The Protests

On the 17th of October around 110k people marched through Paris, amongst a total of 550k nationwide. It has emerged that French Intelligence had expected c.50k in Paris and another 100k across the country, this intelligence failure is just one of the reasons these protests have escalated the way they have. So far there have been close to 2,400 arrests nationwide with 1000 police, gendarmes and firefighters injured. There has been significant economic damage with 3000 shops looted and the historically important Limoges town hall burned to the ground. In response the French government have introduced localised curfews through prefects; Prime Minister Lecornu has deliberately held back from declaring a state of emergency but the government otherwise appears to be taking a tough line on the rioters. However, in terms of de-escalation they have offered no olive branches or searched for a way to placate the protesters. The protesters are formed of a broad coalition of students and people frustrated with the cost of living. It began in mid September as a protest over teaching shortages, overcrowded classrooms and crumbling buildings; it was followed by strikes by the public sector unions against the 2027 budget. Ultimately the main issue is that the budget which raises defence spending from €57bn to €63.4bn, has only given education a marginal increase and has frozen public sector pay.

Algerian Echoes

France’s response to this kind of grievance was forged in its colonial wars, counter-insurgency (COIN) being an intellectual lineage that is particularly French thanks to their experiences in Indochina and Algeria. The concept of ‘guerre révolutionnaire’ is one we should be cognisant of as we look at the administration’s response to these protests. Roger Trinquier fought in Indochina and was then in charge of organising Algiers to be more malleable by building a system to register and control the city’s population. He argued that modern warfare is about fighting clandestine organisations hidden amongst the people. This echoes Maoist guerrilla doctrine but with an urban flavour that emerged from the brutality of the Battle of Algiers, and when it comes to the current protests refers to the idea of an internal enemy within the protesters. There is also Charles Lacheroy who conceptualised the parallel hierarchies, or governance, that successful insurgencies build to capture the population before fighting begins. This is the idea that the battlefield is the psyche of the population, essentially the minds in ‘hearts and minds’. But it also creates the problem that these structures can exist anywhere and thus so can the enemy. The French COIN mentality is one preoccupied with an internal enemy, and it is this inherited reflex that is surfacing now. There is a bitter irony in the fact that these doctrines were developed against France’s colonial subjects, and are now being deployed against their grandchildren in the banlieues.

Galula and Colonial law

Perhaps the most important of the French COIN philosophers is David Galula; born in the Tunisian French Protectorate to Jewish parents in 1919. He was an officer in the French Army until forced out by Vichy France’s anti-semitic laws, he then joined the Free French and had a solid career, most notably as an observer of the Chinese Civil War, and then as company commander in Kabylia, a mountainous Berber region of Algeria. His most famous work, the creatively titled Counterinsurgency Warfare: Theory and Practice was largely ignored for four decades until it was picked up by General Petraeus during the Iraq War. The formula Galula gives us is that COIN is 20% military action and 80% political action; these protests are not a full scale insurgency but his calculus is applicable. He also discusses the preconditions for an insurgency as being a strong cause and a weak administration. He also named several theoretical laws, the fourth of which is that COIN demands vastness of means. In practice the reason why COIN failed in Algeria is that the cause was independence, and the political action offered by De Gaulle’s government were merely buy offs; the efficacy of the gendarmerie and the military superiority of the French Army were irrelevant in the face of that national desire. On the 3rd of October 1958 De Gaulle attempted to defuse the Algerian War with the Constantine plan; land redistribution, investment, and expanded rights for Algerian muslims. It failed. The Évian accords granting Algeria an independence referendum was the only act available to France that could end the war. The Constantine plan was the 80% that Galula refers to but the French did not understand the level of grievance. The legacy of Algeria has reared its head in the current wave of protests beyond COIN theory. Bruno Retailleau, a presidential candidate next year, has called for the invocation of the 1955 law. This is France’s state of emergency law, it creates an emergency for 12 days and gives sweeping powers to Prefects to ban gatherings and order house arrests. It was created in response to coordinated attacks by the FLN kicking off the Algerian war, and rather than handing control to the military this law created the circumstances for ‘extraordinary’ policing. It has been used before, during banlieue riots in 2005, and after the Bataclan terror attacks (after which several of its powers were signed into regular law). Lecornu has held off so far, but the capacity for the government to escalate within Galula’s 20% is a signature away.

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The Gendarmes and COIN

The issue lies with French paramilitary doctrine, its strategy for policing comes directly from Algeria and the particular issues of that era. The gendarmerie is a military force, and to a degree the French police, in line with Trinquier and Lacheroy, react as if there is an insurgency. The intelligence failures that led to the gendarmerie expecting fewer protestors is partially responsible for the aggression of the policing response; a state that cannot see its enemy clearly treats them all like insurgents. The public order doctrine of 2020 created fast-moving units designed to make rapid arrests within violent protests, in COIN terms, separating the insurgent from the population. While this isn’t an insurgency, the lines between militarised policing and true COIN are blurry. French riot police use the GM2L tear gas grenade, classified as a weapon of war. A separate grenade maimed a student in Lens on the 5th of October. When it comes to counterinsurgency style military tactics, the French gendarmerie are not playing around. However, the political 80% is the ballgame, and the issue with increasingly militarised policing is that it does not resolve the underlying tensions. While the Constantine plan was a failed buy off in Algeria, the French government has successfully bought its way out of trouble in the past. The Gilets Jaunes protests in 2018 occurred over a rise in fuel tax, and Macron was able to defuse it for the most part by conceding €10.3bn of measures which raised the French budget deficit to 3.2% of GDP. In 1958 the cause was ideological, and in 2018 it was material. As today the cause is mostly material, however there is one massive problem that has turned these protests into a two-front war for the French government; in 2018 the 10 year bond yield was under 1%, in October 2026 it is at 4.96%.

Bonds, French Bonds

The French government are at war in many ways with two adversaries, the straightforward front is the clashes between paramilitary forces and protesters; the less obvious front is between the Elysee Palace and the bond market. The 10 Year French government bond (OAT) yield breached 5% in early October and is hovering around 4.9%, this is the highest level since 2002. The OAT-Bund spread, which shows us how much riskier the market prices French bonds compared to German bonds is at 152 basis points; essentially French bonds offer a 1.52% higher yield than the Bund. This tells us two things, first that French borrowing costs are sky high and this will increase the debt-to-GDP ratio, it also tells us that this is not a Eurozone crisis, but rather a consequence of high French debt, which is at 117.6% of GDP. The commonality between every faction within the protestors is a lack of money being directed to their particular cause; and an interesting statistic is that the education budget is smaller than the amount being paid to service French debt. The massive problem is that France cannot set its own monetary policy to bring down borrowing costs or pay down its debt, those decisions are made in Frankfurt.

Le Périphérique

During their colonial era Paris was the centre of a vast empire, the metropole which dictated laws, security and finance to the imperial periphery. In 2026 Paris is the periphery and Frankfurt is the metropole. The Eurozone has many weaknesses, primarily that it removes a nations financial toolkit for getting out of problem. Joseph Stiglitz summed it up well in describing ‘internal devaluation’; which is essentially national suffering until an economy becomes competitive again. This is where France is, they cannot cut interest rates because they are controlled by the ECB, they can’t devalue the currency, so the adjustment has to come through budget reductions; this creates Galula’s cause. To Frankfurt, the French government is the insurgent, trapped and chasing a cause and a deal that will not arrive; and to the street it is the oppressor unable to make a deal that will end the protests. The French have no capacity to even attempt a revival of the Constantine plan as they have no control over their own monetary policy; and the financial constraints that created their causes are a direct result of the Eurozone. This is not saying that the French economy is not one of the largest and most important in the EU but rather that they have ceded aspects of their decision making. The dual role of the French government, as periphery to Frankfurt and as the metropole to the protestors flooding the streets traps them in this two front war, where to win one is to lose the other.

Losers and Losers

The ECB do have a mechanism to rescue France where they can buy a nations bonds (bringing the yield down) if there yields are rising in a ‘disorderly’ way. France’s recent fiscal discipline means that they technically qualify; however Frankfurt is electing not to act thus far, as its mandate is primarily to manage inflation and the energy crisis emanating from the Iran War is a greater threat to the Euro than French instability. So France are truly on their own. To win the ‘war’ with the bond market, France will have to find €50bn in saving that will come from internal devaluation; this will only create greater cause for the protestors. This French government cannot win the war with the street, the likeliest outcome will be a change in regime, be that simply a victory for the populist right in April or a larger more consequential crisis that leads to a Sixth French Republic. The issue is that this is a financial crisis and as in 2008 someone may be allowed to fail to prove a point with France as Lehman Bros. being sacrificed to the populist right in the name of fiscal discipline.

Contagion

France hasn’t balanced a budget since 1973, there is little reason to believe that there is going to be a massive reversal in the level of French debt, and there are structural reasons for protestors to be frustrated with their own government as well as the EU. Street protests have already broken out in Milan, as well as student movements emerge in Belgium and Greece. The Italian Government Bond-Bund spread is at 114 basis points, Belgium-Bund is at 88. Combined with high debt, Belgium at 109.1% of GDP; this creates the same conditions as we are seeing in France, and while the Belgian and Italian populations don’t have the same revolutionary streak as found in the Gallic soul, make no mistake this can and will spread. Returning to counter-insurgency theory, we’ve noted the different causes held amongst the coalition forming the protests, but what is the equivalent of the Évian Accords for this group? The upcoming election is likely to sway France to the populist movements of Le Pen’s Rassemblement National, or Mélenchon’s La France Insoumise. Both have strategies to deal with the bond market issues. Le Pen has promised €140bn in savings within 5 years, and Mélenchon wants the ECB to effectively cancel the French debt it holds. Neither of these candidates has openly argued for leaving the Euro in this election cycle but both are campaigning on a EU-sceptic platform. So the independence France’s protestors are searching for may be found in populism. This is a French problem, but the structural conditions for it to spread exist, and then Europe could find itself facing immense political fragmentation.

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Schelling & Punishment

A decisive military victory, barring an unexpected capitulation must seem out of reach to both the Russian and Ukrainian high commands. Historically military victory has been the deciding factor in most conflicts, punishment and pain in the form of attacking civilians has not. However in the absence of a path to military victory it becomes the main process of bargaining. This is the ‘diplomacy of violence’ as laid out by Thomas Schelling in Arms and Influence, and it is to this strategy that Russia, and to a lesser extent Ukraine, have turned in an effort to compel surrender. Russia’s strategy is in essence to bombard the Ukrainian populace into submission, through indiscriminate strikes on civilian and economic targets. Russia’s strikes also damage Ukraine’s military capabilities but this is an ancillary benefit. The objective is to cause Ukraine such economic and political pain that it will concede to maximalist demands. Ukraine’s strategy is to target Russia’s influence in the global economy by taking away their capacity as an exporter, first of energy and then of disinformation; the punishment inflicted on the Russian people a secondary concern. Both strategies are using ‘the power to hurt’ as a coercive tool, with scope for escalation as the key aspect.

