What the Iran war teaches America’s adversaries

Unlock the White House Watch newsletter for free

Your guide to what Trump’s second term means for Washington, business and the world

The writer is an FT contributing editor, a visiting scholar at the Hoover Institution, and author of a forthcoming book on globalisation

The first Gulf war in 1991 marked the start of the unipolar era. China and the Soviet Union were stunned by the sophisticated US military campaign and the world brushed off an oil shock to embrace globalisation. The second Gulf war that began in Iraq in 2003 symbolised over-reach. It is tempting to say the third Gulf war marks a moment of disintegration. Yet the dawning new era is not that simple to define. The war shows some of America’s failures but also how asymmetrically powerful it is and how anarchic the planet will be without its sustained commitment to order. Even for adversaries, that is sobering. 

The shortcomings are plain to see. A war with unclear objectives lacks bipartisan Congressional support and is unpopular with voters. It has ruptured relations with Nato. If it is sustained, surging oil prices will boost Russia’s revenue by over $80bn annually, more than the Kremlin’s entire 2025 budget deficit. US military resources have been drawn away from Asia, supposedly the priority. Munitions inventories that would be essential in a war with China have been run down, with at least a fifth of Tomahawk missiles and a third of Thaad interceptors used up. Cheap drones blowing up data centres in the UAE and gas plants in Qatar are staggeringly expensive to stop. The war has cost America $9bn a week.

Simultaneously, America’s strengths have been on awesome display. In three weeks it has destroyed most of Iran’s air force, navy and military industrial complex, after earlier striking its nuclear facilities. Many of Iran’s leaders have been killed. AI targeting has helped direct 9,000 strikes. While air power cannot change a regime, its ferocity and precision appear greater than ever. A disregard for the UN, and most allies, makes decision-making faster. 

America also enjoys its own kind of asymmetry. Even as its actions destabilise the world economy, they have relatively less impact at home. Unlike in 1991 and 2003, the US is now a net energy exporter whose GDP is comparatively insensitive to the oil shock. A glut means natural gas prices inside the US have been low and stable. The jump in two-year Treasury yields is modest. The hit to earnings of S&P 500 companies is estimated to be a mere 2-5 per cent. Meanwhile the safe-haven paradox — the more America disrupts the world, the more the world purchases its safe assets — is back. The dollar has risen. 

The most likely next stage is not regime change or capitulation by Iran. Ideally America would summon the will to organise a laborious escort system for tankers and container ships though Hormuz. But it could strike a deal which leaves Iran holding a latent threat over Hormuz, while ending the fighting. The energy markets are betting on the latter, which is why the oil spikes of recent weeks have still left prices below their 1979-80 crisis peak in inflation-adjusted terms. Were such a deal to happen, some analysts believe it would be a shattering blow to US credibility and deterrence, on a par with the Anglo-French Suez debacle in 1956. In fact, countries’ reliance on America could rise.

After the war, however it ends, the Gulf countries, and perhaps Europe, will seek major investments in air defence, using American systems, augmented by Israeli and Ukrainian technology. If the Gulf countries build new pipelines bypassing Hormuz, their first choice will be for America to protect them. Countries in Asia and Europe keen to reduce their reliance on Qatari gas will find the US is the obvious swing supplier; it has doubled LNG exports since 2020, with its market share expected to rise to a third by 2030. For US allies, the uncomfortable truth is that even as America creates a more volatile world, they often need it more. The Gulf has no clear alternative. For Europe, breaking this cycle of dependency will take years. 

For America’s adversaries, all this presents a complex picture. For small and mid-sized dictatorships, the effect is terrifying, since decapitating or degrading regimes is almost costless, as Venezuela has shown and Cuba may soon. The lesson for them is to control a chokepoint, such as Hormuz, or to acquire weapons of mass destruction. Autocracies that already have nuclear weapons and rely less on a globalised economy believe a golden age of influence beckons. Two potential mediators for an Iran deal are Field Marshal Asim Munir of Pakistan and Vladimir Putin.

Xi Jinping will be glad to see America’s military drawn away from Asia and its alliances divided. But China will not welcome the prospect of bouts of unilateral use of American force, arms races involving regimes that feel threatened, or the US moving from upholding open navigation to making fluid deals over it. 

China is the world’s largest oil importer, much of it transiting Hormuz. Despite a gargantuan effort its stockpiles still only cover 100-150 days. Its container trade with Europe uses Suez and the Red Sea. In the event of its own war of choice over Taiwan, it would be vulnerable to an energy embargo and would face a financial shock, given it lacks the safe haven effects the US enjoys. The third Gulf war shows that the US has broken with the post-1991 system, auguring a more turbulent world. But it also shows that much of the world still has no clear alternative to relying on America — and how far China has to go to replicate its unique strengths.