Midterm defeat may push Washington towards diplomacy with Iran, says Japanese institute

In issue 818 of his newsletter, dated 5 November, IEEJ senior adviser Ken Koyama reads the 3 November midterms through the lens of the oil market. At the time of writing the Democrats led 240 to 147 in the House of Representatives with 48 seats undecided, and had secured a 54 to 44 majority in the Senate. Koyama cites three reasons for the defeat: petrol and diesel prices driven up by the Iran war, the cost of living, and voters' sense that policy had drifted from the "America First" line. The president's approval rating had fallen to 31% on the eve of the vote.

As a divided Congress ties the president's hands at home, Koyama argues, the search for a lasting legacy over the remaining two years will shift to foreign policy, where presidential authority is relatively strong. Iran heads his list. Operations launched with Israel at the end of February triggered the Hormuz crisis, and the ceasefire and strait-reopening understanding signed in June has effectively collapsed. The situation is neither full war nor genuine peace.

Koyama sets out three scenarios: renewed negotiations and normalisation, continuation of the unstable status quo, or a return to major conflict. In a new wave of military pressure, he writes, Iran and its allies could strike energy infrastructure in the Gulf, sending oil prices sharply higher. Even so, he argues that eight months of experience show pressure has not forced Tehran to back down. Because high energy prices played a part in the electoral defeat, the diplomatic scenario may come to the fore. Under normalisation he expects crude to fall to around 70 dollars a barrel, and he urges Japan to strengthen its preparedness for sudden shifts.