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Russian Targets

Russian strikes on Ukraine rely on the fear of escalation; Russian missiles and drones take out both Ukrainian power plants and gas production. The goal is to deny hospitals and schools power, to demonstrate ‘the capacity to hurt’ that puts social and political pressure on President Zelenskyy. Last week there were 200+ individual strikes on energy assets, on the 1st of October there were 190 Russian drones and missiles launched in 24 hours. This is high operational tempo but with Russia’s ever increasing capacity to replenish their drone and missile stockpiles it has room to increase. With an El Niño winter looming this is particularly ominous information for those defending Ukraine. The other, equally important, Russian target is Odesa and the Ukrainian grain industry; Odesa alone handles 90% of Ukrainian grain exports. By hitting grain ships and port equipment the Russians are effectively denying Ukraine their largest export, agriculture comprising over half of Ukraine’s export revenue. Workarounds, as have been found for oil in the Strait of Hormuz, are not plausible due to record low water levels in the Danube river and the general inefficacy of road transport. Projections have agricultural exports falling 54% in 2026-27 which is catastrophic for a country already in a spectacular amount of debt (around 60% of GDP after factoring in debt likely to be forgiven). There are multiple reasons why the Ukrainian grain industry is a strategic target beyond pure financial damage. Ukraine’s importance to the global food industry creates diplomatic and humanitarian pressure to end the war and, by driving up the price of commodities like wheat and corn, the strikes boost the value of Russian agricultural exports, offsetting losses in other sectors. Russia is trying to cripple Ukraine both internally and externally. The critical thing to remember about these Russian strikes is that they are a form of bargaining, a perverse form of negotiations.

Ukrainian Targets

As with all negotiations, drone strike diplomacy is a two-way street. Ukraine, like Russia, targets energy infrastructure but with different strategic intentions. The primary targets are Russian refineries rather than crude production facilities or power plants, and these strikes have been very successful. Russian refining capacity is at its lowest ebb since 2002, the Moscow Kapotnya refinery which provides 40% of that regions petroleum products was taken offline in late September. Targeting domestic consumption is less about civilian damage however, and more likely an attempt to foment unrest and undermine the security and prosperity reputation of Putin. Energy strikes have been going on for a while, however in recent months Ukrainian targeting has narrowed to focus on secondary cracking facilities, specifically the ones that impact diesel production. Hitting Russia’s diesel production hurts both their export revenues and their ability to influence global politics. In peacetime Russia is the second largest diesel exporter, responsible for around 10% of seaborne diesel trade which not only brings in a large amount of foreign reserves in revenue, but also gives Russia the weaponised ability to impact a critical industry. For example when Russia banned the export of diesel, the diesel benchmark price jumped 11.6%. The success of Ukraine’s attacks on the Russian diesel industry can be seen in the July diesel export ban and the fact that Russia, once described as ‘a gas station with nukes’ was reduced to importing refined products from India and Belarus. This success however comes with a caveat; Russia’s importance as a provider of energy molecules creates turbulence in the energy markets which can blow back on Ukraine.

The Caspian Problem

American demands for Ukrainian restraint crystallised after Ukrainian strikes on the Caspian Pipeline Consortium (CPC). The CPC is a pipeline running from the Tengiz oil field in Kazakhstan to Novorossiysk on the Black Sea coast, it carries 80% of Kazakhstan’s oil exports but is jointly owned by the Russian State (31%), Kazakhstan (20%), Chevron (15%), as well as Lukoil, ExxonMobil, Shell and others. A Russian dominated, but thoroughly international, project; Russian oil makes up 15% of the throughput and because of this it has been targeted by the Ukrainians since 2025. The problem with this is that the impact on Russian exports is marginal, it represents about 2% of Russian oil production, it has a far greater impact on Kazakhstan and the western companies heavily invested there; Chevron’s partnership, Tengizchevroil, for example. Strikes on the CPC also remove barrels from an oil market that is already extremely tight. So in the aftermath of Ukrainian strikes in July 2026 which hit an Exxon ship loading Kazakh oil the US brokered a deal to limit what Ukraine was allowed to hit. The deal protected CPC infrastructure and vessels with no links to Russia. The limited amount of Russian throughput and the fact that it is a single target means that strikes on the CPC are unlikely to shift the calculus of the Ukraine war for either Russia or Ukraine. However the precedent set and the geopolitical sensitivity to the oil market have led to the current Ukrainian problem.

Compellence by Diesel

The twin problems now facing Ukraine are the erosion of American support due to energy prices and the American energy deals with Russia. This has not happened just because of Ukraine’s success in striking Russian refining capacity, but rather it is the easiest place for the Trump administration to apply pressure to move energy prices. The Iran war has had a far greater impact on prices, but with the midterms approaching there is a political expediency in mitigating the tightness in the markets. The deal is 300k tons immediately, 500k in November, then 1m ‘immediately thereafter’ and finally 3m based on the condition of Russian diesel refineries. The last sentence is the key clause as the deal then hinges on Ukrainian restraint. The thing is, these volumes are actually pretty small, 300k tons of diesel amounts to 18 hours of American demand; it will still move prices more than some are predicting but it wont be much. However, it sends a message politically to Trump’s base and shifts the onus for energy prices from Trump’s forever war in Iran to President Zelenskyy. This is perhaps best illustrated by Trump’s announcement of an ‘energy ceasefire’ on Sunday. Ukraine originally signalled compliance with it and Russian drones hit a power plant in Kharkiv. The truce lasted 3 days; Ukraine resumed their attacks on the morning of the 15^th. Trump’s attempts to broker a ceasefire exist solely to stop Ukrainian strikes, as the destruction of the Kyivan grid won’t move the price of diesel in Ohio.

Hostages and Inside money

In Schelling’s framework a hostage is something your adversary values that you place at risk to coerce action (or inaction). The major problem is that perhaps the most effective Ukrainian hostage has been removed by American entanglement with Russian refining. It has turned a target into a strategic weakness for Ukraine and aligns the US with Russia more than ever before. It presents a dilemma for Ukrainian planners to either show restraint and adhere to a one-sided truce, or to continue with the energy strike strategy and risk the loss of American intelligence support. So far Ukraine are calling the American bluff and are tentatively continuing their campaign, at a reduced operational tempo. It isn’t just political timing that has pushed the Americans to these rather extreme actions, it is also the same weakness being exposed by the Iran War, the weakness of inside money. The source of American leverage in the form of sanctions which only works when the world needs dollars more than it needs diesel. Tightness in the energy molecule market often leads to sanctions relief of one form or another as you can print dollars, but you can’t print diesel. Russian commodities suddenly lose their geopolitical encumbrance and suddenly there are strategic complications for Ukraine. Simply put the Russians are trying to replace an aging air defence system with diktats from Washington DC.

Russia’s Other Export

Even during the three day energy pause Ukraine never stopped responding to Russian attacks in kind. Data centres and computing lie outside of the energy truce, and crucially don’t move any form of global price. In the past week Ukraine have targeted Yandex, the Russian Google. Hitting Sasovo, Kaluga and Vladimir within four days of each other. Yandex only run 5 data centres and 3 of them have been severely damaged. While this doesn’t cripple Russia’s cloud computing, they can prioritise workloads and shift computing, it does create prolonged outages for Russian connectivity. This however is not a move to ‘punishment’ by inconveniencing the civilian population, rather it has two impacts. The obvious damage to the Russian AI industry is one, but the latter is that it damages Russia’s second most notorious export after energy, misinformation. Russian bot activity plummeted on Yandex’s servers in the aftermath of each of these attacks; the Ukrainians are targeting the troll farms. Much as the midterms have impacted American strategic thinking, it stands to reason that Ukraine would benefit from a weakening of the propaganda that blames them for starting the war and for soaring energy prices. There has been a noticeable impact on next year’s French election as well where populist takes on X had comparatively few impressions and engagements. This is perhaps a harbinger of where war will go in the coming years. The global battleground, on one hand you have Russia reversing the US position through economic manipulation, and on the other you have Ukraine targeting Russia’s influence in western democracies. Populist defeats in the US this November and France in 2027 could have as much of an impact on the outcome of the Ukraine war as the failure of sanctions.

No Russian

In fact it is hard to overstate how important the US midterms will be in determining the outcome of this war. Without Russian influence there is likely to be a calming of populist discourse that can only hurt Trump’s chances in stoking outrage or creating an ‘October surprise’. The energy market is unlikely to loosen in the short to medium term as any disengagement in Iran will take time, particularly now that the Houthis are an issue for Saudi Arabia. So it’s plausible that no matter the result the Russian sanctions relief will remain regardless as it’s a structural failing rather than just political manoeuvring. The signal to watch to see just how vulnerable Washington is to Russia is the distillate crack spread, if and when it eases Washington will be able to take the leash off Kyiv. Where the midterms will have an impact is in terms of material support for Ukraine, and where the pressure falls. It is doubtful a lame duck Trump presidency will have the capacity to truly lean on the Ukrainians to not hit Russia’s refining capacity, but there could be a spiteful denial of cooperation from the Department of War. This is the other signal, American intelligence sharing with Ukraine will indicate the stance of the administration, the less they share, the more vulnerable to Russia they truly are. However even a complete Republican defeat in the Midterms, ie Senate and House, will not in the short term offer too much relief to the Ukrainians, it will take time to pass bills and undo the damage wrought by the Trump administration. This winter then is still maximum danger for Ukraine.

Conclusion

Russia are winning these negotiations by drone strike, in a contest of who can cause the most pain Ukraine are doomed to failure. Both sides are bargaining by targeting; Russia hurting Ukraine directly, plunging its cities into darkness and choking its ports, Ukraine hitting Russia on the global stage. These are both strategies designed to coerce a change in condition that will allow them to dictate terms at any peace summit. However the importance of Russia to energy markets and the ever clearer weakness of inside money has seen Washington blink, at Ukraine’s expense. Even the strikes on data centres aren’t enough to compensate for the protection of Russia’s energy assets. This sanctions relief will continue as long as the energy market remains tight, and that will be Ukraine’s problem. The limitation of inside money means that Russia have the US over a barrel, and the US, because of their intelligence and Ukraine’s military reliance, have them over a barrel. So any pressure to de-escalate will be put on Kyiv not Moscow. With winter coming, Russian power appears to be resurgent, but November and beyond will see many more FP-1s flying at full speed across Ryazan; targeting data centres and diesel refineries alike.

