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Welcome to The Geopolity’s What We’re Watching (3W), our daily look at the interconnected worlds of Geopolitics, Economics and Energy. Curated from the world’s leading sources of information, our analysis and commentary is designed to help you make sense of the events driving the major developments in the world.
Early last week, at 3W we argued that the US was digging a grave for its own Empire through its War on Iran. At that time, the naval blockade had become the focus of the US efforts to defeat Iran. We then explained why this tactic would fail, and why it would weaken US diplomatic and soft power around the world, effectively turning traditional allies against the US.
As things developed exactly as we foresaw, yesterday at 3W we argued that anger and despair are now leading US thinking regarding Iran, because the US has run out of options. The War on Iran is lost, and we explained that this will start to corrode the “special relationship” between the US and Israel.
Robert Kagan, of Project for a New American Century infamy, has come to the same conclusions. Writing for The Atlantic, he says it is “Checkmate in Iran”. “it’s hard to think of a time when the United States suffered a total defeat in a conflict, a setback so decisive that the strategic loss could be neither repaired nor ignored. The calamitous losses suffered at Pearl Harbor, the Philippines, and throughout the Western Pacific in the first months of World War II were eventually reversed. The defeats in Vietnam and Afghanistan were costly but did not do lasting damage to America’s overall position in the world, because they were far from the main theaters of global competition. The initial failure in Iraq was mitigated by a shift in strategy that ultimately left Iraq relatively stable and unthreatening to its neighbors and kept the United States dominant in the region. Defeat in the present confrontation with Iran will be of an entirely different character. It can neither be repaired nor ignored.” As to what will now happen next, Kagan says, “With control of the strait, Iran emerges as the key player in the region and one of the key players in the world. The roles of China and Russia, as Iran’s allies, are strengthened; the role of the United States, substantially diminished… That is going to set off a chain reaction around the world as friends and foes adjust to America’s failure… In the (Gulf) region, the United States will have proved itself a paper tiger, forcing the Gulf and other Arab states to accommodate Iran… All nations that depend on energy from the Gulf will have to work out their own arrangements with Iran.” In the end, Kagan concludes, “The global adjustment to a post-American world is accelerating. America’s once-dominant position in the Gulf is just the first of many casualties.” At 3W, we can obviously only agree.
The global adjustment to a post-American world is accelerating. America’s once-dominant position in the Gulf is just the first of many casualties
The recent ceasefire negotiations did not take place with US recognition of this tactical (and even strategic) reality. For that reason, no agreement was reached even though Iran, as noted by Iran-expert Trita Parsi, is trying to give the US some of what it demanded – a face-saving way out, so to speak. The US demands that the entire Iranian stockpile of enriched uranium be shipped out of the country, a demand Iran rejected until recently. It only agreed to downblending it. In its latest proposal, however, Parsi notes, Iran offers to have some of it diluted and the rest shipped to a third country. But for the US, even this is unacceptable, 3W notes, as the US mentally cannot yet accept the reality that it will need to make concessions to Iran, rather than the other way around. Any Iranian counter-proposal will therefore be rejected as “unacceptable”, simply because the US expects other nations to just submit to its demands.
(As a sidenote, Parsi notes that the US demand for Iran to agree to a complete removal of its enriched uranium is another sign of Israel’s excessive influence over US thinking. The original US position was simply no nuclear weapons. This shifted to no enrichment due to pressure from Israel in mid-2025. The current US insistence on shipping the entire Iranian stockpile out means the US’s demand has been increased even further from this level, serving nobody’s interests except the country that does not want peace but war – Israel.)
At 3W we note that the longer this mental state dominates the US administration, the worse the consequences for US interests will be. On Monday, US president Trump called the latest Iranian offer to end the war and reopen the Strait of Hormuz “garbage” and declared that the cease-fire was “on massive life support”, writes The New York Times. NYT then noted that as a result, countries around the world are were bracing for prolonged economic woes stemming from high energy prices.
Soon the economic fallout of the US – Israel Alliance will start to affect daily life in the developed world
The pain being felt by nations around the world is real – and severe. The world’s largest crude oil producer Aramco says the US – Israel Alliance War on Iran has caused the greatest disruption to energy markets ever, writes Bloomberg. Global oil markets are losing 100 million barrels every week the Strait of Hormuz is shut, it says. As a result, global stockpiles are now running dangerously low. “The longer the supply disruptions continue, even for another few more weeks, it is going to take much longer for oil market to rebalance and stabilize,” Aramco CEO Amin Nasser said. “It could drag on into 2027 to return to normal levels.”
In response, India’s prime minister Narendra Modi appealed to his countrymen to revive working from home, buy less gold and limit foreign travel, to deal with the economic fallout of continuing crisis in the Middle East, writes the BBC. Modi also asked farmers to reduce use of fertiliser by half. This is India, 3W notes. The largest country on the planet by population. Supposed to be the growth engine for the global economy.
