Cozen Currents: Iran Refuses to Follow Trump’s Playbook

“President Donald Trump’s go-to negotiating move is to ‘escalate to de-escalate’ in an effort to amass maximum leverage and it has often served him well. However, Iran’s efforts to turn a military battle into an economic war is making it challenging for the U.S. to find a path to de-escalate the current conflict.” — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies

The Cozen Lens

• President Trump has focused on foreign policy in his second term and scored a win in Venezuela, though Tehran’s leverage makes Trump’s assault on Iran significantly different.
• The idea of a second budget reconciliation bill is gaining momentum again but continues to face complications from the internal dynamics of the GOP.
• As lawmakers race to resolve the outstanding issues preventing digital asset market structure legislation from becoming law, Trump administration regulators are implementing their own market structure rules using their existing authorities.

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What Makes Iran Different

Trump’s Foreign Policy Focus. President Trump has made foreign policy engagements a centerpiece of his second term.

• President Trump, like other second-term presidents, is focusing on foreign policy.
• Trump’s capture of Venezuelan President Nicolás Maduro and Maduro’s replacement with a leader who has been more cooperative with the United States, interim President Delcy Rodríguez, delivered a low-cost foreign policy win. Likewise, his prior military action against Iran resulted in little fallout.
• The president has a tendency to see areas including geopolitics as zero-sum. The dealmaker in chief, Trump has established a pattern of exerting maximum leverage to negotiate a deal with terms he considers favorable. If it doesn’t work, he will sometimes reverse course and move on to another policy priority. This has previously played out in last year’s trade war with China and in tensions with NATO and Denmark over Trump’s desired acquisition of Greenland. With the current operation against Iran, however, the situation is more challenging.

Why Iran Is Different (This Time). In the cases of the China trade war and Greenland, the other side has also had an interest in an off-ramp — something that may not be true with Iran.

• The Wall Street Journal reported last week that the president privately wants to end the Iran conflict soon and avoid a protracted intervention. Nevertheless, a painless exit may not be possible. As former Secretary of Defense Jim Mattis is known to say, “the enemy gets a vote.” Despite suffering heavy losses, the Iranian regime appears dug in. Reuters reported earlier this month that Iran’s new supreme leader, Mojtaba Khamenei, has rejected de-escalation proposals. In a post on X last week, Iran’s foreign minister wrote that “our ancient civilization has three millennia of history of defending Iranians and the region from outsiders.”
• Iran’s strategy entails persevering and turning the military battle into an economic war of attrition. Iran is seeking to pressure the United States, in particular by increasing U.S. domestic political pressure by influencing the price at the pump, so that the costs of the conflict are unsustainable.
• Iran’s biggest point of leverage in the conflict is its control over the Strait of Hormuz. Closure of the strait has disrupted global energy markets. Tehran is likely to be unwilling to give this up and the Financial Times has reported that Iran plans to put in place a system of approving ship passages and levying fees even beyond the current war.

Where Will Trump Turn Next? An incomplete or unsatisfactory exit from Iran wouldn’t necessarily mean that Trump would also abstain from interventions elsewhere around the globe, particularly in the Americas.

• Trump’s “Donroe Doctrine” asserts US dominance in the Western Hemisphere. The White House launched a fuel blockade of Cuba earlier this year but the Iran conflict seemingly hasn’t dissuaded Trump from intervention or shaken his belief in the Venezuela model. “I do believe I’ll be … having the honor ​of taking Cuba. That’s a big honor. Taking Cuba in some form,” Trump told reporters this month. “I ​mean, whether I free it, take it. Think I can do anything I want with it. You want to know the truth.”
• In his foreign policy excursions, Trump has sought to slice through Gordian Knots that have bedeviled administrations of both parties for decades in Venezuela and Iran. If he achieves regime change in Cuba, Trump could notch another win where previous presidents haven’t succeeded.
• Colombia may be another target for Trump. The Department of Justice is investigating Colombian President Gustavo Petro, who has sparred with Trump, over alleged ties to drug trafficking. This is similar to the charges levied against Maduro that prompted his removal from power.

Another Big Beautiful Bill?