The Protectorate

The conversion of Venezuela from rogue state into American protectorate has been the main story of Latin America in 2026. The United States has breathed new life into the old United Fruit playbook. However, where once nations were taken over for the sake of economic opportunity, the same corporations are now tools of control. In Venezuela, the American firm Chevron and US-backed North American Blue Energy Partners (NABEP) are the two largest private oil producers. The American Department of War holds a 35% stake in NABEP’s parent company, and the State Department can buy 20% of output at production cost. The key thing to understand here is that the US have, in one fell swoop, seized control of Venezuela’s commodity flow. In the era of sanctions, blockades, and currency wars, commodities are the backbone of the monetary system; competition for commodities like oil and gold will be a key battleground in the clash of empires. However these modern empires don’t resemble the colonial empires of old. Where physical coercion and military occupation were once the method du jour, now empires rely on political capture and economic domination to control their destinies. It means to seize the littoral dimensions of a nation and take control of their resources by any means. Venezuela has fallen to the US. Brazil is up next.

Take it Littorally

The US will not take the same sort of action in Brazil as in Venezuela; Navy SEALs will not be spiriting Lula out of Brasilia in the dead of night, but rather they will rely on Bolsonaro’s election to draw Brazil closer to the US orbit. In terms of what the US and China are competing over, we are mostly talking about commodity flow, trade, and ports, in essence the coastal regions or the littoral. One of the mega-trends of the 21st century is the movement of people, services, and goods from the rural interior to the urban littoral, creating a modern ecosystem that reacts politically, socially and criminally in new ways. The ports of Rio de Janeiro and Santos in Brazil and Maracaibo in Venezuela are these modern cities that are the political and economic lifeblood of nations, and are the places that the superpowers compete for influence in very different ways. China’s Belt and Road initiative has been the cornerstone of their imperial project. China builds and buys ports, roads, and infrastructure, on the theory that by controlling the nodes it controls the path. It also takes non-controlling equity in things like oil fields and mines, the 25% stake in the Guyanese Stabroek block being a prime example. In contrast the United States takes control of the flow in the region. The US is the guarantor of security, controlling the sea lanes; and where the Chinese buy from Petrobras, American companies hold the licences and the offtake in Venezuela. Both models have elements of coercion, from American rhetoric to the Chinese debt traps. However the recent reversal in Venezuela shows that control of the littoral ecosystem, politically and economically, is the defining factor in who wins a nation

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Oil Control

The main driver behind the American use of force in Venezuela was to simultaneously open up Venezuelan oil fields for American companies, and to dump China (and Russia) out of that market. This was a strategic objective because securing regional sources of oil has become more important as the world fractures into a more multipolar system. The location of a resource has become more important as free trade becomes less free. Furthermore, by taking control of Venezuelan oil production, the US have denied China a source of cheap oil. Venezuelan oil was traded at a discount for two reasons. The first is that it’s extra heavy and sour, which means it’s hard to refine and full of impurities. The second, and more relevant for us, is that it was an encumbered asset. Encumbrance, as defined by Zoltan Pozsar, is a commodity whose trading, financing, or destination is restricted by geopolitics. Sanctions made China one of a limited number of destinations for Venezuelan oil. In financial terms, however, this allowed China to pay a discounted rate. Heavy crude generally trades at $9-10 below Brent (the global standard oil price), while Venezuelan Merey crude was trading at $14-16 below Brent. Merey delivered to Gulf Coast refineries is now at market price. Where the geopolitical haircut disadvantaged Venezuela, under the new system, production has increased, the price has improved, and there is investment being pledged to the country. However the US government stake in NABEP, and the US control of the oil revenue means that Venezuela is very much still at the mercy of a superpower. In many ways Venezuela has simply switched systems. Where Beijing’s system had claims on Venezuelan oil, it now flows to Washington.

Trade in Dollars

One of the main changes in Venezuela was their re-entry into the dollar system proper, one of the bulwarks of American power. Even under sanctions, Venezuela never truly left the dollar. From 2023 PDVSA began moving its oil sales to USDT, a dollar-pegged stablecoin, and by 2024 was demanding prepayment for half of each cargo in it. Caracas swapped American banks for a shadow dollar, which kept its revenue out of Washington’s reach but not out of the dollar. Brazil, which produces around quadruple Venezuela’s oil output, and ranks in the top seven globally as a producer, never left it. Brazil sends 54% of its oil exports to China; the next highest is India at 8%. This illustrates how important the relationship with China is to the Brazilian economy. Over 90% of Brazilian trade is denominated in dollars, and Petrobras don’t trade in yuan, so unlike in the Persian Gulf there is no challenge to the almighty dollar. China’s approach to empire building is really economic entanglement, and there is no doubt that Brazil is reliant on China as an export market. The US approach is more extractive, where China buy the resources from Brazilian companies, the United States buy equity in the producers, at least in critical minerals. Guyana is the clearest example of this model. Though there is significant Chinese equity, around 85% of Guyanese oil flows to Europe and the Americas; once again control over the flow is the important factor. This is particularly important in the case of Brazil, which is simultaneously a major trade partner with China, and a nation which holds massive reserves of critical elements. Brazil is the world’s largest producer of niobium, second largest exporter of iron ore, holds large amounts of nickel and lithium and most importantly, behind China, has the second largest reserve of rare earths. China buy a large proportion of Brazil’s mineral output, however the only rare earth producer, Serra Verde, is being bought by a US firm and is ‘renegotiating’ its contracts with Chinese buyers. This, like the capture of Venezuelan oil, is both a strategic acquisition and an exclusionary action. However, the sheer volume of trade with China means that Brazil remain outside true American control. The competition is still ongoing, which is why the US, in the run up to this election, have turned to other forms of indirect influence and coercion.

Crime and Coercion

One of the interesting aspects of the emergence of the littoral is that it has created massive security dilemmas both on national and transnational levels. The combination of resource flow, growth, and poverty has given criminal organisations power akin to non state actors. One of the major advantages the US has over China in the competition for the Latin littoral is its ability to project political pressure, and dispense political capital. In May Flávio Bolsonaro visited Washington, and within days the US designated the two largest Brazilian criminal enterprises, the PCC and the CV, as foreign terrorist organisations. This has two major implications. First, it acts as an indirect endorsement of Bolsonaro (he claimed credit), and secondly it fits into a broader US regional anti-cartel strategy which has operated as a way to project and use force outside of wartime. Crucially Bolsonaro has not rebuffed China, merely signalled that he would shift politically and security-wise towards the American position. In terms of geopolitics this is the main implication of the Brazilian election. The Chinese and American imperial competition is staying below the threshold of overt conflict in Latin America, remaining a battle between Chinese investment and American influence.

Geo-Monetary Competition

The competition between China and America is playing out mostly in an economic sphere, but regional hegemony matters a great deal, not only in terms of security but also to control commodity flow in their respective geopolitical backyards. One of the recent developments is the re-emergence of the importance of inside and outside money. Inside money can be frozen or sanctioned, dollars for example. Outside money, however, can’t be, like gold, bitcoin, or most relevant for this article, Venezuela using barrels of oil as debt repayment to China while under sanction. Commodity flow in our opinion has become a form of outside money, at least in terms of one system. This lines up with Pozsar’s explanation of Bretton Woods III. Bretton Woods I being the pegging of the dollar to the price of gold, then II being floating fiat currencies backed by reserves held in dollars, and now III where geo-monetary dynamics mean that outside money will be what backs value. The trigger for Bretton Woods III was when the G7 froze Russia’s foreign exchange reserves and the idea of how vulnerable inside money was crystallised. The critical aspect here is that Brazil bought 43 tonnes of gold in 2025, outside money; given how much of their trade is in dollars this is part of their hedge to remain part of both systems. However the imperial competition means that hedging can only go so far. Gold will protect Brazil’s reserves and even offer a mild bulwark against American economic colonialism, but it does nothing to secure trade. It is the physical flow of commodities across the ocean that things like the Houthis and Iran are impacting. Amid the Hormuz disruption, beyond raising the price of oil, the cost of shipping oil from Jose to the Gulf Coast refineries has risen from $1.90 to $5. Geopolitical developments 8,000 miles away have created a situation where even though the US control the source, the route and the destination of the oil, the shipping cost has still jumped $3. However, the importance of geographic origin means that the cost to ship Brazilian oil to China is even higher. So even though China bought a record amount of oil from Brazil after the Iran War broke out, the route is long and exposed, raising the cost to China. Every disruption makes the American route cheaper relative to the Chinese one. Controlling the commodity flow is even more important these days; it is the only way to keep nations within a system or draw them in.

Conclusion

The Brazilian election is a choice between systems: Lula’s strategic autonomy and Flávio Bolsonaro’s security links to the Trump administration. Lula has openly resisted the American push for regional dominance, which Bolsonaro has derided as ‘licking China’s boots and throwing stones at the United States’. Bolsonaro would bring Brazil into the American security orbit, and reassess the relationship with China. For a Brazil whose credibility has been eroded over the last few years the precariousness of their position means it will likely have to pick a side. And that side will have a domino effect: either China’s economic entrenchment in Latin America will strengthen, or the continent will fall to the Donroe Doctrine. Whoever wins on the 25^th decides who Brazil’s barrels and minerals will fall to, and which geo-monetary system will take the advantage in Latin America. History, geography and the polls all say that Washington should take this one.

‘The horrors were repeated, with minimal variations, inspired by profit’ writes Mario Vargas Llosa of the Congo in his novel The Dream of the Celt. For a story set in the late 19^th century it bears a remarkable resemblance to the geopolitical experience of the DRC in the modern day. A nation ravaged by civil war, insurgency, and business practices Leopold II might have been proud of. A nation currently engaged in its own forever war, but one that bears little resemblance to the American misadventures in the Middle East. Conflict has become endemic to the region like a disease. There has been nigh on continuous fighting in the DRC since 1996, when the AFDL, backed and directed by Rwanda, marched to Kinshasa and placed Laurent Kabila in power removing Mobutu Sese-Seko; and even now there are well over 100 armed groups of one sort or another operating in its sovereign territory. Pre-eminent among them is M23, a paramilitary group backed by Rwanda operating in the Kivus.

