The second round of talks between the United States and Iran shows how credible threats have become central to international bargaining. The immediate issues are sanctions, military pressure, the Strait of Hormuz, Iran’s nuclear programme and the risk of regional escalation.
The United States is signalling that refusal will carry higher military and economic costs. Iran is signalling that pressure will not remain one-sided. It can raise the cost of confrontation through regional instability, energy prices and its ability to affect the security calculations of US allies.
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Credible threats and deterrence
A threat becomes credible when three conditions are met. The state must have the capacity to impose costs. The adversary must believe that it has the resolve to act. The cost of ignoring the threat must appear greater than the benefit of escalation.
Credibility is not built on military power alone. It also depends on capability, resolve, communication and perception. Modern deterrence has widened. A state may deter through the threat of energy disruption, financial pressure, regional instability, attacks on infrastructure, technology denial or shifts in strategic alignments. Deterrence is, therefore, not only a balance of arms. It is a balance of expected costs.
Nash equilibrium in international politics
States do not act in isolation. They act after assessing how other states may respond. War, sanctions, alliances, deterrence and negotiations are shaped by capability as well as expectations.
This behaviour can be understood through Nash equilibrium. Each player chooses a strategy based on what the other player is expected to do. Once an equilibrium is reached, unilateral restraint may become costly.
This explains many tense but stable rivalries: Russia and the United States, China and the United States, India and Pakistan, and India and China. Both sides may prefer peace. Yet both continue arming, threatening or balancing because one-sided restraint can weaken their relative position.
In a non-cooperative international order, binding commitments are weak and information asymmetry is high. Credible threats then become strategic signals. Sanctions, military deployments and diplomatic messages form part of the same process. Each is designed to influence how the adversary calculates the cost of escalation.
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Yet credible threats are rarely heard by one audience alone. A warning issued to Iran is also read by Israel, Gulf states, oil markets, proxy groups, China, Russia and domestic constituencies in Washington and Tehran. This widens the risk. A signal designed to deter one actor may reassure another, alarm a third and narrow the space for compromise. It can also create a commitment problem: once a threat is made publicly, retreat may look like weakness, while action may deepen the crisis. Credibility can therefore become a trap. The same signal that strengthens bargaining power can make settlement harder.
Economic statecraft and modern conflict
Recent wars in Eastern Europe and West Asia show that states no longer rely only on law, institutions, negotiations or moral claims. They also depend on their capacity to impose costs.
The Russia-Ukraine war has extended far beyond the battlefield. It has involved sanctions, energy supplies, export controls, payment systems, food security, military assistance, technology restrictions and diplomatic coalitions. The ability to act across these domains has become part of state power. Economic statecraft is now inseparable from security strategy.
The same logic is visible in the Middle East. The Strait of Hormuz, Iran’s nuclear programme, ballistic missiles, sanctions, regional alliances and military threats now form a single bargaining environment.
Among these, the Strait of Hormuz remains especially important because any disruption can affect global energy prices. Sanctions, infrastructure vulnerability, missile capability, proxy networks and currency arrangements used for energy trade are different instruments. Their purpose is the same: to make the adversary reconsider whether escalation is worth the cost.
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Credible threats and miscalculation
There are limits to this method. States rarely know the true capability, resolve or domestic constraints of their adversaries. They may misread signals, underestimate costs or overestimate their ability to control escalation.
Deterrence can fail even when both sides appear rational. A defensive move may be read as preparation for attack. A threat dismissed as a bluff may expose a country to danger. Restraint depends not only on capability and resolve, but also on communication and interpretation.
Credible threats can prevent direct war. They can also produce restraint. But they cannot create trust or peace by themselves. For that, they must be linked to political settlement, institutional restraint and serious negotiation.
Ayanendu Sanyal holds a PhD in Economics and is an expert at EGROW Foundation. Sukanya Das is Associate Professor of Sociology at Amity University.