On 7 July, Donald Trump declared the ceasefire between the United States and Iran “over” and dismissed further talks as “a waste of time”. US forces struck more than eighty targets across southern Iran. Iran retaliated by hitting tankers taking the southern route through the Strait of Hormuz. This article argues that the renewed US-Iran confrontation has transformed the Strait of Hormuz from a commercial shipping lane into Iran’s principal instrument of strategic deterrence. Rather than producing a decisive military outcome, the conflict has accelerated the fragmentation of the US-led regional order, strengthened defensive nationalism inside Iran, and encouraged a more competitive multipolar order across the Middle East.
The costs of that manoeuvre are becoming increasingly difficult to conceal. Many Iranians have lost their lives, and the country’s vital infrastructure, including bridges and ports, has been severely damaged. The Pentagon confirmed on Monday that nearly 100 US service members have been injured and some have died in the fighting over the past two weeks. As the Financial Times reports, the protracted conflict has weighed on Trump’s approval ratings amid rising energy prices and mounting casualties. Petrol prices have climbed back above $4 a gallon. The financial ledger is also becoming harder to hide. On 21 July, Defence Secretary Pete Hegseth and General Dan Caine, Chairman of the Joint Chiefs of Staff, appeared before the US Senate Appropriations Committee to defend the Trump administration’s request for $67.1 billion in emergency military funding for the war with Iran. Hegseth conceded that the Pentagon now estimated the total cost of the war at $37.5 billion, up from $29 billion in May.
The war Trump could not win
In April, the ceasefire that followed the initial 40-day war was always an exhaustion, not a peace. The Memorandum of Understanding signed on 14 June bought Trump time. Time to rebuild missile stocks. Time to reassert the US Navy’s freedom of movement in the Gulf. Time, above all, to undermine Iranian control over the Strait of Hormuz. Article 5 of the MoU left Iran formally in charge of the Strait but committed it to allow safe passage without charge for sixty days. Since May, however, the US Navy had already been guiding shipping along a southern route hugging the Omani coast, a route Iran does not recognise. When Iran began enforcing its claim by attacking tankers using that route, the Trump administration had its immediate justification for renewed military escalation.
Iran has used precision-strike capabilities to set US bases on fire across the region, including Jordan, Bahrain, Kuwait and Iraq, cripple the economies of the Gulf monarchies and shut the Strait of Hormuz.
The most revealing admission of the past week did not come from Tehran but from the White House. Marco Rubio told reporters on Monday that stopping Iran from attacking ships in the Strait of Hormuz was “the only reason why the US is conducting strikes“. The war that was launched to eliminate Iran’s nuclear programme and weaken the Islamic Republic has, on the record of the US Secretary of State himself, been reduced to a struggle over freedom of navigation in the Strait of Hormuz. By that measure, the strategic objectives that initially justified the war have already been substantially redefined.
Why did Iran come out stronger?
The resilience of the Islamic Republic under wartime conditions is not an accident. On the national stage, the key pillar of the Revolution of 1979 was anti-imperialism, fuelled by the memory of the Pahlavi regime as a close ally of the United States. Iranian leaders have continually claimed that Washington is engaged in a criminal act by trying to force Iran to behave like other Gulf states or else face harsh sanctions. The Islamic Republic has used this framing to legitimise its economic, political and social shortcomings, blaming external forces for its own incompetence.
Inside Iran, the political mood is not the one Washington and Tel Aviv had counted on. Regime insiders, Iranian analysts and Western diplomats in Tehran now describe an Islamic Republic that believes it has survived its greatest crisis in decades and emerged politically stronger. “The US made a big mistake. It awakened the sleeping dragon”, a regime insider told the Financial Times. “We paid a huge price, but we activated capacities that we had previously hesitated to use.”
The Islamic Republic survived the early onslaught and proved to be less a personalised authoritarian system than a multi-nodal one, capable of continuing to function even after the decapitation of its formal leadership. The war rearranged the political mood inside Iran, not into support for the regime but into a defensive nationalism that treats the country itself, rather than the state, as the object under assault. That distinction is analytically vital. It is not the Islamic Republic that Iranians rallied to defend. It is Iran. The hundreds of thousands who came out for the funeral of Ali Khamenei were making a nationalist statement about sovereignty, not an endorsement of the theocratic order.
Alongside this defensive nationalism, the new leadership has quietly continued a policy of social relaxation. Mandatory hijab enforcement has eased further. Live music has returned to cafés. Women dance and perform solo in public. This is a strategic accommodation of the urban middle-income Iranians whose alienation from the regime produced the Woman, Life, Freedom uprising of 2022 and the January mobilisations. It is combined, of course, with continued executions of protesters and alleged wartime spies, but the political calculation is clear: broaden the social ground on which the regime stands, at least until the economic reckoning begins.
The Strait of Hormuz and the new nationalism
The Strait of Hormuz is no longer simply a maritime chokepoint. Unable to match the United States conventionally, Iran has developed the capacity to impose severe costs on the global economy by disrupting energy flows through the Strait. That capacity has altered the balance of power in the Gulf by giving Tehran leverage that extends well beyond its conventional military strength.
