial mid-term elections to Congress gets  underway. 

• At an ethical level, waging a war without an imminent threat from Iran, assassinating the Supreme Leader of a country,  the over-the-top war rhetoric (“A whole civilisation will die tonight, never to be brought back again.”) and expletive-ridden hyperboles by the so-called leader of the Western World have raised basic issues which are both legal and moral (“No More Mr Nice Guy”, indeed!). The US claim of moral superiority and righteousness lies in tatters – and it has not worked out for Washington. If the WH wishes to disown its image as a bully, the US soft power has to work hard to sheath its crude display of hard power for times to come.

• Much vaunted technical superiority of the US weapon systems managed to win all battles against Iran, but lost the asymmetrical war against an isolated and cornered, but spirited, middle power. This would raise searching questions about the AI-rich war strategic planning of the global hyperpower. For instance, why could it not take on board Iran’s staying power and the possibility of closure of Hormuz and collateral damage to GCC countries? Unless the Pentagon learns its lessons from the Iran war, it will be doomed to continue with Cowboy Gunslinger syndrome with a holster full of duds. 

(c) Israel:

• The Islamic Republic of Iran (IRI) and the Jewish State of Israel have an animus dating back over two millennia since the destruction of the Second Jewish temple by King Nebuchadnezzar II in the 6^th century BCE. Today, the two are sworn enemies who see each other as an existential threat. Israel, in general, and its seven-time Prime Minister Benjamin Netanyahu, in particular, see the Iranian nuclear programme with a focus on uranium enrichment as unacceptable and have vowed to prevent it at all costs. After undercover actions over the past two decades, Israel, with the US participation, has launched vigorous air attacks during the past two wars (in June 2025 and in February-April 2026) against Iran, including against its nuclear installations. Iran has retaliated, both times, by launching drones and missiles at Israel in large numbers, many of which have hit the targets. IDF has also been quite unrelenting in hitting Iranian economic assets such as hydrocarbon installations, power stations, universities and research centres to impede post-war recovery. Following the US-prompted ceasefire on April 8, the IDF has stopped bombing Iran, but it can be expected to continue its covert actions.

• While the US has begun a process of de-escalation and eventual search for an off-ramp with Iran, Israeli leadership remains implacably hawkish on Iran. They realise the indispensability of the US partnership for the success of their anti-Iran military campaign and have been at pains to persuade the Trump administration in that direction. While Jerusalem would not publicly object to the White House seeking a diplomatic solution to its standoff with Tehran, it would continue to do everything behind the scenes to scuttle such a possibility.

• Israel’s most preferred objective is likely to replace the regime with a non-theocratic one not committed to the destruction of Israel and one without nuclear and WMD   ambitions. If the dismantling of IRI is not possible, Israel would like it to be weakened and riven by internal contradictions, civil war, ethnic separatism, etc. To this end, it would leave no stone unturned.

• Israel also perceives the Iran-sponsored “Axis of Resistance” as integral to the Iranian strategy to wage a low-cost, ventriloquist war against Israel to have plausible deniability of direct involvement. Israel has, therefore, intensified attacks on Hezbollah in Lebanon and created a buffer zone in southern Lebanon. Israel has also worked with the US diplomacy to engage Lebanon in having direct government-to-government talks in Washington aimed at delinking Iran from Hezbollah. As Israel and the US both regard Hezbollah as a terrorist organisation and the Lebanese Cabinet directed in August 2025 the disarmament of Hezbollah, the three interlocutors have considerable commonality in this direction.  Israel would hope to pursue a two-track policy in this regard:  despite a ceasefire, the IDF would continue to degrade Hezbollah militarily, while the Washington process would, Israel hopes, lead to Lebanon eventually normalising ties with Israel and joining the Abraham Accords. On the other hand, the fledgling and weak Lebanese government would prioritise the avoidance of a military confrontation with Hezbollah, which in turn could trigger a civil war.

• Israel has faced a few missiles fired by Yemen’s Ansar Allah (aka al-Houthis) during the recent war. It has not yet retaliated against them. However, on December 26, 2025, Israel became the first country to recognise Somaliland, a proto-state located near the Gulf of Aden – specifically, the Bab al Mandeb region. Most observers believe that Somaliland provides a convenient perch for the IDF to act against al-Houthis. 

• From Israel’s perspective, the Gaza war against Hamas militia, which lasted two years and caused over 72000 deaths and widespread destruction, is still unfinished business as the Palestinian militia has not been disarmed and no alternative governance structure is in place. Once its higher preoccupations with Iran and its proxies are taken care of, it may try to go back to the Gaza war.

Part 2: Implications for Non-Belligerents:

(a) GCC States:

• The six states of the Gulf Cooperation Council went through an unprecedented and multi-dimensional crisis during the Iran war. They proclaimed neutrality and declared that their territories would not be used for attacking Iran. Yet in reality, this was not borne out of facts, as they provided military bases to the US forces and their installations were used by the US forces for  military logistics, etc. Iran fired drones and missiles first at the US bases, but later at the host states’ vital installations, including those pertaining to oil and gas, ports and airports, etc. This put the GCC regimes in a piquant position. The US did not consult them before launching the invasion of Iran, and despite the US military bases on their territories, failed to protect them against Iranian retaliation. While the GCC countries have lavished state-of-the-art armaments on their defence forces, they have not responded to the Iranian attacks. This discretion, being the first part of valour, was based on multiple factors, including revenge being extracted by the US and Israeli attacks, strategic asymmetry with Iran and their need to preserve some links to Tehran after the conflict.