M23 History

Formed in 2012 by mutinous FARDC (Congolese Army) troops who had once been part of the CNDP (Rwandan backed rebels) until welcomed into the Congolese army as a unification measure. M23 took over Goma, the capital of North Kivu for 10 days, before retreating and ultimately surrendering to a Congo-UN joint force. This was mostly due to an internal split within M23 leadership rather than due to any great military success by the FARDC or MONUSCO. In 2021 M23 reemerged as Sultani Makenga consolidated support around him and gathered together disparate factions. Over the last year M23 manpower rose 5,000 in January 2025 to 27,000 by December. M23 claims to have taken 34,000 km², including large parts of North Kivu and some of South Kivu. They are, in a word, a fully fledged insurgency. Their stated aims are the implementation of past agreements, protection of Kinyarwanda-speaking Congolese, and FDLR neutralisation. In reality they were backed, armed and financed by Kigali from the very start. During the Goma offensive there were around 4-7,000 RDF (Rwandan Defence Forces) troops fighting alongside the M23 soldiers. Critically the FARDC had 2000 troops surrender at the end of that battle. The RDF and M23 are a much more effective military force for one precise reason. Rwanda’s forces are designed to fight, DRC forces are designed to prevent coups.

Greed and Grievance

Though they are not an army, their effectiveness can’t be denied. In truth M23 lies somewhere between a proxy force for Rwanda and a business enterprise. The proxy force aspect comes from the ethnic and security interests that Rwanda holds in Eastern Congo, as well as historical grievances between DRC and Rwanda. Whereas the business aspect, which we classify as greed, comes out of the economic extraction of Congolese mineral wealth to enrich Rwanda and fund M23. The Kivus contain vast supplies of Coltan and other critical minerals, and sit on the border with Rwanda. Greed and Grievance is a concept created by Collier and Hoeffler, and it is an important part of modern insurgency theory. The security question involves the FDLR, one of the last remaining Hutu rebel groups opposing Paul Kagame’s Tutsi dominated regime. This is a very real concern, and denying the FDLR operational space is crucial to Rwanda’s internal stability. These ethnic tensions are the grievance upon which M23 was founded, and are an important part of the current insurgency. As for the financial benefits, Global Witness estimates that there is a $7 per kg tax on coltan being exported from the Kivus, split with $4 to M23 and $3 to Rwanda. This is a symptom of an entrenched insurgency. M23 are creating a functional governance system in Goma. Not only with taxation but by providing justice, structure and services, including reinstating Congolese police officers and administrators. This is a classic insurgency strategy that delegitimises the official government and bolsters both recruitment and acquiescence among the local population, and it makes M23 seem less like a rebel group and more like a government in its own right. There are even reports that the efficiency and security of the Rubaya coltan mine has actually increased since the M23 takeover. M23 are not mindlessly opposing the DRC. They are cannibalising whole regions, and using the vast mineral wealth of what they take to create a de facto rebel state. One that, due to its position and its strength, can impact markets oceans away.

Copper, Cobalt, and Tantalum

The DRC is without question one of the most mineral rich countries in the world, in particular when it comes to copper, cobalt, and tantalum. It is the second largest copper producer on the planet after Chile, and produces 80% of global cobalt, and of the 19 major cobalt mines, 15 are at least partly owned by Chinese companies. Notably CMOC owns 80% of the Tenke Fungurume mine, and 75% of Kisanfu, then there is the CNMC and Gécamines joint project of Deziwa, and finally Kamoa-Kakula which is a joint venture between Zijin (39.6%) Ivanhoe (39.6%) and the DRC state (20%). While M23 are 1000 miles away from the copper and cobalt producing regions, it matters because it aligns China very strongly with Kinshasa. There is a strong historical partnership between China and the DRC, one that, as a result of low US credibility in the region following the second Congo War, and western underinvestment has given the Chinese a huge advantage in controlling the global supplies of copper and cobalt. The final major Congolese export is tantalum. 40% of the global supply comes out of the DRC; the Rubaya mine alone produces half of the DRC’s tantalum. Furthermore 18% globally comes from Rwanda and Burundi, meaning that the region as a whole produces 58% of the total supply. Tantalum is one of the most important critical minerals on the planet, in particular tantalum capacitors, which are near irreplaceable in data centres. Which leads us to the surreal fact that a rebel group is heavily levered to the AI Capex cycle.

The Chinese Hedge

You might expect, given China’s strong relationship with the DRC, that they might exert diplomatic pressure or impose financial sanctions on Rwanda and M23. However while China may own much of the Congolese industrial base, they are also Rwanda’s largest buyer of tantalite. This is the Chinese hedge, where they are engaged in trade with both sides of this pseudo civil war. Furthermore, CNMC bought Mineração Taboca in Brazil in November 2024 to secure tantalum access outside of the region, insuring themselves against the M23 conflict. The ongoing AI arms race with the United States has made access to these minerals so important, that realpolitik is the default mode of all major powers involved. Beijing has no incentive to alter the status quo in this conflict and disrupt their supplies of minerals during this critical period. They, like others, tolerate Rwanda’s support of M23 because they need Rwanda.

Rwandan Mineral-washing

Rwanda’s role in this conflict as patron and partner is long-held and strategically crucial for Kigali. Their economic interests, both in terms of exports and further afield are well served by the M23 insurgency. In particular the manner in which Kivu coltan can become Rwandan coltan with very minimal effort. Kivu ore crosses the border from M23 held territory past Rwandan customs and is then mixed with Rwandan ore. It is all then marked as conflict free and enters the legitimate market in a process known as mineral-washing. M23’s early campaign, as they closed in on the mining region forced Congolese state agents to withdraw, meaning that there is no way to verify the provenance of Congolese coltan. The trucks filled with ore rumbling through the Grande Barrière however might offer an idea. This mineral-washing is indicated by spikes in Rwandan exports that are not readily explainable. For example after M23 took Rubaya, the next quarter Rwandan coltan exports jumped by 42%. The economic benefit to Rwanda is that in 2021 their mineral exports were $507.6m and by 2024 they were $1.75b. The benefit of M23 is that not only does it enrich its patrons, but as a force it destabilises and weakens a regional rival.

The Condottieri State

The impact M23 has on Rwandan regional power cannot be overstated; by fighting the FDLR as well as having a negative impact on the DRC’s political stability and economy, Kigali can remain the pre-eminent power, both economically and militarily in the region. Even while being one of the smallest countries on the continent. On the back of this Rwanda has made itself indispensable to both the region and to its great power patrons as well. Rwandan troops consistently form the backbone of UN peacekeeping missions in Africa, as well as any African Union coalition forces. Rwandan forces also operate in neighbouring countries as auxiliaries, notably in Cabo Delgado in Mozambique. Cabo Delgado is an LNG producing region run by TotalEnergies. There is a local insurgency of IS-Mozambique, which, similar to M23 uses grievance and greed to recruit and remain endemic within the region. In this case greed and grievance are the same thing, exclusion from the LNG profits. In 2019 the Mozambican government recruited Wagner Group mercenaries to restore order, they failed publicly. Some of them were even beheaded and they withdrew within months. Subsequently in 2021 Rwandan forces deployed to a current force level of 5000 troops and have enabled the ending of force majeure. Rwanda’s strength as a small nation is born of its elite military capacity, they are a ‘Condottieri’ state in the vein of the old Swiss Confederation. A small poor mountainous state which sold its elite military to the great powers of its day, the Spanish Empire, the Papacy and France. And in this way they guarantee their own survival. This is the playbook Rwanda are reading from. On their own they would be incapable of fighting larger wars, but by acting as elite auxiliaries and thereby creating a network of patronage they are able to be regionally dominant. Chapter 13 of the Prince is clear on the perils of loaning forces from another state: if you lose you are destroyed, if you win you are beholden to another power. However the inversion is desirable, if they lose your state survives, but if they win you have another state as your prisoner. Machiavelli’s warning was addressed to Princes who borrow, Paul Kagame has made sure he is the Prince who lends.

Tolerance

Rwanda’s status as a Condottieri state is one of the reasons that its murky relationship with M23 is allowed to prosper. Prior to the deployment of Rwandan troops to Cabo Delgado TotalEnergies declared force majeure but as of January 2026 that has been lifted. This has two effects: it removes the greatest source of instability for the Mozambican financial system, and guarantees profits for TotalEnergies. This is a replicable system, and as the conflict in the gulf sends the search for molecules into new places, perhaps one that will be needed again. It is the alignment with western interests and their willingness to use force that places them as a necessary ally. Their stability in a region beset by conflict means it is not worth creating a pariah state. But it is not only that auxiliary nature that allows Rwanda to operate a proxy force with minimal repercussions. Economically China and the EU both buy large amounts of coltan from Rwanda. The EU even signed a critical raw materials partnership in the weeks before Rubaya fell to M23. All eight smelters sourcing Rwandan coltan were audited under RMAP in 2024-25, and all eight passed. This tells us that the compliance architecture is designed to allow Rwanda to wash the coltan rather than to catch them. The economic benefits that the west get from the Rwandan proxy force and smuggled coltan outweigh the downsides of tacitly accepting M23’s primacy over North Kivu. The entrance of the United States into this dispute in 2024 reflects not only the critical nature of control over these metals, but also the new transactional nature of the American government under President Trump. The US have cut M23 out of the negotiations, and is focusing on the relationship between Kigali and Kinshasa. Washington is treating this as a Rwandan war rather than an insurgency.

Trumpian Diplomacy

The American diplomatic efforts have two main ambitions. The first is to secure the supply of tantalum for their own uses, with a peace for minerals deal wherein the United States will be the guarantor of peace in exchange for buying the coltan produced. The second is to weaken the stranglehold that China have on the copper and cobalt production in the Congo by building better relationships with the DRC. Such is the confidence in these talks, President Tshisekedi is marketing the Rubaya mine (under M23 control) to investors, most notably America First Global. Tshisekedi is also bartering with America in an attempt to sway them to his side. Three American nationals involved in the 2024 coup attempt were released days before Trump’s negotiators arrived. This combination of human currency and peace for access is characteristic of American policy recently. However any deal between Rwanda and Congo that doesn’t resolve the two major issues, namely M23 which is on a separate diplomatic track mediated by Qatar, and the ethnic grievances, will lead inexorably back to conflict and further disruption. The US peace plan would require a degree of commitment and attention that African files simply have not received from the state department historically. Furthermore the entrenchment of M23 and their creation of a parallel state within the Kivus means that Rwandan passivity would be a blow but not fatal. And while US pressure has rolled M23 back from Walikale and Uvira, these are two minor concessions after three years of negotiations. Selling access to these minerals is Tshisekedi’s best chance of staying in power, however he has lost control of them.

