As Iran War Spirals, Trump Can’t Fool Markets Forever
The president has tried to contain economic turmoil by creating a false impression of diplomatic progress.
One of the most bizarre contradictions of Trump’s war on Iran has been the wide gap between the scale of the war’s disruption to energy infrastructure and shipping and the surprisingly muted response from financial markets. Iran has made clear that its strategy is to impose severe economic pain on the United States, Israel, and the wider global system by keeping the Strait of Hormuz shut. If that threat were being fully priced in, argues the author Matt Stoller on Substack this week, oil prices would likely be far higher and equities far lower.
Instead, despite the possibility of a historic supply shock, markets have remained comparatively calm, with the price of Brent crude oscillating rather than surging steadily. Stoller offers a convincing explanation for recent market behavior, arguing that it is the consequence of the Trump administration’s broader war strategy to manipulate the markets through coordinated propaganda.
Events this week, in which the White House released fake news reports of ceasefire talks to end the war, provide ample evidence for Stoller’s thesis. After Iran threatened costly retaliation, President Donald Trump on Monday softened his threats against Tehran and suggested a peace deal was in the works, pushing back a self-imposed deadline to “obliterate” Iran’s power plants by five days. On Thursday afternoon he extended another 10 days.
That Monday announcement triggered an immediate market response with oil prices falling sharply and U.S. stocks recovering some of the war’s losses as traders interpreted the delay as a possible sign that the conflict may end soon. Wall Street’s instant reaction was no doubt facilitated by corporate media, which suggested that a deal was in the works, with outlets like Bloomberg running headlines on Monday morning that said “Ceasefire Talks Get Underway,” while investment blogs signaled to investors: “Oil Prices Drop Over 5% Amid U.S.-Iran Negotiations.”
In the days that followed, Trump and a parade of anonymously sourced corporate media reports further suggested that some kind of ceasefire or backchannel diplomacy with Iran was underway. CNN, citing unnamed “regional sources,” even claimed Tehran had requested talks with Vice President J.D. Vance, preferring him over Steve Witkoff and Jared Kushner, who are reportedly seen as representatives of the Israeli government rather than the American one.
Yet despite the flood of reports treating seriously Trump’s claims of ceasefire talks, it had been perfectly clear since at least Monday morning that the Iranians never had any intention of negotiating for a ceasefire at this point, a position they have repeated throughout the course of the week through Iranian media statements which have been suppressed by American outlets.
Shortly after Trump’s post on Truth Social Monday morning, Iran’s Mehr News, citing a statement from the Iranian Foreign Ministry, denied Trump's claim that any talks had occurred. A few hours later, Iran’s Speaker of Parliament Mohammad Ghalibaf confirmed Iran’s position on X, saying that “no negotiations have been held with the US.” He added that claims otherwise constitute “fake news” being “used to manipulate the financial and oil markets and escape the quagmire in which the US and Israel are trapped.”
On Wednesday morning, a spokesman for Khatam al-Anbiya Central Headquarters addressed Trump with the message: “Do not call your defeat an ‘agreement.’” Dismissing recent Israeli media reports that Iran and the U.S. are engaged in ceasefire contacts, the spokesman mocked Washington, asking whether its internal divisions had reached the point where it was now “negotiating with itself.” Later, Iran’s Fars News Agency, citing an informed source, said that Tehran rejected a U.S. ceasefire proposal and viewed any negotiations with Washington as “illogical” while the war continues.
Finally, in response to a 15-point proposal transmitted to Iran by the Trump administration (and seen as something like an Israeli wish list) Iran sent back conditions of their own to resolve the conflict. Those terms included ending attacks and assassinations, guarantees the war won’t restart, full compensation for damages, and a region-wide end to attacks, including those launched by the Israelis.
Indeed, a senior Iranian official told Drop Site News that Tehran’s conditions for ending the war would include reparations as well as a simultaneous ceasefire in Iran, Lebanon, and Iraq, while ruling out any negotiations over Iran’s ballistic missile program. Most importantly, the official indicated to Drop Site that Iran would not accept a ceasefire given their experience with the last one they accepted to end the 12 Day War in June, which was “exploited to buy time for another U.S.-Israeli war.”
Validating Iranian concerns, an Israeli official told Sky News this week to take Trump’s talk of a ceasefire “with a grain of salt.”
It is unclear what Trump will do this weekend. But what is abundantly obvious is that Trump is now trying to manage a war he cannot control.
On the one hand, Trump is constrained by oil markets and treasury yields, which threaten to raise borrowing costs and increase the odds of a broader market selloff. Trump cannot afford a real oil shock or stock market collapse mainly because his donor class is tied to Wall Street, his own approval rating is already declining and vulnerable on gas prices, and the broader U.S.-led order depends on continued confidence in American stocks and dollar-denominated assets.
Yet at the same time, Trump is being pushed in the opposite direction by Israel and its army of loyalists in the U.S., who forecast that their regime change efforts will take up to a year to fulfill and who benefit from a well-greased delivery system to feed the president premium-grade pro-war propaganda meant to convince him to escalate.
On reliably pro-Israel Fox News, which the president is believed to watch daily, hawks like Keith Kellogg, Trump’s former Russia–Ukraine envoy, are encouraging Trump to “put boots on the ground…the way the Romans used to do it” and “take Kharg Island,” an Iranian territory not far from the mainland. Meanwhile U.S. military officials are compiling video highlight reels of the day’s biggest U.S. strikes on Iranian targets and reportedly filtering out bad news about the conflict, with one official telling NBC news that Trump’s briefings tend to draw better feedback from his aides when they focus on U.S. victories rather than the full battlefield picture. Those reports follow the pattern observed by Joe Kent, who resigned last week from his position as director of the National Counterterrorism Center over the Iran war. Kent recently said that “key decision-makers were not allowed to come express their opinion to the president” and that “there wasn't a robust debate” around the decision to go to war in the first place.
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Caught between competing pressures, Trump appears to have chosen escalation broadly in line with Israel’s objectives—with the Pentagon requesting $200 billion to continue the war—while pursuing those objectives at a tempo designed to reassure the investor class and avoid triggering market panic.
While Trump has been able to play that balancing act for a few weeks, it is unclear how much longer he will be able to do so. Eventually Trump will be required to present either a credible off-ramp or a decisive battlefield outcome, the latter of which seems unlikely given Iran’s continued ability to match U.S.–Israeli escalations.
Iran has indicated that any serious path to de-escalation would require Trump to restrain Israel not just in Iran, but in Lebanon as well, where Israel has invaded and occupied the southern region. But if recent history is any guide, that is precisely the step that President Trump is least willing to take.