Reconciliation Redux. A combination of simultaneous events — Iran, the Department of Homeland Security (DHS) shutdown, the SAVE Act — are all increasing pressure on Republicans to pass a second budget reconciliation bill.

• The quantity and importance of legislation Republicans hope to pass is growing, fast. First, there’s the SAVE America Act, which would require documentary proof of US citizenship to register to vote (in 45 states, a driver’s license would not qualify) and photo identification when showing up to vote. President Trump says passage of the bill is his “ 1 priority,” has threatened to veto all other bills until it is passed, and says it is necessary to “guarantee the midterms.” He views it so seriously that he demanded the GOP eliminate the filibuster to do it. Senate Republican leadership remains firmly opposed to ending or modifying the filibuster, however. A natural conclusion of trying to reconcile these two opposing forces is trying to pass a bill under budget reconciliation — the special process by which budgetary changes can be made by simple majorities in Congress. While it’s doubtful that what Trump wants will be ruled eligible for inclusion under reconciliation, Republicans are weighing how they could make compatible provisions work to achieve what they can; in any case, it’s also a way for leadership to demonstrate that they tried and pin the blame on an external party (the Senate parliamentarian).
• At the same time, the administration also intends to increase military spending in a big way. Trump and Defense Secretary Pete Hegseth have signaled that they’d like the military budget to rise from the current $900 billion to $1.5 trillion dollars. Along the same lines, reporting indicates that the price of a supplemental funding package the White House will seek in association with the conflict in Iran could top $200 billion. All signs point to Democrats not going along. The party is critical of the choice to initiate conflict with Iran in the first place (to say nothing of Democrats who wanted a drastically reduced military spending as-is). Additionally, Democrats have long insisted on parity between increases in non-defense and defense discretionary spending — any increase in one must be balanced against an equal increase in the other. Greenlighting an increase in defense spending without any commensurate funding for domestic social services is anathema to many within the party.
• Then there’s the long list of other things the GOP would like to get accomplished but is finding it difficult to get done. The Senate passed an attempted resolution of the partial government shutdown that funds most but not all of DHS. The only path to funding the rest — Immigrations and Customs Enforcement, and part of Customs and Border Protection — at the level Republicans want is for them to do it themselves. Republicans in agricultural states planned on adding additional aid to farmers to any supplemental funding bill prior to Iran. There’s also everything members wanted to include in the first reconciliation bill but couldn’t: welfare and budget reform, healthcare proposals, etc. And don’t forget that the GOP frets they will lose at least one chamber of Congress come the midterms, meaning if there was ever anything they wanted to do under reconciliation, they have to do it now. Aiming to start the process, Senate Budget Committee Chair Senator Lindsey Graham (R-SC) said he would “expeditiously move” on the second bite at the apple after speaking with Trump and Senate Majority Leader John Thune (R-SD).

Reconciliation Reality. While the pressure to use budget reconciliation is rising, a lot still has to be overcome for any attempt to reach the finish line.

• The reconciliation bill last year, the One Big Beautiful Bill Act (OBBBA), passed with the absolute minimum possible support in the upper chamber. Republicans’ current margin in the House would fail to accommodate the two members of their party that voted against the OBBBA. If the GOP hopes to pass anything with a simple majority, they’re going to have to maintain near-pure unanimity. This year, small groups of Republican lawmakers have been willing to publicly vote against Trump on Venezuela, Canada tariffs, the Epstein files, and Iran. A fair number of members are retiring or are being drawn out of their seats, and have nothing to lose. The number of axes along which the GOP coalition could potentially fracture continues to grow. Both deficit hawks and Medicaid moderates found enough reason to vote against the OBBBA in July. Statements from both indicate they’re skeptical anything can be reached now.
• The requirement that everyone be on the same page would lend itself to keeping the scope of a hypothetical reconciliation bill as small as possible — but the process risks opening a Pandora’s box. The potential to add provisions to such a bill represents the ultimate prize of every lawmaker and special interest group, and everybody has something they’d like to see included — though, funnily, one of the many things that could sink the bill is what Republicans don’t want in it. Deficit hawks would like to use the opportunity to enact major welfare cuts to reduce the deficit and for it to contain as little spending as possible. Most of the low-hanging fruit to reduce spending, meanwhile, was already expended to pass the OBBBA. Making the whole party, including battleground lawmakers, take a vote on cutting beloved services months from an election is political poison. No congressional leader would like to put anything on the floor until they’re “pretty sure” they have the votes while members don’t want to pre-commit to skipping procedural steps fearing they’ll lose their leverage. It took months of work and some pretty heavy arm-twisting from Trump to pass the bill last time. The internal party dynamics suggest it’d be an even heavier lift this time around, when Congress is also facing a truncated legislative calendar so members can leave early to campaign prior to the midterms.

