Korea Investment & Securities Co. said on the 24th that while the United States and Iran are engaging in a game of chicken with mutual hard-line responses, the incentives for limited cooperation will strengthen over time.
Moon Da-un, a researcher at Korea Investment & Securities Co., said, "Based on game theory, thinking about the current conflict, both the United States and Iran are in a prisoner's dilemma in which they continue mutual hard-line responses," and added, "For now, given the short-term payoff structure, both countries have no choice but to opt for a hard-line response."
Moon said, "As time passes, the incentives for mutual restraint and cooperation will grow." The reason is that, under the payoff structure, the losses from a hard-line response become much greater.
In particular, for U.S. President Donald Trump, the length of the war could be a key trigger. First, if the war does not, in some form, wrap up within 4 to 5 weeks as he pledged, his standing will be damaged at home and abroad.
Also, if that period is exceeded, there is a high likelihood that, along with structural disruptions in energy supply and demand, economic damage will spread worldwide. Moon said, "All of this will lead to an outcome in the midterm elections in November that Trump does not want."
Earlier, Trump said he would strike energy facilities if the blockade of the Strait of Hormuz was not lifted by 8 a.m. (Korea time) that day. Iran refused and vowed a tit-for-tat response.
Moon said that amid these circumstances, the surge in oil prices has increased energy's contribution since March, and that with inflation rebounding, the Federal Reserve (Fed) is expected to hold its benchmark interest rate to rein in expectations.
Moon added, "Judging from past geopolitical cases, even if hard-line responses like now are repeated several times in the early stages of a conflict, we hope that at decisive moments the line that must never be crossed will not be crossed."