The United States appears to be actively trying to manage the scope of the conflict between Israel and Iran, signaling a clear divergence in strategic goals.
Recent reports indicate that U.S. Vice President J.D. Vance privately cautioned Israeli Prime Minister Benjamin Netanyahu against being overly optimistic about a swift victory or regime collapse in Iran. This message from Washington seems intended to put a ceiling on the conflict, preventing it from spiraling into a prolonged, open-ended war that the U.S. wishes to avoid. The context for this diplomatic pressure is crucial to understanding the current situation.
First, the conflict recently escalated into the economic sphere with direct consequences for global markets. In mid-March, Israel struck Iran's South Pars gas complex, the world's largest natural gas field. Iran swiftly retaliated by attacking energy facilities in the Gulf, including Qatar's Ras Laffan complex, causing significant damage. This tit-for-tat exchange on critical energy infrastructure immediately sent shockwaves through the markets. Crude oil ETFs like USO and BNO surged over 38% in early March, demonstrating just how sensitive global supply chains are to this conflict. For the U.S., these events were a stark reminder that an unchecked war could trigger a global energy crisis, a scenario it is keen to prevent.
Second, there's a fundamental difference in how Washington and Jerusalem define victory. Israeli leadership has publicly framed its military actions as a catalyst for regime change in Iran. The U.S., however, has consistently maintained a much narrower objective. Since 2025, Vice President Vance has stated that the U.S. is targeting Iran's nuclear program, not seeking a multi-year war to topple its government. This policy gap has become more pronounced as the conflict has intensified, compelling the U.S. to send a clear, corrective message to its ally.
Finally, the financial markets seem to have understood this dynamic. After the initial price shock, oil proxies pulled back as signals emerged that Washington would work to limit further strikes on energy sites. This suggests that investors are pricing in a 'bounded conflict'—one that is serious and violent, but ultimately contained by U.S. diplomatic pressure. The performance of defense stocks, which have fallen, further supports the view that the market does not anticipate a massive, long-term rearmament cycle.
- Glossary
- Crude ETFs (USO, BNO): Exchange-Traded Funds that track the price of crude oil, allowing investors to trade oil futures like stocks.
- Bounded Conflict: A military conflict that is intentionally limited in its scope, duration, or geography to prevent it from escalating into a total war.
- Force Majeure: A clause in contracts that frees parties from liability when an extraordinary event or circumstance beyond their control prevents them from fulfilling their obligations.