Can You Win a War and Lose the Global Economy?
Notes on the Middle East, No. 5
The war with Iran is thirteen days old and the United States has, by most measurable criteria, achieved a remarkable set of military objectives. It has killed the Supreme Leader. It has struck roughly 6,000 targets across Iran. It has destroyed or damaged over 90 Iranian naval vessels. It has degraded nuclear facilities, missile production sites, command centers. The opening week of the campaign cost the US military $11.3 billion, which is a staggering number and also, by the standards of what Washington has spent on Middle Eastern wars, efficient.
And yet the question I keep hearing in the rooms I work in is not about any of that. The question is about oil.
Brent crude is above $100 a barrel for the first time since 2022. The Strait of Hormuz, through which roughly one-fifth of the world’s oil supply normally transits, is effectively closed. Over 150 ships are anchored outside it, waiting. The IRGC has warned that any vessel attempting to pass will be “set ablaze”. Five tankers have been damaged, two crew members killed. Maersk and Hapag-Lloyd have suspended Middle Eastern routes. Protection and indemnity insurance has been pulled. Traffic through the strait has dropped to effectively zero.
The International Energy Agency has authorized a record release of 400 million barrels from global strategic reserves, the largest coordinated intervention in the agency’s history. The US is contributing 172 million barrels from its own Strategic Petroleum Reserve. In a move that would have been unimaginable a month ago, the Treasury has temporarily lifted sanctions on Russian oil already at sea to increase global supply. Goldman Sachs has raised its probability of a US recession this year to 25 percent. Oxford Economics warns that if oil averages $140 for two months, the eurozone, the UK, and Japan would all enter contraction.
This is the piece where my professional world and the newsletter’s analytical project converge most directly, because the gap I keep writing about (between how power appears and how it actually operates) is playing out in real time in a form that the people I work with understand natively: the gap between a military victory and an economic catastrophe.
Here is the thing about the Strait of Hormuz that I think is underappreciated even among people who work in energy and commodities, and that I certainly didn’t fully understand until I started looking at this closely.
The strait is 21 miles wide at its narrowest point. It is surrounded on three sides by Iranian territory. Roughly 20 percent of the world’s daily oil consumption passes through it, along with about 20 percent of global LNG trade, a significant share of the world’s fertilizer shipments, and a constant flow of petrochemical inputs, plastics, aluminum, and other raw materials that feed manufacturing supply chains across Asia and Europe. It is the single most consequential bottleneck in global commerce, and it has been treated for decades as a given: always open, always flowing, always someone else’s problem to secure.
Iran has threatened to close it before, many times, and the consensus view among analysts and military planners was that closure would be self-defeating. Iran needs the strait too; its own oil exports (primarily to China) transit the same waterway. As one strategist told CNBC, “They need oil, otherwise they have no money.” That logic held as long as Iran was making rational calculations about its own economic survival.
What changed is that Iran is now fighting what it perceives as a war for the survival of the regime itself, and the economic self-interest calculation that was supposed to prevent closure has been subordinated to a more urgent strategic logic: impose costs so severe that Washington and its allies are forced to the table. The IRGC’s statement was explicit: “You will not be able to artificially lower the price of oil. Expect oil at $200 per barrel. The price of oil depends on regional security, and you are the main source of insecurity in the region.”
This is, I think, the most important sentence anyone in Tehran has uttered since the war began, because it reveals a strategic theory: Iran cannot win the military war, but it can win the economic war by making the cost of continued fighting intolerable for the global economy. The strait is the lever that makes this possible.
The economic consequences are already cascading in ways that extend well beyond the price of crude.
Oil is the headline, but liquefied natural gas may be the larger long-term disruption. Qatar, the world’s largest LNG exporter, halted output last week after an Iranian drone struck nearby, and Rapidan Energy Group’s analysis is sobering: LNG exports from the region won’t restart until there is complete certainty that transit is safe, and restarting a full LNG production facility takes weeks, not days. The entire Qatar operation has never been taken fully offline before. A senior Rapidan analyst told CNBC that the market has yet to appreciate the duration of Qatar’s shutdown or its effects on global gas supply.
Fertilizer is another pressure point that has received too little attention. Roughly one-third of global fertilizer trade transits the Strait, including large volumes of nitrogen exports. Urea prices have already spiked from $475 to $680 per metric ton. This is happening during the spring planting window for corn and soybeans in the American Midwest, which means the disruption could transmit directly into food prices over the coming months.
Amazon Web Services confirmed this week that data centers in Bahrain and the UAE were physically struck by Iranian drones and remain offline. The Gulf states, which have spent a decade positioning themselves as global hubs for cloud computing, logistics, and financial services, are watching that positioning erode in real time as their physical infrastructure comes under attack.
