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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.
Over recent weeks, 3W stressed the three key conclusions from our analysis of developments in the Middle East. These conclusions are:
First, that Israel has, over time, systematically built out its influence in the US, to the point that today it totally dominates US thinking. This thesis was first proposed by John Mearsheimer and Steve Walt through their book “The Israel Lobby and US Foreign Policy”. We long refused it, but noticed in the US response to Israel’s War on Gaza, the US decision to attack Iran, and most of the US responses to the resulting developments ever since, both international and domestic, that Mearsheimer and Waltz are correct. We now believe that Netanyahu was not so much bragging as speaking the truth when in 2001 he said, “I know what America is. America is a thing you can move very easily, move it in the right direction. They won’t get in the way.”
Second, that because it has been following Israeli advice, through which Israel served its interests by presenting these as similar or aligned to US interests, the US now finds itself in a quagmire in the Middle East. It lost its War on Yemen in 2025, and both its Wars on Iran, having been unable to force a defeat upon its chosen adversaries by economic or military means. In the process, the US has expended its stockpiles of ammunitions, and it has been forced to withdraw its military from the “first ring” surrounding Iran to a “third ring”, which means its ability to deploy force across the Middle East, and to turn the current situation around via military means, is greatly reduced. In addition, the US has lost control over the Strait of Hormuz, which gives Iran significant leverage over the US, as it can now create economic problems for the world which the world will hold the US responsible for.
Third, the US is desperately seeking an exit, because of how the quagmire threatens the global economy. As the War on Iran disrupted fertilizer exports from the Gulf, global food prices already reached a record high writes Reuters, actual food shortages are likely to occur next. Inflation, resulting from increased energy prices, is likely to reduce economic growth around the world. Worse still, the closure of the Strait has stopped the recycle of the Arabian Gulf states’ oil revenues into US treasury bonds, and halted their plans to invest hundreds of billions into American AI, both of which are major, major issues for America’s “grand strategy”. At 3W we expressed fear that the Makkah Defense Agreement between Saudi Arabia, Turkiye and Pakistan is a ploy by the US to get out of the region, and we noted that if this is indeed the case, it risks throwing the Middle East region into worse chaos. (Although we noted it is possible the Agreement is a sign of the mentioned powers using the current US weakness to achieve more independence from the US…)
the US has lost control over the Strait of Hormuz, which gives Iran significant leverage over the US
With that as context, next we review the main developments since our previous 3W analysis.
As to our first key conclusion, on Sunday Israeli prime minister Netanyahu formally rejected the US proposed “Peace Plan” for Gaza, writes the BBC. “Israel rejects the 15-point document,” Netanyahu said at a cabinet meeting. The Israeli military “will not carry out any withdrawal until Hamas is genuinely disarmed and will continue to thwart threats against our forces and our citizens”, he added. 3W notes that Netanyahu’s response is a major embarrassment for US president Trump, who just over a week ago announced the plan as a “monumental step toward lasting peace and security”. Nickolay Mladenov, the technocrat tasked by the Trump chaired “Board of Peace” was left “hoping” for a “positive outcome”.
Then on Monday, the first act of Colombia’s new president Abelardo de la Espriella, was to declare that the Golan Heights in Syria should be Israeli territory. “The Government of Colombia recognises Israeli sovereignty over this territory, as well as that State’s right to protect itself against external threats,” Colombia’s Foreign Ministry said in a statement published on X, writes Al Jazeera. 3W notes that US president Trump pushed hard for De la Espriella to win the Colombian election. BBC describes De la Espriella as “an admirer of Donald Trump who echoed many of the US president’s policies on the campaign trail”, and notes that US pledged $1bn (£740m) in support to Colombia just hours after he was sworn in as president. After all that, his first act of international significance is not to support core US geostrategic objectives, such as supporting removal of China’s influence across Latin America or signaling support for US allies in Asia Pacific such as Japan or South Korea, but to express support for an Israell geostrategic objective. This tells you what the US policymakers see as their core interest.
As to our second key conclusion, last week the US supported Japan in an intervention on the financial market to prop up the value of the Japanese Yen. The Japanese Yen has been steadily falling in value, as investors are concerned about the country’s economic growth outlook. Worsening the situation is the War on Iran, which has pushed up energy costs. This, in turn, has worsened the fiscal outlook for the country. Sanae Takaichi, Japan’s prime minister, is seeking to help businesses and households with the higher cost of living that has resulted, writes The New York Times. The US decided to intervene because it feared that Japan would start selling US Treasuries in support of the Yen. Such a move would create risks in the US bond and treasury market, and could trigger a financial crisis akin to the 2008 Global Financial Crisis. Due to the War on Iran, the US bond and treasury markets are in too vulnerable a position to be exposed to such a risk. The War on Iran has, namely, disrupted the “petrodollar system”, writes The Conversation. Under this system, the countries of the Arabian invest a significant portion of their oil and gas proceeds into US Treasuries. For this reason these Gulf states collectively hold roughly $2 trillion in US assets through their sovereign wealth funds. As the oil and gas revenues of the Gulf states has collapsed due to the closure of the Strait of Hormuz, they are not buying US Treasuries at present, which has led to upward pressure on US Treasury rates, forcing the US government to spend significantly more on the servicing of its debt. To prevent the Gulf states from resorting to selling their US Treasury holding, just as Japan threatened to do, the US earlier extended credit lines to among others the UAE. 3W notes this makes clear that US is under significant economic pressure as a result of its War on Iran, because pillars under the US economy, namely the flow of Japanese and Gulf dollars into the US Treasury and bond markets, have been disrupted.
As to our third key conclusion, as to whether the “Makkah Defense Agreement” is in support of the US, or signaling a move away from the US, yesterday we noted that Saudi Arabia’s national press stressed the fact that the signatories had come together in response to Iran. Today, however, the same media walked that narrative back, with Arab News writing that the agreement “adds a new layer of deterrence to Saudi Arabia’s existing security relationships rather than replacing them”. For decades, the US has been the principal external security partner of the Gulf states, Arab News notes. The agreement can therefore be understood as strategic redundancy; maintaining existing alliances while building additional mechanisms that reduce reliance on any single security guarantor, it concludes. At 3W we reiterate that we hope this is the case – since the alternative, an alliance of the world’s most powerful Sunni states to confront the world’s most power Shi’i state, on the request of the US whose strategic thinking is led by Israel, is a recipe for disaster.
The Middle East Eye, meanwhile, writes that Egypt stayed out of the alliance, although originally Turkiye pushed for it to be included. However, Egypt is allied more closely with the UAE, notes MEE, for which reason Saudi Arabia was less eager to involve the Egyptians at this stage. In the 3W view, this supports the thesis that the agreement is not necessarily pushed by the US. If it had been a US plan, involvement of the loyal US ally Egypt would have been almost guaranteed, in our 3W view.
George Friedman of Geopolitical Futures writes, however, that the US was aware of the diplomacy preceding announcement of the agreement, and he notes that “the alliance appears to benefit the US significantly, particularly as it puts pressure on Iran”. For this reason, the US “welcomed” the new alliance in the Middle East. Friedman predicts that because the new alliance puts pressure on India by strengthening Pakistan, which supports China as it sees Pakistan as an important lever against India, the US will now use the new alliance to make China put pressure on Iran: “We, the US, have just helped you against India; now you, China, should help us against Iran, and force them to open the Strait of Hormuz”.