• Their concern at the emerging post-conflict situation centres around the US settling for an imprecise deal with Iran that leaves the latter to overlord the Gulf, with a commanding position on the Strait of Hormuz – the solitary maritime exit for the region. The currently ongoing GCC consultative summit in Jeddah is expected to emphasise the need for an early return to the status quo ante in the region and stress their rejection of Iranian control of the Strait of Hormuz. They could also possibly announce collective measures to bolster their air defences. 

• Most observers agree that over the medium to long run, the Iran war would upend the existing geo-strategic situation in the Gulf. The GCC states feel let down by the United  States and have strong threat perceptions from Iran, currently under the sway of hardline nationalists. Their available options may range from bolstering their defence capabilities nationally as well as collectively. To this end, they may seek stronger defence ties with other more dependable powers, such as Pakistan, India, Egypt, and Turkey. They may also decide to re-engage Iran at the bilateral level to reset their ties. These countries can also undertake mega-logistical projects aimed at bypassing the Strait of Hormuz, such as pipelines and roads across the Empty Quarter to the ports located on the Western Arabian Sea, such as the UAE (Fujairah), Oman (Salalah and Duqm) and Yemen (Mukalla). Given the vulnerability of their high-value economic installations, the GCC SWFs may now prefer big-ticket strategic investments abroad.

(b) India:

• The Iran War has strongly impacted India in multiple ways. Our energy-poor ecosystem depends on nearly half of our hydrocarbon requirements from the Gulf suppliers for fuel, petrochemicals and fertilisers. The war caused severe disruptions in these vital supplies, creating shortages and socio-economic difficulties from kitchen gas to aviation fuel. Loss of important export markets and a halt in tourism also affected us. Additionally, nearly 10 million Indian expatriates work in the GCC countries. Their welfare and inbound remittances are important. If the lower economic activity in the GCC countries leads to a reduced demand for expatriates, India would be strongly impacted, as it would need to be repatriated and provided alternative employment. While the impact assessments have varied, there is near unanimity that the war would have a considerably negative impact on the subcontinent due to worsening balance of payments due to higher oil prices, decline in national currency and higher inflation. The subsidy burden on fuel and fertilisers would increase. The growth would also be impacted by bearish sentiments in the stock market and lower exports.

• The challenges posed by the Iran war offer persuasive impetuses for Indian policy makers. Firstly, they need to reduce their reliance on imported energy, in general, and from the Gulf, in particular. The demand destruction of the imported  hydrocarbons and their replacement by biofuels, renewable energy, coal, EVs, a greater resort to mass transport, and work-from-home would need to be prioritised.

• At a geopolitical level, a reset may become necessary depending on the eventual outcome of the conflict and growing Pakistani profile in the Gulf. The options to be exercised may include re-engaging with Iran for reconstruction and discreet but effective security tie-ups with the individual GCC countries, with carefully considered cost-benefit analysis and clear standard operating procedures. 

Part 3: Implications for the Global Economy:

(a) The IMF World Economic Outlook published earlier this month warned that risks are firmly on the downside, making a “moderate-to-adverse” scenario increasingly likely. In its reference baseline scenario, it reduced its 2026 growth forecast to 3.1% (from a previous 3.3%), warning that a “severe” scenario—driven by continued shutdowns of the Strait of Hormuz—could drop growth to 2% and spike inflation to 5.8%. The IMF warned that in the worst-case scenario, the Iran war risks pushing the global economy toward recession. It pointed to the sustained shipping disruptions in the Strait of Hormuz, and energy price spikes were driving inflation, hitting energy importers and emerging markets. Energy thinktanks, such as IEA, described the crude supply disruption of up to 10 mbpd due to the Iran war as “the worst in human history.” They warned that while the loss would be manageable during Q1/26 through oil stored on high seas and drawdown from strategic reserves, the impact of the shortfall would worsen in Q2/26.  

(b) A detailed report by Goldman Sachs released on April 27 mentioned that even in the optimistic scenario of 90% oil production recovery by December 2026, a shortfall of nearly 2 billion barrels (worth over $200 bn) would lead to Brent oil prices hovering around $90/barrel – $30/barrel higher than the projection before the war. But for demand destruction due to higher prices, the likely price would have topped $100/barrel by the year-end. In the severely adverse scenario, if oil traffic through the Strait of Hormuz is restored to less than 70% of its normal value, the Brent could rise to $120/barrel, pushing the world economy towards a global recession.

(c) The report recommends that the hydrocarbon-importing economies take several steps to ameliorate the crude inflation due to a severe shortfall in supplies. In the short run, they may diversify their crude supplies from outside the Gulf and tap their strategic reserves. Over the longer run, they may try to find local alternatives, such as coal and bio-oil substitutes and adopt strategies to destroy the oil demand through higher prices, rationing, work-from-home and greater emphasis on non-hydrocarbon transportation such as EVs, mass transit, etc. Eventually, the market equilibrium would be established when higher and more normal supplies would match the lower demand. At that point, the notorious cyclicity of the hydrocarbon market would reassert itself, and the Iran war would have been a strong inflexion point in this historic process.

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[i] The annual inflation is estimated at 50%. While the official exchange rate is USD 1= 42,000 Iranian Rial, the market rate is 1.572 million.

[ii] Iran’s unemployment rate is approximately 7.2%  to 9.2% as of late 2024–early 2025, with youth unemployment over 20%. The war  has resulted in additional  2 million of  the Iranian workforce being unemployed due to factory closures, lack of foreign  trade, etc.