The alternative routes that are supposed to mitigate a Hormuz closure exist, and they are inadequate. Saudi Arabia is diverting some oil to its Red Sea port of Yanbu via the East-West pipeline, and the UAE is routing through Fujairah on the Arabian Sea. But these pipelines cannot match the volume that normally flows through the strait, leaving a deficit of roughly 12 million barrels per day. The Red Sea route, which might ordinarily absorb some of the overflow, is itself vulnerable to Houthi attacks, creating a second chokepoint problem layered on top of the first.
Supply chain analysts are warning that the secondary effects (container rerouting, port congestion, chassis shortages, demurrage charges) will begin hitting within two to five weeks as diverted cargo arrives in clusters at ports that aren’t built to absorb it. One logistics executive told CNBC, with what I suspect was understatement, that “the market is underestimating the circumstances here.”
What I find most striking about this situation, and the reason I think it connects to the larger argument of this series, is the gap between the war’s stated objectives and its actual economic logic.
The stated objective is dismantling Iran’s nuclear program and, in some formulations, inducing regime change. Those are military and political goals. The instrument being used to pursue them is a campaign of airstrikes and naval operations that has, as a secondary effect, triggered the closure of the world’s most important energy chokepoint, a global strategic petroleum reserve release larger than any in history, a temporary lifting of sanctions on Russian oil (undermining a separate and significant American policy objective), a spike in fertilizer prices during planting season, the physical destruction of cloud computing infrastructure in allied Gulf states, and the displacement of 3.2 million Iranians.
The people in the rooms I work in see this very clearly, because they are the ones pricing the risk. Sovereign wealth funds whose portfolios are built around the assumption of stable energy transit. Institutional investors whose models assume supply chain continuity. Infrastructure developers who have spent billions positioning the Gulf as the logistics hub between East and West. All of them are now watching the foundational assumption of their strategies (that the strait stays open, that the Gulf stays functional, that the energy market operates within predictable parameters) come under direct threat from a military campaign being waged by their own security guarantor.
That is the paradox at the center of this moment: the United States is simultaneously the Gulf’s protector and the author of the crisis that is undermining the Gulf’s economic model. I don’t think that paradox has been articulated clearly enough, and I think it will define the region’s strategic realignment for years after the shooting stops.
Iran’s foreign policy adviser Kamal Kharazi told CNN this week that he sees no room for diplomacy. Iran’s parliament speaker has said the country is not seeking a ceasefire. President Pezeshkian has outlined conditions for ending the war (recognition of Iran’s “legitimate rights,” reparations, and guarantees against future attacks) that Washington will almost certainly not accept. The IRGC has said it, not the US, will determine when the war ends.
At the same time, Aramco’s CEO has warned of “catastrophic consequences” for global oil markets. Trump has threatened to hit Iran “twenty times harder” if it continues to disrupt the strait, while simultaneously saying he might “take over” the waterway, a statement that a UK maritime lawyer described as potentially amounting to an incursion on Iranian and Omani sovereignty under international law. The US Energy Secretary has said Washington is “not ready” to provide naval escorts for commercial shipping but that such operations could begin by the end of the month.
None of this resolves the underlying problem, which is that the war’s military logic and its economic logic are pulling in opposite directions. The military logic says: keep striking until Iran’s capacity to threaten is eliminated. The economic logic says: every day the strait stays closed, the cost to the global economy compounds in ways that may eventually exceed whatever the strikes achieve. Those two logics will, at some point, collide. When they do, the question of who blinks will be determined less by military capability than by economic tolerance, and economic tolerance is not equally distributed. Europe and East Asia are far more exposed to a prolonged Hormuz closure than the United States, which means the pressure to de-escalate will come from allies before it comes from Washington.
I’ve been writing this series about the gap between how power appears and how it actually operates. In the first four pieces, that gap lived inside Iran: in its leadership structure, its proxy network, its supply chains, its balance sheet. In this piece, the gap has migrated. It now lives in the space between the war’s official narrative (a campaign to dismantle a nuclear threat) and the war’s lived reality for the global economy (a disruption of the physical infrastructure that makes modern commerce possible).
The people making decisions about this region, whether they sit in Washington or Riyadh or Abu Dhabi or London or Beijing, are all looking at the same bottleneck and making different calculations about how long they can afford to watch it stay closed. That calculation, more than any battlefield outcome, is what will determine how this war ends and what the region looks like after it does.
Notes on the Middle East is written by Karlo Dizon. He works in global capital and geopolitical strategy. These are his personal views.