The collapse of US-Iran talks at Islamabad on April 11-12 was not totally unexpected, given the maximalist position taken by the opposing sides.However, the very fact that the two sides agreed to sit on the negotiation table after 47 years in itself was seen as a major diplomatic breakthrough. In diplomacy, dialogue is seen as a process, wherein the opening rounds generally seek to create a frame work, lower tension and stabilise the trajectory of the negotiations, rather than the quantified outcomes.Given the high-level composition of delegations — the US led by Vice Present JD Vance and Iran by the Assembly speaker Mohammad Bagher Ghalibaf along with Foreign Minister Abbas Araghchi — it was apparent that both sides were serious about negotiations.The talks got deadlocked due to a wide divergence in the stance adopted by the two sides. Iran was pushing for a comprehensive package, i.e. ceasefire in Lebanon, sanctions relief, unfreezing of the assets (around $ 120 billion), sovereignty over Strait of Hormuz and recognition of Tehran’s regional role, beside the security guarantees.The US on the other hand sought a narrower frame work — roll back of nuclear programme, take control of the enriched Uranium (around 440 kg) and opening of Hormuz, adopting accretive approach with respect to sanctions and frozen assets.The deep trust deficit proved to be an unsurmountable impediment. Iran’s past experience, particularly with regards to the ‘Joint Comprehensive Plan of Action’ (JCPOA) agreement — its abrogation, followed by the mutual accusations — continue to overshadow every engagement initiative with America.There are of course domestic constraints as well. In Tehran, yielding under pressure risks undermining the Regime’s legitimacy. Moreover, the Iranian leadership has repeatedly declared its refusal to negotiate under threat. In Washington, any perceived concession would certainly invite political backlash. Israel maintaining a hard line stance against any deal that does not seek curtailment of Iran’s nuclear potential also acts as strategic pressure on the US.Story continues below this adAfter the talks fell apart, both sides have come out with statements to project their respective positions and put the ball in the opponent’s court.On Sunday, April 12, Vance announced that after marathon 21 hours talks, his negotiation team was leaving Pakistan without reaching the deal. “America had put forward its ‘best and final’ proposal; We need to see an affirmative commitment that they (Iran) will not seek a nuclear weapon,” said Vance.As per the Iranian State media, the talks failed over ‘unreasonable’ demands by the American side. Ghalibaf said, “It is time for the US to decide whether it gain our trust or not.”Outside the White House, US President Donald Trump told the reporters that, “Whether we make a deal or not with Iran, it made no difference”. “Regardless of what happens, we win,” he further added.Story continues below this adA few hours later, Trump threatened to blockade the Strait of Hormuz.Immediate impactWith the collapse of the negotiations, the ceasefire would come under stress. Both sides will try to exert pressure by aggressive posturing through deterrence, which could lead to graduated escalation. It may not return to the full- scale war, which both sides would like to avoid, but could shift towards grey zone confrontations.With no diplomatic breakthrough, the energy markets are faced with new volatility, given the uncertainty over Strait of Hormuz. Even limited threat of disruption will lead to spike in the oil prices and consequent inflationary pressures.What will Iran and the US do next?While it is difficult to predict, most probably the conflict is likely to witness controlled escalation. With Hormuz having emerged as the centre of gravity-decisive leverage with Iran, US focus of operations will now be towards this critical water way. Any military action in the Strait by the US is likely to be contested by Iran, which will definitely heighten the tension in the area.Story continues below this adAlongside military escalation, there could be negotiation reset; resumption of talks, with some flexibility in the current stated positions. The US may agree to limited lifting of sanctions and also unfreeze some assets and ensure ceasefire on the Lebanon front. Iran may reciprocate favourably on Hormuz and the nuclear issue, making measured concessions.The chances of conflict now spiralling into full war is unlikely, lest there is a major miscalculation.China and Russia will continue to influence the future course of action, albeit in restrained manner — superpower rivalry bounded by shared caution. Control of choke points is the new geopolitical reality. India has high stakes in the stability of the region, given its political and maritime interests. It is reaching out all the countries in the Gulf and around to remain in sync with rapidly evolving geo political dynamics.Diplomacy remains the best optionThe talks at Islamabad collapsed due to incompatibility of the expectations and not owing to the absence of dialogue. Both sides seek off ramp, without making major concessions. The window of diplomacy is still open- while the strategic gap between the two still is too wide and political cost of bridging remains very high. The world is watching anxiously as to how this paradox will be resolved, and how long the global economic uncertainty lasts.