Coup-proofing by proxy

The recent history of the DRC has been defined by coups and coup attempts. On the 19^th of May 2024 Christian Malanga launched a failed coup and died in the attempt, and in the last year 30 Generals, disproportionately Kinyarwanda (Rwandan) speaking Easterners have been detained and charged with treason. Historically Mobutu kept the army weak and fragmented to prevent threats as that is generally where the majority of coups emerge. The problem with this was that in the First Congo War the Rwandan army was able to sweep past them to Kinshasa. However this is not without precedent, rulers facing coup risk exclude rivals from the centre and trade a coup threat for a civil war threat, as put forward by Philip Roessler in Ethnic Politics and State Power in Africa. That is perhaps an effect of this conflict for Tshisekedi, the army is occupied and 1000 miles from the presidential palace. Though as Mobutu’s example demonstrates, coup proofing works well until a weakened army has to fight. Which is precisely why 2000 FARDC troops surrendered so meekly to the RDF-M23 force at Goma. However M23’s ambitions seem to be focused on consolidating control in the Kivus rather than dragging Tshisekedi from the presidential palace. Whether or not this is a choice, this is an ancillary benefit for Tshisekedi. The war may be destroying the DRC but it is bolstering his legitimacy.

Conclusion

This war has gone under the radar, and perhaps it is supposed to. M23 are governing more effectively than the DRC ever did. Tantalum is making it out of the region and into AI chips via Rwanda. Both the US and China’s copper and cobalt interests are being protected and Felix Tshisekedi’s government is more coup-proof than ever. And the Rwandan Condottieri state is free to protect western interests across the continent. The war is in a profitable equilibrium, with the only ones suffering the Congolese people. Though as we have seen, that equilibrium survives only as long as it is profitable for everyone. ‘The horrors were repeated’, and while the Force Publique may have been replaced by mining companies and auditors, Congo remains as much at the mercy of great powers as it was at the turn of the century.

Centres of Gravity

Clausewitz defined the centre of gravity as ‘the hub of all power and movement, on which everything depends’. Historically this has been many things, Alexander the Great’s centre of gravity was his campaigning army, if it had been defeated that would have been the end of his march to the end of the world. For states riven by political division it was their own capital, as that would bring an end to their resistance and collective will. In an alliance the centre of gravity is the cohesion with which that alliance operates, as allies operating cross-purposes cannot succeed. The primary point of identifying the centre of gravity is so that it can be attacked with ‘concentration’. Napoleon would target a decisive victory on the battlefield followed by an occupation of the capital, the purest expression of these theories. The centre of gravity for Iran is the Strait of Hormuz. For the United States Hormuz is where they collide with Iranian power, it is the primary battlefield on which they are fighting this war, with aircraft carriers and sanctions packages, blockades and bombers, but it is not their centre of gravity. For Iran control of Hormuz would provide regional power and a degree of deterrence that would allow the Iranian regime to not just survive but thrive. For the US, the loss of Hormuz would threaten their credibility, and therefore their position within the region and perhaps further abroad. This is why all these factors have narrowed to focus on the strait, military, economic, and political, and this is why the Strait of Hormuz is where this war will be decided.

The Iranian Littoral

To understand why the Strait of Hormuz is so important to Iran you have to first view it as more than just an economic chokepoint. The overwhelming mass of reporting focuses on its capacity as an economic weapon to disrupt oil flows, and thus inflict pain on the rest of the world. As a part of the Iranian littoral it functions as Iran’s main connection to the world. We mean this not just economically, but as US strikes have shown it is where Iran is most vulnerable to military action. And so it is for the other Gulf states. Iranian control over Hormuz allows for coercion in multiple spheres by taking advantage of the connectivity of the littoral regions to threaten energy, financial flows, and military targets. The demonstrated effectiveness of holding Hormuz hostage has also seemingly shifted Iranian strategic calculus. Control over the strait has allowed Iran to negotiate and demand far beyond what its conventional military capacity would allow. However, this has moved beyond coercion to consolidation. As energy markets readjust and workarounds like pipelines and dark ships begin to take shape, control over molecule flow will naturally degrade as a coercive weapon. However by formalising their dominance over the strait, Iran can force concessions from the US in the short term to reverse the economic damage done by decades of sanctions. They can also monetise the passage to the tune of around $1–2m per vessel, $3–8bn a year. Crucially this is frequently denominated in Yuan, which draws the Iranian regime closer to their Chinese allies, and diminishes the power of the petrodollar in the Gulf. Control over the strait, and a more impactful relationship with China will also generate considerable regime legitimacy. The Iranian leadership consolidation on August 10^th demonstrated the result of Iranian strategic success as the hardliners were the overwhelming beneficiaries. The further ascendance of Ahmad Vahidi and his IRGC faction, and the corresponding marginalisation of the moderate faction suggests that Iranian strategic thinking is going to double down on the strait. There is a final reason why this is the case, Iranian control over the strait, and the vulnerability of states to their littoral regions in the era of modern warfare has created an unexpected side effect. The alliances and understandings that underpinned the structure of the Persian Gulf are fragmenting in real-time. Iran have shown not only the limits of US protection, but also the limits of US commitment. Their leverage over the strait has forced Oman into bilateral negotiations, and we would be surprised if there were not bilateral track negotiations between other gulf states and Iran in anticipation of the end of the war.

System Collapse

This move by Iran, to further disrupt the regional order and undermine cohesion threatens the American centre of gravity, which is the order they have underpinned for decades. The system guarding molecule flow out of the Persian Gulf, and their own regional dominance and alliance system. Besides hypothetical bilateral negotiations there are more concrete expressions of the weakening of the US position in the Middle East. In particular the Mecca Joint Defence Agreement signed on August 7^th, between Turkey, Pakistan and Saudi Arabia (with Egypt present but not a signatory). Saudi Arabia’s claim that this is unrelated to Iran, despite the timing and the fact that that particular geographic combination of states happens to encircle Iran, rings slightly hollow. It also happens to pressure Israel from multiple sides, Turkey to the north, Saudi to the south, and the nuclear umbrella of Pakistan to the east. This conflict is not just reordering priorities, but triggering a full blown race for regional dominance outside of the US umbrella. Iran, Israel and Saudi Arabia are all maneuvering to gain primacy and seem to be operating under the presumption of weakened US influence in the region. This can be seen in the Omani bilateral negotiations with Iran about reopening the Strait, in Netanyahu’s public rejection of President Trump’s 15 point Gaza peace plan, and in the Saudi hedging on regional alignment. The importance of the Strait of Hormuz as the regional centre of gravity has altered the stakes of the region. This is not the Gulf States attempting to weather the conflict, but rather the breakdown of the US dominated, Axis of Abraham, oil based regional order. The Gulf states appear to be realising that as the world adapts to Hormuz disruption their financial and geopolitical muscle, in particular Saudi Arabia and the UAE, will be compromised, as other oil producers ramp up production and the markets find workarounds. Therefore creative solutions to preserve their position, and bring a swift end to the conflict are critical to the Gulf States. It is however the US’ position that is most tenuous, with the most to lose and the least to gain.

Economic D-Day?

Secretary Bessent’s new strategy ‘to sever every economic lifeline’ is aimed at Iran’s economic jugular. The economic D-Day is directed towards several industries, critically Oil, Shipping, but also Crypto, Gold, Aviation, and Digital Assets. It hits 6 industries and 60 named entities, a network of brokers, companies, and shadow fleet vessels operating across the UAE, Hong Kong, China, Singapore, Switzerland, Europe, and other regions that move Iranian oil and channel revenue to the IRGC and other regime elements. However, while this will inconvenience and perhaps even damage the Iranian economy, it disregards the key part of the theory we have been discussing today. Clausewitz’s concentration principle says to hit the centre of gravity with everything, the pivot upon which the war turns. This wide dispersal is the opposite, it is a shotgun blast rather than a sniper, and I fear it will simply bounce off without causing critical harm. However a proper attack on Iran’s control over Hormuz would require risking a global escalation. The China artery, the recipient of 90% of Iran’s oil exports, and the one place where concentration might actually pay dividends. China is mentioned within Bessent’s spread of sanctions, but only in areas that are replaceable. A shadow fleet vessel sanctioned is a shadow fleet vessel reflagged and renamed. The conspicuous absence is sanctions on the Yuan denominated settlement system that allows Iran to hold Hormuz hostage. Iran are placing themselves outside the dollar system, and that alone castrates US sanctions before they even take hold. The US have correctly identified the centre of gravity for this war, but to target it properly would risk escalating a limited war into a stand off with a global power. China’s Foreign Ministry stated that “sanctions and pressure tactics do not help in resolving issues, they will only lead to escalation that serves no one’s interest”, which reads as a direct response to Bessent’s sanctions. We mentioned earlier that in this war, American regional dominance is their centre of gravity, globally it would be the dollar system that underpins and reinforces US hegemony. One could view the Chinese statement in the same vein as Bessent’s sanctions, a warning shot.

Conclusion

There are two centres of gravity at play in this war, the Iranian littoral, and the American order, both of which are under attack in the same small stretch of water in the Persian Gulf. Iran’s dominance over the strait is being undermined by every workaround and every Arab barrel that slips out of the Gulf, which is why they are racing to crystallise their coercive power. For Iran, the erosion of the US order is their path to victory. The Americans are staring at the only target they can hit to truly alter the calculus of the war and cannot bring themselves to pull the trigger. Iran are slowly boring through the American centre of gravity. Whether this war is important enough for Washington to risk a confrontation with China is no longer a hypothetical question, rather it is the only question that matters.

Havana sits powerless 20 hours of the day, every day. Cuba has not received an energy shipment since the Anatoly Kolodkin docked on March 31^st. It is a country on the brink of a humanitarian crisis to rival Haiti. This is a crisis made by the United States in an attempt to bring maximum pressure to bear on the Cuban regime. By imposing a blockade and daring Cuba’s allies and NGOs alike to run it, the United States are betting that sooner rather than later the economic consequences will cause the Cuban people to rise up in rebellion. The US is once again attempting its strategy of regime change, or regime capture, in its backyard. A blockade by itself it will not be enough and its result will be to erode US credibility in the region and beyond, as far as the South China Sea.

The Island

Some background first, since 2018 Cuba has been led by Miguel Díaz-Canel, the handpicked successor to Raul Castro. Thus this regime exists in direct continuity with the revolutionary state created by Fidel Castro. Though while Díaz-Canel is the face of the regime he is not its center of gravity. Raul Castro, aged 96, still wields considerable influence over the direction of the Cuban government as the power behind the throne, his surname granting him legitimacy. The other major player and the most important one in any discussion of Cuban regime change is the Grupo de Administración Empresarial S.A. (GAESA) which is the vehicle through which the Cuban Armed Forces dominate the Cuban economy, from trade to tourism and the flow of currency. Structurally they have a lot in common with the IRGC, and this is important to understand in terms of regime resilience; those in charge of the Cuban military, and therefore the economy are deeply invested in the survival of this regime. Marco Rubio has identified GAESA as the primary target of US action, this is partially down to the specific US ambitions within Cuba (namely economic access) but also due to GAESA’s key role in running the Cuban state.

