U.S.-Iran Relations in the Second Trump Administration

As a new Trump administration returns to the White House, it confronts a considerably weakened foe in the Islamic Republic of Iran—largely due to transformative developments in the Middle East since Hamas’s October 7, 2023, attack on Israel. Israel’s offensive strategy in response to the attack set in motion a series of conflagrations that culminated in the near-total neutralization of Iran’s allies, proxies, and military presence in the eastern Mediterranean. The targeted killing of leaders and top commanders of Hezbollah, Hamas, and the Islamic Revolutionary Guard Corps (IRGC); the escalation of direct air and missile strikes between Iran and Israel; and, most significantly, the fall of Bashar al-Assad’s regime in Syria have significantly reshaped the geopolitical landscape in the Middle East. These upheavals, coupled with Iran’s dire economic situation, create opportunities for recalibrating U.S. foreign policy. But they also pose new challenges in the dearth of transactional options they might offer the new administration. 

A weakened Iran presents several strategic advantages for the United States, particularly in advancing its policy objectives in the Middle East. 

Economic Leverage

Iran’s economy has been severely strained by U.S.-imposed sanctions, which have reduced its oil exports, curtailed foreign investments, and isolated it from the global financial system. The resulting economic pressure has led to widespread domestic unrest, with protests against corruption, inflation, and government mismanagement leading to ever more ruthless government crackdowns. The incoming senior officials in the Trump administration are well aware of Iran’s collapsing economic conditions, and incoming President Donald Trump himself has signaled on numerous occasions that he plans to leverage American advantage here to impose “a better deal” on Tehran. However, increasing economic pressure on Iran—through sanctions and trade embargoes—have not always yielded the desired results, as evidenced by the Iranian regime’s sophisticated methods of evading sanctions and using other means, such as subterfuge and hostage-taking, to secure access to frozen funds and assets.  

While offering economic incentives to Tehran in return for regional security guarantees may yield results in the short term, the United States and other Western countries must develop longer-term solutions that aim at Iran’s economic and security partnerships with China (the biggest importer of Iranian oil and gas since the U.S. withdrawal from the Joint Comprehensive Plan of Action). Iran-China energy cooperation could be disrupted through a combination of economic, diplomatic, and strategic measures. Intensifying sanctions on Iran’s oil exports and penalizing Chinese companies involved in purchasing Iranian oil would raise the cost of such transactions, deterring further collaboration. The United States could also target shipping and financial networks that facilitate energy trading by using tools like secondary sanctions and maritime interdictions to curtail the flow of Iranian oil to China. Additionally, fostering regional energy initiatives with Persian Gulf states could further isolate Iran in the global energy market. To counterbalance, the United States might enhance intelligence and cyber capabilities to disrupt Iran’s clandestine oil sales and undermine logistical support systems critical to its energy exports.  

Regional Realignments

The collapse of Iran’s proxies in the region, especially the fall of the Assad regime in Syria and the decapitation of Hezbollah’s leadership in Lebanon, creates space for the United States to strengthen alliances in the Middle East. A top priority must be the stabilization and security of a new Syrian government in closer strategic partnership with U.S. and Israeli interests. American diplomacy could play a vital role in facilitating economic ties and closer security cooperation among the new Syrian government, Saudi Arabia, and other wealthy Persian Gulf monarchies such as Qatar, the United Arab Emirates, and Kuwait. An independent and economically integrated Syria would contribute toward the stabilization of the broader Arab-Israeli disputes by neutralizing Iran’s influence in the Sunni Arab world. A diminished Iranian threat could encourage more countries to join a revived Abraham Accords (II), fostering greater cooperation on issues like counterterrorism, intelligence-sharing, and economic development. 

Additionally, the United States can work with Gulf Cooperation Council states to bolster their defense capabilities, reducing their reliance on U.S. military intervention while ensuring a united stance against Iranian aggression. 

A New Nuclear Deal?

A weakened Iran, grappling with mounting setbacks, may be more willing to compromise on a new nuclear deal with the incoming Trump administration, especially after the direct military clashes with Israel last fall. These unprecedented air and missile exchanges exposed critical weaknesses in Iran’s defensive capabilities, as Israeli forces successfully targeted key military sites, nuclear facilities, and IRGC infrastructure. The strikes highlighted Tehran’s vulnerability and underscored its inability to deter or retaliate effectively against such precision operations.  

Combined with the economic toll of U.S. sanctions and the loss of regional allies and proxies, these developments have left Iran in a precarious position. To avoid further military escalation and economic decline, Tehran has already signaled a willingness to negotiate a new settlement, offering concessions such as stricter nuclear oversight. Shrewd American diplomacy could leverage Iran’s vulnerable security position to extract new limits on uranium enrichment and curtail missile development in exchange for phased sanctions relief. For the Trump administration, this presents an opportunity to secure a more comprehensive deal that addresses both nuclear and regional security concerns while leveraging Iran’s newfound vulnerabilities. 

A weakened Iran offers significant opportunities for the Trump administration to advance U.S. policy goals in the Middle East, from securing a more comprehensive agreement to fostering stronger regional alliances. However, the challenges posed by Iran’s nuclear ambitions, contingent events, and geopolitical alignments require careful navigation. The second Trump administration must be prepared to rethink the central pillars of the “maximum pressure” policy that, while they curtailed Iran’s offensive postures in the short term, nonetheless enjoined Iran in an “axis of resistance” alongside China and Russia against U.S. interests. By balancing pressure with diplomacy and fostering cooperation among allies, the administration can capitalize on this critical moment to shape a more stable and secure regional order. 

Huss Banai is a Visiting Fellow at Perry World House, and Associate Professor of International Studies at the Hamilton Lugar School of Global and International Studies at the University of Indiana.