Cracking the Code on Crypto

Market Structure Talks Yield to Industry. Lawmakers and the White House are working to overcome fresh industry concerns around the latest attempt at compromise language on stablecoin yield payments as they work toward a broader crypto market structure bill.

• Since January, a disagreement over whether crypto firms beyond issuers (brokers, exchanges, and more) should be allowed to pay yield on customers’ stablecoin deposits has held up the larger effort to advance a comprehensive crypto regulatory framework known as market structure. While the GENIUS Act barred issuers from offering yield or rewards on such balances, it said nothing about third-parties like exchanges. This sparked concerns within the banking industry that third-party yield payments on customer stablecoin balances could lead to deposit flight from community banks. For their part, crypto firms like Coinbase, which pays yield on holdings of Circle’s USDC stablecoin, vocally oppose language that would limit those yield payments.
• While other areas of disagreement exist within the market structure talks, the yield debate is the primary reason a January markup of the bill was postponed and solving it has been the White House’s top priority in the crypto space. Administration officials convened multiple meetings between banking and crypto industry representatives throughout February with that singular focus. Now, the White House and Senate Banking Committee members believe they are on the cusp of a deal, one that would reportedly bar a wide range of crypto firms from paying yield “directly or indirectly” on idle stablecoin holdings. As crypto stakeholders sought, the language would include exemptions allowing yield payments on certain activity-based rewards (to be further defined in rulemaking). However, it also includes language that would prohibit yield payments that are “economically or functionally equivalent” to interest. Despite the positive feelings among lawmakers and administration officials, crypto industry players including Coinbase still have concerns.
• Should a yield deal come together, Senate Banking Committee leadership is signaling interest in holding a markup as soon as the end of April. That would give lawmakers only a handful of weeks to resolve other outstanding issues around ethics, token taxonomy, and money laundering protections. A successful markup, should it occur, would then require lawmakers to combine the text with the legislative text advanced by the Senate Agriculture Committee (which covers commodity policy) before putting it on the Senate floor. The House will also need to pass the bill despite advancing its own market structure legislation last year.

Market Structure Without the Law. Regardless of what happens in Congress, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are moving forward with their own plan to implement market structure policies by regulation.

• While both lawmakers and the crypto industry would prefer to codify a permanent market structure framework into law, the SEC and CFTC can largely implement the framework under their existing authorities. Both SEC Chair Paul Atkins and CFTC Chair Mike Selig indicated they’d do as much in an interview with the Wall Street Journal in January, a promise the agencies are moving to fulfill as soon as this spring.
• Earlier this month, the SEC and CFTC jointly released an official crypto token taxonomy, providing guidance on which digital assets fall under each agency’s regulatory regime. In a major break from the Biden administration, the new guidance establishes five categories of digital assets, all but one of which — tokenized securities — are deemed to be “non-securities,” largely placing them outside of the SEC’s regulatory regime. While the new guidance doesn’t carry the weight of law, it does provide the crypto industry with a first of its kind roadmap for how both agencies plan to interpret existing law for the remainder of this administration.
• With the token taxonomy public, Atkins is already eyeing his next steps to implement a market structure framework, beginning with the release of the SEC’s “crypto assets” rule in the coming weeks (pending White House approval). As Atkins detailed in his remarks before the DC Blockchain Summit, the rule is expected to include a long awaited innovation exemption for the offering of certain digital assets tied to investment contracts and fundraising. Looking further into the spring, Atkins has previewed a quick succession of additional rules relating to custody and transfer agents among other things.

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