The US blockade has created a serious economic crisis. Airports are running out of jet fuel, 20 hour blackouts, and Bloomberg satellite imagery shows a 50% reduction in nighttime illumination. Cuba needs 100k barrels of oil per day to function, domestic production is c. 40k barrels. Cuba was totally reliant on its symbiotic relationship with Venezuela, Cuba would offer military and security assistance to the Venezuelan regime, and in return it would receive discounted oil in breach of the US sanctions. This was part of the American strategic calculus during its regime co-option of Venezuela in that it could begin a domino effect to remove another threat. Since the Venezuela lifeline was shut down Cuba has been receiving a trickle of inbound traffic. Two Mexican navy ships carrying food not fuel, the Sunny Hong out of China carrying rice, and the VLCC (very large crude carrier) Anatoly Kolodkin have been the only ships allowed through the US blockade, and they were all exceptions. The Sunny Hong and the Mexican ships were humanitarian aid, and the Anatoly Kolodkin was a negotiated passage. The simple arithmetic is that Cuba needs 8 VLCCs per month to survive, and they haven’t seen one in three months. Cuba is not being squeezed it is being asphyxiated. With all this being said, while popular discontent is running high in Havana this is not a regime on the brink of collapse but rather an entrenched Praetorian regime with minimal elite fracture under acute external pressure.

Americans in Havana

Sitting 90 miles off the coast of Florida, Cuba has been viewed covetously by every US government since Fidel Castro’s revolution. This latest blockade represents the endgame of the long-held US ambition over the island of Cuba to return it to its status as a client state in the Caribbean basin. There are however many other reasons for American intervention in Cuba. Firstly it would remove Cuba as an outpost for both Russian and Chinese intelligence installations and other military infrastructure, which given its location is critical to national defence. Removing GAESA from their position at the apex of Cuba’s economy would open a new and profitable market for the US as any regime co-option would almost certainly favor US businesses. There are large nickel and cobalt reserves on the island, and in the current geopolitical climate a local and controlled source of metals would be an asset to the US. Finally taking control of Cuba would allow the US to halt the consistent illegal migration of Cuban nationals to their shores. This blend of domestic political benefit and great power conflict is archetypal of the ‘Donroe Doctrine’, the expression of President Trump’s ambitions in the western hemisphere.

The Donroe Doctrine

The Donroe Doctrine is in a direct intellectual lineage with its namesake Monroe Doctrine wherein geopolitical rivals are excluded from the western hemisphere, autonomy is limited for Latin American states, and US interests are protected by gunboat diplomacy. It however also bears a resemblance to the United Fruit model of the 1950s turning US allies into Banana Republics. Where the entire ecosystem of the hemisphere was extractive in nature and compliant to the United States. The Donroe doctrine is the synthesis of these two ideas, and taking Cuba in some form would be a clear expression of its tenets. Those tenets being to exclude China from the region and to open economies to US investment and control. We can see this doctrine clearly in the US co-option of the Venezuelan regime and we can see the groundwork being laid for it in Cuba. The downside of these doctrines is that the wave of socialist thought that swept across Latin America and the Caribbean basin was in direct response to decades of coercive US control.

The Impact of the Blockade

During the Cold War the Soviet Union acted as patrón to the Cuban state, followed by Venezuela, as well as to an extent, China and Putin’s Russia. Cuba relies on imports and patronage to survive as most poorer island states do. After the US co-option of Venezuela and the imposition of the new blockade no one has yet stood up as Cuba’s new patrón. In terms of regional solidarity the lack of support shows the strength of the Donroe Doctrine and President Trump’s economic coercion strategy. The two primary socialist governments in Latin America, Lula’s Brazil and Claudia Sheinbaum’s Mexico have been notably quiet, with Mexico sending only two ships worth of humanitarian aid and Lula unwilling to jeopardize his newly stable relationship with President Trump. China and Russia have also not attempted to flex their geopolitical muscle and test American resolve over the blockade. Their silence and inaction is the Donroe doctrine in full effect.

Maximum Pressure

The primary weapon of the Donroe Doctrine is to cause enough economic pain to generate popular discontent and from this discontent comes revolution. The primary issue with the US blockade is that this idea is fundamentally wrong, without elite fracture maximum pressure cannot generate regime change. American success in Venezuela hinging on capturing Maduro rather than the years of heavy sanctions demonstrates that. No doubt the 20 hour blackouts, collapsing currency and economy and imminent starvation will create significant protests dwarfing those of 2021. However, much like Iran, the Cuban regime is deeply structured, and the entire elite base is deeply invested in regime survival. The ultimate result of maximum pressure is more likely to be the entrenchment of the regime that will skew more repressive and the creation of a humanitarian crisis. It is important to realize that GAESA is not regime adjacent or a partner, it is in many ways the primary actor in the regime. Alfred Stepan’s civil-military framework makes the distinction between states where the military is both separate and subordinate to the civilian government, such as most liberal democracies, and those states where the military’s relationship with the government is one of control or at least consent. Cuba is a state where the distinction between GAESA, FAR, and the administration is blurred. The result of this for us, is that where in liberal states economic pain filters through civilian institutions to enact regime change. Cuba, as a Praetorian regime with far-reaching control over the economy will respond to economic suffering with repression and a tightening of control. The other issue here is that the Venezuelan campaign has given the US a false understanding of the ease of regime change. Replacing Maduro with Delcy Rodriguez was easy because Chavismo was a patrimonial system more than an ideological one. In Cuba the GAESA officer corps is loyal to the system and to the institutions rather than to Díaz-Canel. The mechanism by which fracture occurs in these crises doesn’t exist in the Cuban system. In Venezuela the interests of the elites could be protected even with a change in leader as their financial assets and benefits from the regime were hardly affected. However in Cuba not only is the regime significantly more ideological but with GAESA’s control of the economy the interests of the elites are only served by regime continuity. The American strategy of maximum pressure will only serve to consolidate the resolve of the Cuban elites, who are more likely to shoot protestors than to surrender to Washington.

Deals not Doctrines

The Cuba problem exposes an inherent flaw in the Donroe Doctrine. The administration doesn’t have a Cuba strategy as much as it has a Cuba policy. In the absence of a grand strategy different factions within the administration compete for support by promising easy wins at a low cost, with upside domestically. Marco Rubio, the son of Cuban exiles, is notable in this case by leading the hardliners who wish to topple the regime, dismantle GAESA, and treat Cuba as the next domino after Venezuela. On the other hand there is clearly a faction dedicated to regime change, with CIA Director John Ratcliffe meeting Raúl Castro’s grandson in an attempt to make him Cuba’s answer to Delcy Rodriguez; someone under US influence who retains enough legitimacy and continuation within the ancien regime to take power. The result of two competing strategies is not a synthesis it is the pursuit of incompatible objectives, you cannot encourage a negotiated deal and transition while driving a nation to the brink of starvation. This incoherence is noticeable in Venezuela, where the pro-democracy faction watched the United States support the Chavist regime, its noticeable in Iran, where the pro-regime change faction watched Donald Trump sign a deal excluding Israel from the peace process. The operating logic of this administration lies somewhere between opportunism and dissonance, and it runs on deals not doctrines.

Littoral Competition

This logic reflects David Kilcullen’s littoral theory which provides the context for how and where the Donroe Doctrine is playing out. The short version is that several mega-trends are concentrating population, trade and therefore power in littoral urban zones and chokepoints. We have seen this in terms of the way the US capture of Maduro was launched from US Navy vessels meaning that it was littoral combat; and we have seen it in the Strait of Hormuz as the IRGC’s control of the Hormuz coast has granted them leverage far exceeding their military force. Control of the littoral as opposed to controlling territory is going to be the critical geo-strategic challenge of the coming years. Both in terms of how the US is enforcing maximum pressure on the Cuban regime and the logic of why are based in this understanding. A separate example within the Caribbean basin is that of Panama and the CK Hutchinson ports at either end of the canal. The rhetoric Trump used was deeply couched in the Donroe Doctrine, with language focusing on reclamation but the strategic target was regaining control of a littoral chokepoint. Despite pressure Panama is still an active contest with Chinese security systems and software running Tocumen airport which is one of the largest cargo hubs in Central America. Hence the ongoing US pressure on Panama both legally and diplomatically. However Cuba and Panama are not isolated cases; gaining control over littoral zones is happening across the globe. For example an illegal blockade on an independent island that poses an ideological threat to a regime might be a precedent that the United States do not want to set; as it may encourage China to make a move for Taiwan. China are in essence running a similar campaign of pressure on Taiwan. But given Taiwan’s development rather than create a humanitarian crisis they are focusing on propaganda and military harassment. During the height of the Hormuz crisis Chinese propaganda towards Taiwan was focused on convincing the Taiwanese people that they were on the verge of running out of energy, reinforcing their unique vulnerability. Thus if President Trump sets a new precedent for a blockade against other superpowers as a form of grey zone littoral warfare, what exactly would stop China?

Taiwan Transactions

At the Trump-Xi summit in May President Trump made a comment that Taiwan ‘stole’ the US chip industry. The transactional nature of the Trump administration’s foreign policy must surely look like weakness and an opportunity to Xi. The strategic incoherence is here as well, as Trump’s comments have done nothing to change the recent US arms sales and reassurance to Taiwan, there are likely factions within the administration as there are on Cuba. Incoherent motive does not produce incoherent signal however. Beijing is primarily analysing outcomes and precedent: ships turned back, a suffocating regime, and wanton sanctions. A chaotic policy still produces a legible pattern, which Xi is reading.