Control of the Strait has shifted from a regime-survival question to a nationalist one. When Foreign Minister Abbas Araghchi appeared on the streets during the mourning period, he was pelted with rocks by crowds chanting “appeaser”. Even Masoud Pezeshkian was heckled as a sell-out on his march through Iraq. In this atmosphere, the pragmatists in the negotiating team cannot easily concede on the Strait. Doing so would collapse the domestic legitimacy on which their negotiating position rests.
The confrontation on the water has taken on the same nationalist charge. Late on Sunday, according to the Financial Times, the Islamic Revolutionary Guard Corps struck two oil tankers attempting to transit through what it called the “unsafe” southern route. One of them, the Kavomaleas, was owned by the Greek shipping company Dynacom and was sailing into the Gulf near the Omani coastline when it was hit by two projectiles of “unknown origin”. Fire broke out in the engine room. The IRGC’s statement was blunt: “This is our land”. It added that no oil, gas or fertiliser could pass through the waterway as long as US hostile actions in the region continued. Iran is now willing to strike Qatari, Emirati and Saudi-linked vessels even at the cost of straining its regional relationships. When a country is facing an existential war, friend and foe alike become instruments in its calculation.
The war has now spread beyond the Persian Gulf. On 13 July, Saudi Arabia struck the runway at Sanaa International Airport in Yemen, ending the period of de-escalation with the Houthis. Within days, the Houthi leadership had declared retaliatory attacks on Saudi airports, ports and oil facilities. By 22 July, they had claimed strikes on two Saudi oil tankers in the Red Sea as part of a wider blockade of Saudi-linked shipping. The tanker warfare that began in the Strait of Hormuz has now opened a second front along the Red Sea coast, drawing the Yemen war back into the centre of regional politics and turning two of the world’s most important maritime chokepoints into contested space at the same time.
The impact on energy markets has been immediate. By 22 July, following news of the Houthi blockade in the Red Sea, Brent crude had risen above $98 a barrel for the first time since early June, its highest level since the initial ceasefire. On Thursday, 23 July, it exceeded $100 a barrel for the first time since May. Oil prices have gained around 20 per cent in July, on track for their largest monthly gain since March. European diesel-crude spreads have hit record highs, with Morgan Stanley warning of “genuine tightness ahead”. The political economy of the Strait is now working directly against Trump’s mid-term election calendar. Every Iranian projectile off the coast of Oman turns up in American petrol stations within days, and every dollar added to a barrel of crude is a fresh margin of pressure on a White House whose case for the war rests, on Rubio’s own admission, on the freedom of navigation it can no longer guarantee.
The reason the ceasefire keeps collapsing, however, is not tactical but structural. The US cannot formally concede that Iran controls the Strait of Hormuz, or that Iran has acquired a form of deterrence which performs many of the political functions traditionally associated with nuclear weapons. Iran, for its part, seeks to demonstrate that deterrent capacity while signalling that safe passage remains possible under conditions it is willing to accept.
Washington cannot formally concede that a country it set out to decapitate has survived and has effectively set the terms of the ceasefire. The mentality that does not permit that admission: every agreement the US signs has to be followed, within days, by a demonstration that Washington is not bound by it. That is why the first ceasefire collapsed when Israel resumed bombing Lebanon while Pakistani mediators were publicly confirming that Lebanon fell within the terms of the deal. This is why the June MoU is collapsing now. The tit-for-tat is not a failure of diplomacy. It is the form diplomacy takes when a hegemonic power cannot recognise an adversary’s newly acquired deterrent capabilities without appearing to concede strategic decline.
The broken order
Beyond the Strait itself, the deeper story is the collapse of the US-underwritten regional order. The war has exposed the material limits of American hegemony in West Asia. The Gulf monarchies discovered during the February war that the US bases on their territories were not sources of protection but of exposure. Iranian missiles targeted every American installation in the region. The bases could not defend the countries whose loyalty they were supposed to secure. The US-Israeli alliance turned out to be a danger to them rather than a source of support.
The regional picture also has to be read through the state of Iran’s forward-defence architecture. Since 1979, and more intensively since the mid-2000s, Iran has built and sustained a network of allies and proxies, Hezbollah in Lebanon, the Popular Mobilisation Forces and other militias in Iraq, its Syrian partners and the Houthis in Yemen, designed to keep any confrontation with the United States or Israel away from Iran’s own borders. The wars in Gaza, Lebanon and Syria have visibly weakened that network. It has not, however, disappeared. These forces are politically and socially embedded in their own countries, and Tehran cannot simply abandon them without conceding the strategic depth that has been central to its posture for two decades. The Houthi blockade of Saudi-linked shipping in the Red Sea, which followed the 13 July strike on Sanaa, is a sharp reminder of what a weakened but still operational forward-defence network can do to a regional adversary in a matter of days.