Soon the economic fallout of the US – Israel Alliance will start to affect daily life in the developed world as well. Nikkei Asia writes that severe disrupt of production across the tech supply chain is looming. On top of surging prices for metals, including copper, tungsten, molybdenum and gold, that have emerged since the start of the Alliance War on Iran, which have already rocked the high-tech supply chain, helium supply as well as the availability of highly specialized helium storage tanks is down drastically. If this situation continues much longer, this could put global semiconductor production continuity at risk, several industry executives told NA. Prices for many key metals and petrochemical materials used for the production of copper clad laminates (CCLs), a key base for all types of printed circuit boards (PCBs) and chip substrates, have also risen sharply due to the Iran war.
At 3W, yesterday we argued that the Xi – Trump meeting later this week will not solve the US’s current predicament – although Trump might think it will. Because, we said, the US has no cards to play – no economic leverage, no military leverage, nothing. And if the US has any cards, China holds better cards – rare earth minerals which the US tech industry, as well as the US military industrial complex, needs desperately.
The Financial Times writes that the War on Iran is also ripping across the US economy, at a cost of hundreds of billions of dollars in lost output, with soaring fuel prices, rising borrowing costs and supply chain snags eroding Americans’ prosperity.
Trump will meet Xi in Beijing on Thursday, writes Bloomberg. Trump is expected to press Xi on China’s approach to Iran. His “cards” are US sanctions on Chinese companies, and US arms sales to Taiwan, Bloomberg notes. According to Nikkei Asia, China’s overarching objective is to maintain the status quo, that is, to avoid an escalation in the trade war between the US and China. The Associated Press writes the US too does not want to see a worsening of US – China trade relations. Reuters notes the US has few cards to play. China effectively countered the Trump Tariffs and forced the US into a withdrawal on that front. And since last October, Beijing has been expanding its own economic leverage, such as enacting laws to punish foreign entities that shift supply chains away from China and tightening its rare earth licensing regime. Gideon Rahman of the Financial Times also notes that Trump is “weakened” and that “China holds the cards”, because his tariff war against China failed as well as his military war against Iran. The Financial Times further writes that the War on Iran is ripping across the US economy at a cost of hundreds of billions of dollars in lost output, with soaring fuel prices, rising borrowing costs and supply chain snags eroding Americans’ prosperity.
In this situation, in the 3W view it is unrealistic to think that China will give Trump what he needs on Iran. It is not in China’s interest that the US defeats Iran, so why should it support the US? China will be open to win-win deals, but it is not under the kind of pressures that are required for the US to achieve breakthroughs – i.e. major Chinese concessions regarding US demands. Chinese culture is such that press releases after the meeting will inevitably speak of “cordial meetings”, “appreciation of the US – China relationship” and “progress on many subjects of discussion”. China is even likely to agree on “intentions to buy” billions of dollars’ worth of US products. But that is all basic Chinese politeness. If there is actual progress achieved in Beijing, the press releases will point to actual agreements on concrete subjects of importance.
Bar that, the meeting should be considered a failure – from the US perspective, as it has most to lose from the current situation. Not only its Empire is crumbling, but The Financial Times writes that the War on Iran is also ripping across the US economy, at a cost of hundreds of billions of dollars in lost output, with soaring fuel prices, rising borrowing costs and supply chain snags eroding Americans’ prosperity.
What all this means for the immediate future, in the 3W view the most likely scenario is a continuation of the current status quo. Iran does not need to budge. Russia and China are on its side and see strategic advantages in ensuring Iran does not lose. The US is not in the mental state (yet) that it can accept defeat and compromise. But it also does not have the capability to escalate the conflict militarily.
Axios claims Trump is looking at the option of escalation, but the hard truth is that US military stockpiles are severely depleted. “I think it’s fair to say it’s shocking how deep we have gone into these magazines,” Senator Mark Kelly told US broadcaster CBS News, according to Yahoo News. Kelly, a prominent member of the Armed Services Committee, cited Pentagon briefings detailing stockpiles of specific munitions, including Tomahawks, ATACMS, SM-3s and the munitions used in Patriot systems. It would take “years” to rebuild those stockpiles, he said, without providing specific figures. 3W notes that this “rebuilding” requires massive amounts of rare earth minerals – for which the US is of course dependent on China. Anyway, Iran is not sitting still. It has supported its Houthi allies in Yemen to build up an impressive inventory of sophisticated weaponry, including anti-ship and surface-to-air missiles, as well as underwater weapons, writes The National. Combined with Iran’s own continuing strength, this means any US military aggression can be countered effectively and painfully by Tehran.
So, continuation of the current status quo really is the only realistic pathway forward. Because it is an embarrassment for the US, one should expect it to seek a face-saving move. In this regard, Cuba could become the victim. Axios writes that the Trump administration has been ramping up rethoric against the island-nation. In our 3W view, that might simply be to deflect attention away from Iran.