The American policy focused rather than strategic approach to the Taiwan issue raises the question of what the US would do if confronted with a Chinese blockade similar to that of Cuba. While no Chinese ship has yet tried to run the US blockade the US would almost certainly attempt to break a Chinese blockade, and it would be interesting given the Cuban precedent as well as recent events in the Strait of Hormuz as to how that would evolve diplomatically. There is also an arsenal problem beyond the political one. Trumps war with Iran, on much the same principles as the Donroe Doctrine and Cuba created a military shortfall that cannot be quickly remedied; every THAAD, Patriot missile, and interceptor expended over Tel-Aviv and Dubai is one that leaves Taipei slightly more exposed. Moreover the US will prioritise its own arsenal over those of allies, the interceptor asymmetry will favor China in any limited kinetic exchange. It is however the precedent that seems most dangerous. Much like the CIA faction in the US administration and Rául Castro’s grandson China could seek to place someone like Kuomintang leader Cheng Li-Wun, to maintain continuity and ensure peaceful transition. This is something that the US would also fail to counter diplomatically with any real credibility as co-opting a regime through a junior member of it is another Donroe Doctrine move. The precedent of transitioning a blockade and pressure into genuine regime capture is possibly less damaging than the US demonstrating that it is a legitimate strategy for excising rivals from your littoral region. It is possible then that the Hormuz related propaganda spike was the opening gambit regarding Taiwan, much as the indictment of Castro and the sanctions on Cuban officials were for Cuba. We should point out there are significant differences here, the US have a much more effective blue water navy and the ability to project power, and Taiwan is significantly more strategically important to the US than Cuba is to China. But this is not a moralist or an equivocating argument but rather a credibility one, if the US turn Russian and Chinese ships back from Cuba they will have set a precedent and a model that can be used against them. So while China may be playing a slower game because the costs and risks of a Taiwan blockade are much higher, they may still be reading from the same playbook.

Conclusion

The Cuban blockade has the potential to have consequences for US interests and credibility from Cuba, through the Panama Canal and all the way to the South China Sea. A flawed strategy that, much like the Iran War, will reinforce the entrenched ideological regime in Havana rather than create the elite fracture that true regime change would need. This was never a debate about the Cuba policy, it is the another test of the Donroe Doctrine, first Venezuela, and now Cuba. The test is whether the transactional style of President Trump and maximum pressure can be credibly enforced, and the exclusion of rivals and extraction of resources carried out in the western hemisphere is plausible strategy. Whatever Washington’s plans, Beijing is watching for the outcome, both in terms of their interests in the Caribbean basin and for the efficacy of a regional hegemon’s blockade. Deals not doctrines was supposed to be a negotiating stance, in Havana it may become a weakness to be exploited.

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The US and Iran have signed a Memorandum of Understanding, which is definitively not a peace deal, it is a deal to seek a peace deal. Here are the key points.

• It extends the ceasefire for 60 days

• The Strait of Hormuz will be open toll-free during that period, and the US naval blockade will be lifted

• Sanctions against Iran will be immediately lifted, including on their oil Exports.

• Iran agrees not to develop nuclear weapons and to negotiate over the fate of their nuclear stockpile

Within days the reality of the situation has diverged from the language of the MoU. The point regarding Hormuz, is that while the Strait is open toll-free it has emerged that it is still under the control of the IRGC and it has already been ‘shut’ by Iran over US threats and Israeli aggression. The sanctions being lifted on Iran, and in particular the oil sanctions, means that Iran can once again sell its oil at market value, rather than at a huge discount, and to a wider range of buyers, which will provide welcome relief to their economy. As will the $300 billion reconstruction fund the US is committed to setting up with its Gulf partners. The Nuclear issue is perhaps the most important as it is the one place that president Trump still has the capacity to claim a victory, however the language is weak, and Iran’s pledge to not develop a nuclear weapon is worth the paper it’s written on.

What does the deal mean?

This deal pushes most of the key issues down the line, and has done nothing to move the redlines that both negotiating parties have. However, it is a signal from both sides that they do not want to resolve this with war-fighting or kinetics. The key takeaway from the deal is that it attempts to detach the US from the Israeli led escalation pathway. That is why we are seeing so much support for this deal from the Gulf States as opposed to the JCPOA. This is objectively a worse deal for the US, and in particular Israel, but has the potential to be more effective for regional security. The next steps will be that the US and Iran will hold their bilateral negotiations, these will overrun by months, and be very complex. The Gulf States and Iran will also hold separate negotiations, as a new regional architecture emerges away from the ‘axis of Abraham’. The other thing here is that, while this may not last, the money that Iran gets will provide massive relief to their economy, and render the current blockade (and any return to that strategy) far less effective. In some ways this deal has split the risk; a kinetic escalation is now far less likely, but any escalation will be more severe.

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Will the deal Last?

It depends on a few factors, whether the US can truly restrain Israel in Lebanon, whether the Iranians will give President Trump something on the nuclear stockpile that he can tout as a victory (my suspicion would be that the Strait of Hormuz will replace the nuclear weapon as the primary deterrent for Iran), and finally if Iran feel that their position globally is improved by the deal. If any of these factors aren’t met it is more than likely we will return to a degree of conflict. There is also the very real possibility that Iran will overplay their hand and their attempts to provoke Israel will bring the US down on the Israeli side. For my money there are a lot of compelling reasons for both parties to create a sort of pseudo-peace, but Iran will be aware of the plummeting oil reserves, as well as the insecurity in the market, and despite the current smugness of the oil-bears, that is the pressure point that Iran will hit very quickly if provoked. Which puts us in a structural trap where it is unlikely that the US will get a favorable deal, but there is the recognition that Iran have a serious capacity to compel them to act, and will likely have the gulf states on side.

Why did Iran sign?

Iran signed the deal because there is a heavy economic burden on their economy from the extended conflict, including the current war and the years preceding it. Unlike Russia, Iran has not pivoted to a fully war focused economy, and the IRGC holding companies are extremely diverse and rely on a functional economy. So sanctions relief, as well as the money from the US and the UAE will be very welcome as a way to further consolidate their control over the Iranian state. Having secured hard power in the monopoly on violence, securing soft power next is the critical move. Another consequence of the oil sanctions being removed will be the removal of Chinese discount leverage over Iran, as they no longer have to sell to the buyer of last resort. This will encourage Iranian strategic autonomy, and conversely could raise oil prices as there is no artificial suppression. Furthermore by showing that they are willing to end the conflict they are signaling to the Gulf States that they are willing to do business and this will accelerate the transition in the Gulf of Iran being part of the regional apparatus as opposed to outside of it. It is also important to note that in Iran this is being reported as a strategic pause as opposed to the end of the War. They have not surrendered control over the strait of Hormuz nor have they unconditionally agreed to surrender their nuclear material. We should remember then that this is not a peace deal, but rather a memorandum that they will try to have peace on their terms.

Why did the US sign?

The US are signing this deal because they have come to two conclusions. I. Their strategic interests and Israel’s strategic interests are not aligned, and II. There is no way for the US to improve their bargaining position in the short term without a massive escalation of force. It will remain unsaid but, like Iran, the US will be treating this as a strategic pause, whether thats until after the midterms or more rapidly, the US will be willing to re-enter a kinetic phase of warfare if the negotiations for the proper peace deal don’t go their way. The economic factor as well will be driving President Trump’s desire to achieve something that the market will treat as a peace, to calm oil markets, and to reinforce the rallies in the NASDAQ and the DOW backed by the AI boom, and soaring chip stocks. However, in many ways this is the ‘off ramp’ for Iran that the strategy of compellance demands, the only question now is that will the US be able to accept their own off ramp when all is said and done.

Lake Lucerne Update

After the first round of talks there has allegedly been good progress.There is still a large amount to process, from the technical aspects of the MoU to the actual negotiations. The key thing though is that the US is signaling that the Strait of Hormuz is open, reflecting the US’ main fear that any breakdown in talks or even ambiguity will spook the markets.

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Irreconcilable Differences

In the last round of negotiations, the Iranians more clearly tied the prospects for a ceasefire to the cessation of the Israeli campaign in Lebanon. This will torpedo the ceasefire at two points below the waterline. The first is that it relies on the IDF demonstrating restraint in a time and place where they have no tactical reason to do so. With their strikes on Beirut on Sunday 7 June, and Iran’s retaliation, this has in fact already put the war at risk of re-escalation. The center of gravity of this war has always been pulled towards Jerusalem, and as has been the case for this entire campaign, the war aims of the Israelis are unaffected by US strategic concerns and difficulties. The second, and more important point, is that this is a maximalist demand being made in response to the maximalist demands of the United States. If the IRGC believed it was negotiating from a position of weakness it would not demand that its proxy forces fall under a security umbrella guaranteed by a deal between Tehran and Washington. This tells us that the Iranians are willing to make the war kinetic again. They clearly believe that the strategic calculus of US airstrikes versus a closed Strait of Hormuz and drone attacks on the Gulf favours them.

The other problem is that in response to this the United States are being similarly maximalist. Both sides are making demands that the other politically can’t accept. At the same time, the US are demonstrating limited appetite for a re-escalation of the conflict. This was made abundantly clear by the bipartisan rebuke the other night, restraining the War Powers of the President. However the US can still retaliate against Iranian force and will unleash its considerable firepower if and when it is pushed. The issue is that in an effort to avoid a ‘forever war’ President Trump and his team adopted the ‘compellence’ framework where the threat of force is balanced by an acceptable offramp. It seems the Americans are applying only the first half of this particular strategy. It also demonstrates a misunderstanding at the heart of American Wars in the Middle East going back a quarter of a century. You cannot wage a limited war against an enemy for whom the war is existential. This is the same issue that the US ran into in Afghanistan and Iraq, and they have managed to do it without a single soldier having to set foot in Tehran. The elites within the IRGC directing the Iranian war effort have interests that will only survive as long as this regime does. So any negotiation will have to begin and end with the survival of the IRGC Praetorian regime.

The Fantasy of Regime Change

The closest parallel to where we are now is not, as you would expect, the Wars in Iraq or Afghanistan, but rather a Cold War episode, the Bay of Pigs fiasco. In April 1961, buoyed by support among Cuban exiles, and surrounded by over-optimistic advisors, President Kennedy okayed an operation inserting a small force into Cuba. The logic was simple, a US operation would coalesce popular discontent at the regime into a rebellion, and this would lead them, inexorably, to victory. What ensued was around 1500 Cuban exiles dead or captured and a regime that is still in place 65 years later. Where the parallel fails is that President Kennedy realized immediately that the operation was doomed, and withdrew support. That, and Cuba doesn’t sit on top of a global chokepoint. But whereas Fidel ended up threatening to point nukes at Florida, the Iranians have ended up pointing one at the financial markets. There is a a fundamental misunderstanding of how regime change happens, it is rarely driven by popular discontent, but rather it is the result of ‘elite fracture’. The same optimism that created the conditions for failure in 1961 is back in action in 2026.

There are a number of commentators arguing that the blockade is working, and by many metrics it is; causing immense damage to the Iranian economy. The rial is sitting at 1,850,000 to the dollar, inflation is above 40%, food price inflation is above 70%, the CIA have assessed that Iran can last 3-4 months before there is severe economic hardship. The problem is that the average Iranian being unable to buy bread is not what brings down regimes, but rather when enough people with power no longer feel the regimes survival will serve their interests. With ‘liberals’ like Pezeshkian and others in his faction trying to open broader negotiations and curtail the power of the IRGC during the early phases of this war, we saw some fracture. But a combination of US kinetic force and pressure has led to the consolidation of the IRGC in the upper echelons of the Iranian regime. Another problem is that the macroeconomic pressure prior to the war was generating protests, but not an organized opposition. The protests represented exhaustion rather than revolution. The expectations of change remained almost entirely within the exile community, and the American government. This contributed to the ‘short war’ optimism.