Three further shifts have followed. The first is the visible fracturing of the Gulf Cooperation Council. The United Arab Emirates announced in May that it was leaving OPEC after sixty years of membership, intending to raise production to nearly 5 million barrels per day as the oil era draws to a close. Saudi Arabia and the UAE have clashed over Yemen, where their proxies fought each other in January. The two are backing rival sides in Sudan’s civil war. Saudi Arabia has moved closer to Pakistan through a mutual-defence pact signed in 2025, while the UAE has drawn closer to India through a defence and energy agreement signed in May that designates crude oil storage in Fujairah as part of India’s strategic petroleum reserve.
The second shift is Israel’s changing status. Netanyahu’s continued war in Gaza, his occupation of southern Lebanon and parts of Syria, and his attacks on Qatar have transformed his position in the perception of even Arab regimes that had normalised relations with Israel. Egypt and Jordan, both states with peace treaties with Israel, now regard it as a security threat. The alliance with the UAE and Bahrain, celebrated as the Abraham Accords in 2020, now looks like a factional axis within a broken order rather than the foundation of a new regional architecture.
The third shift is that China is not stepping into the vacuum with a clear strategy, but that Chinese investment, technology and trade are filling the space left by a diminished United States. Roughly 90 per cent of Iranian oil exports now flow to China, and Beijing has strategic interests in Iranian stability that give it a stake in preventing the war’s escalation. Iran is also an important link in the Chinese Belt and Road Initiative, connecting the Persian Gulf to Central Asia and, through it, to the Chinese heartland. This is multipolarity, not a bipolar Cold War between the United States and China, but a genuinely fragmented order in which middle powers compete, hedge and reposition.
The regional order now taking shape is characterised by four interconnected developments: the erosion of uncontested US primacy, the institutionalisation of Iranian asymmetric deterrence centred on the Strait of Hormuz, increasing strategic autonomy among Gulf middle powers, and China’s expanding economic, rather than security, presence. The Middle East is not witnessing the replacement of one hegemonic order with another. It is entering a fragmented and competitive multipolar system in which strategic infrastructure, energy security and technological capabilities increasingly shape the balance of power.
What next?
There is no early exit from this crisis. The United States and Iran are on a bumpy path to a sustainable status quo, not to peace. Neither side can defeat the other. The MoU that Trump signed and then began to walk away from will either be renegotiated or replaced by a similar arrangement in which Iran retains its leverage over the Strait and the United States retains sanctions leverage over Iran’s economy. The tit-for-tat that has now resumed will punctuate, not resolve, that trajectory. Israeli generals are already arguing that the war must be finished on Israeli terms. The radical elements within the Islamic Republic, including parts of the IRGC senior command, have rejected the negotiating posture behind the MoU and continue to push for confrontation. Trump himself is politically incentivised to keep the crisis simmering below the level of full-scale war, but every American casualty and every dollar added to a gallon of petrol narrows the room he has to keep doing so.
Tehran’s own posture, however, points to a specific way out. Iran is not simply fighting. It is fighting and negotiating in parallel. The military pressure it is generating in the Strait of Hormuz, on US bases across the region and now through the Houthis in the Red Sea is designed to convince Washington that continued war is unaffordable, and to establish the leverage that Tehran believes any meaningful negotiation requires. The end-state Iran is willing to accept is not victory but a package: security guarantees, sanctions relief and an end to recurring military attacks. That opens a real, if narrow, possibility. Iran urgently needs reconstruction, investment and access to global markets. Large-scale economic agreements, staged over years, may in the end do more to stabilise the region than any further round of military pressure. Buying peace, in the phrase now circulating in Washington policy discussion, may prove more effective than bombing peace.
Beneath the immediate military confrontation lies a broader transformation in the sources of geopolitical power. Strategic influence in the twenty-first century no longer depends solely on conventional military superiority. Regional powers increasingly combine control over critical infrastructure with technological capabilities in drones, artificial intelligence and advanced manufacturing to strengthen their deterrence. Iran’s missile and drone industries, Israel’s technological integration with global digital firms, and the Gulf states’ investments in artificial intelligence all reflect this wider shift. The regional order that follows will therefore be shaped not only by military alliances but also by competition over technological and economic capabilities.
What that leaves unresolved is the question at the heart of the crisis of legitimacy I have analysed elsewhere. Whether the deal holds or breaks will depend less on which faction wins the immediate argument in Washington or Tehran than on whether ordinary Iranians can find a political voice that the current factional categories cannot contain. The wartime defensive nationalism has bought the regime time. Inflation at 84 per cent, years of reconstruction, the closure of the internet during the war and the executions since have all deepened the underlying resentment. When the economic reckoning comes, as it will, it will not stop at the Strait of Hormuz.
The future of the regional order will depend less on decisive military victory than on states’ ability to sustain credible deterrence while managing profound political and economic pressures at home. Whether the order that emerges becomes stable or increasingly fragmented will depend not only on the choices of Washington and Tehran but also on how societies across the region respond to the political and economic consequences of prolonged conflict.