The other issue with this model of pressurized regime change is that it misunderstands the nature of military-adjacent regimes. The decisive variable is the security apparatus and whether or not it can function. In the West we tend to think of civil-military relations as a dual track process, the army stays out of politics, however in many places there is a different model. Alfred Stepan’s framework on civil-military relations tells us that in military adjacent states, legitimacy is derived from the loyalty of the security apparatus. What has happened is that the Iran War has altered the regime from military adjacent, to the Praetorian, military run regime that now exists. Rather than fracturing the relationship between the security apparatus and the regime, the war has consolidated it. And rather than getting a short war creating a popular revolution, the US has a forever war without ever having to invade.

Blockade Runners

Escalation might be a better path to victory, but it would be politically and militarily costly, and is just as likely to bog the US down in a ground war in the Middle East. Accepting the Iranian terms would strengthen the IRGC regime, as well as being a humiliation on a global scale. The upside is that the blockade’s logic is sound, the downside is that it will take months if not longer to see genuine results, and with the oil market perched on the precipice, the midterms approaching, and a bipartisan revolt brewing, the US simply do not have that time, and Iran does. The blockade is simultaneously being undermined from outside by two factors. The first is that Iran’s ability to evade the blockade has strengthened, as both Iranian and non-Iranian cargoes are being transited ‘dark’ through the strait of Hormuz. This is dangerous for the ships, but equally for US interdiction, as they are unaware of the origin of these dark ships until they have been stopped. This means they could stop a tanker headed to an ally like South Korea while an Iranian tanker slips through. What is important though is that rather than being an Iranian strategy, this is a signal that the market is becoming increasingly desperate to get oil out of the Gulf, and that is a worrying marker for the US. The second is the ‘Marinakis Problem’, shipping magnate (and Olympiacos owner) Evangelos Marinakis has publicly indicated his willingness to pay the Iranian toll to move cargoes through the Strait of Hormuz. While he is (as usual) outspoken, he is not alone, frustration has been building with the double blockade. The issue arises for the US as every toll paid replenishes Iran’s economy and normalises the Iranian toll; it becomes structurally embedded in the global economy. What this normalisation means is that the longer this conflict drags on in Limbo, the stronger Iran’s position gets.

The China Factor

The time limiting factor here is the oil market, and why it is remaining so sanguine in the face of the geopolitical calamity playing out in the Persian Gulf. There are a number of possible reasons, one is the belief that the Carter Doctrine will be re-established and that the US will return to being the guarantor of the freedom of passage, somehow. The other, more logical reason is that there has been ‘demand destruction’ combined with strategic oil releases, most notably by China. China’s ability to replace oil with coal for energy generation, and minimize it’s footprint in the market has been the main contributor to keeping oil prices at a stable level. This, partially, could be because China wishes to portray itself as a stable and serious partner, and a guarantor of energy security in a way that the Americans are not. However, the end result for the market is that at any point, China could end this artificial suppression of oil prices and turn the screw on the US position. The timer the US are working to could very easily get shorter than the strategists, the commentators, and the economists believe.

Conclusion

This is not a war that ends in any meaningful way, its impact will drag on for years, reflected in elevated energy costs, a permanent insurance premium, and a US Navy that cannot leave. The question is what the geopolitical realities of the world are when this conflict has become endemic, with the Strait either contested or tolled, and with a consolidated Praetorian regime. A regime that does not believe itself to be beaten and will continue to make maximalist demands and drag on this war. For the US the only strategy remaining is to sit and wait it out, in this new form of grey forever war. Because this is a war waged not by soldiers but by spreadsheets, a war with no battles, no victors, only casualties. Be they American soldiers killed, Iranian civilians bombed, or those who will die due to oil and food shortages in the coming months.

These are five articles that we think you should read, but probably don’t have the time to, or because they’re behind a paywall. The first part of each section is a summary of the critical points in each article, followed by a small amount of commentary either filing in the gaps, or extending the idea. The key concepts this round are; the permanent damage being done to the security architecture in the Middle east, why the oil market is behaving the way it is, and the failure of American coercive power.

The End of the Axis of Abraham: The Arab Gulf and Israel Have Different Visions for a New Middle East

H. A. Hellyer, May 4, 2026

Summary

Dr Hellyer writes here about the damage the Iran conflict has done to the US built order in the Middle East. The signal that the Gulf States, Turkey and the other Middle Eastern states are getting from the Iran War is that the Abraham Accords are about Israeli dominance in the region. While the US were clear on this this was not how it was viewed in the Gulf. Hellyer goes on to argue that the war is making clear to the Gulf States, that by being part of the accords, and being aligned with the United States, they are a target. He reports that the Gulf states are reacting in different ways. The UAE are deepening ties with Israel and the US, particularly militarily. Whereas Saudi Arabia, Qatar, and Kuwait are moving to diversify their security architecture; specifically with Turkey, South Korea, Japan, and the United Kingdom; and moving towards a more transactional relationship with the US.

Crazy Ivan

From the Arab side the Abraham accords were about normalisation, from the American and Israeli side. Hellyer mentions the Pakistan and Saudi axis briefly but this is is the critical thing to understand, this is not about Saudi Arabia attempting to retaining independence it is about Saudi Arabia maintaining its position as a regional power. The Iran war has accelerated a bunch of trends, be that the IRGC’s power base in Iran, or the spectre of US military vulnerability, but particularly a realignment of the Middle East. Dr Hellyer also touches on Israeli ambition, the Abraham accords being a representation of their position in the region, perhaps it is for this reason that the Abraham Accords were added to the latest failed round of negotiations. Either as a poison pill to ensure the war continues, or to cement Israel’s position in the ascendency as primus inter pares in the region.

The timing of the impending crude crisis

Robin Brooks and Ben Harris, May 22, 2026

Summary

Brooks and Harris question why the supply side shock of oil has not been reflected in prices, where benchmarks remain below 2022 highs in the aftermath of the Russian invasion of Ukraine. The market is being propped up by a combination of temporary buffers, structural adjustments and an optimistic expectation for the duration of the crisis. Brooks and Harris lay out each of these factors. The permanent changes are the Saudi and Emirati pipeline bypasses worth 5.7mb/d; and a global crude surplus driven by American and Latin American oil capacity rising, especially Guyana and Brazil. One temporary factor is the 400m barrel oil release from government stockpiles, adding up to 2.5mb/d over a four month period, but this has a time limit, and will need to be replenished. Another temporary factor is Russian and Iranian oil in floating storage which sanctions waivers allowed Asian markets to purchase, however this also is finite, and will get depleted. The authors then calculate how long this can last, which is essentially by July the temporary factors will be exhausted, and then we are reliant on the structural alterations to manage oil prices, putting them somewhere between $120 and $150 per barrel.

Crazy Ivan

This is the first really clear answer to the confusion many have had as to why the oil markets have been less volatile than expected. The authors don’t delve into the market manipulation effects of the White House’s announcements of peace, nor do they talk about the reciprocal effect that oil prices are having on the US prosecution of the war. With that said, they are correct on the fact that the oil market was able to temporarily adjust to the crisis very efficiently, and that the market has been reacting to temporary measures as if they are permanent. The next thing to think about is what the price of oil is going to look like post conflict, with the reserves needing to be refilled, and with the geopolitical risk premiums built in, as well as a diminished volume through Hormuz due to the Iranian toll.

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Iran and the Forever War Trap: In Trying to Avoid a Quagmire, America Found a Dead End

Lawrence D. Freedman, May 27, 2026

Summary

Professor Freedman in this article argues that the current divide between the US and Iran in their negotiating position suggests that this is not over by a long shot. The American desire to avoid a Quagmire in the vein of Vietnam means they are limited to drones and air power, so their military force can only be coercive rather than decisive. Great powers often assume that overwhelming military force will win quickly. Freedman goes on to point out that the fact that the war is existential for Iran and not for America does not bode well for negotiations. Great military power tempts its wielders, with high tempo complex operations with a swift end date, but this has not achieved its desired political results. The core of this article is pointing out that tactical success, and brilliance is not a guarantee of strategic success.

Crazy Ivan

This article emphasises the fact that the United States are not winning this war, despite every tactical advantage. The application of overwhelming military power is not enough if you haven’t read your Clausewitz. The United States are unaware of where the center of gravity is for this conflict, and by that we mean, where the power and movement of Iranian force is focused. The main concept Freedman explores is the idea that the United States cannot win this war in the way they wish with the tools they are currently using.

Could Russia Follow the “Hormuz Playbook” in the Baltic and Black Seas?

Miro Sedlák, May 8, 2026

Summary

Miro Sedlak makes the key observation in this article that the thing actually stopping ships transiting the Strait of Hormuz is a lack insurance rather than a guarantee of being sunk. He clarifies something that often gets lost in the reportage, in that that strait is being ‘priced’ shut. He then uses the model of an implied threat to demonstrate that Russia could easily use this as an extension of their hybrid warfare into the naval dimension. Sedlak presents two case studies, the Danish Straits, and the Turkish Straits, and breaks down how the Russians could trigger an insurance cascade paralysing the energy import architecture of Northern Europe. He goes on to suggest several solutions, primarily about providing government or NATO backed insurance for strategic cargoes. Overall a concerning piece detailing how the Iranian asymmetric model might spread.

Crazy Ivan

There are a couple of issues here, primarily that the United States did try the reinsurance model with Hormuz, but ship captains were reluctant to run the gauntlet during a high kinetic moment of the war. This, in fact, backs up Sedlak’s argument that this could easily proliferate. Russia have demonstrated a willingness to act brazenly, but still short of conflict, with the west. However the strategic value to Russia of shutting the Danish straits down is outweighed by the likely Western response. Shutting down the Black Sea however would be much easier for Russia, and would deal a blow to global grain supplies. Rather than causing financial disruption to Europe this would create a global food crisis, compounded by the incoming fertiliser shortages due to Hormuz. Strategically this could put pressure on Ukraine to make a deal. Ultimately Sedlak does show the viability of Iran’s strategy as an exportable model.

The Cost of the Iran War for the United States: A Strategic Blunder in Five Dimensions

Tahir Azad, April 27 2026

Summary

Tahir Azad summarises the five different areas where the US have underperformed during the Iran War and lays out the consequences of these failures very clearly.

1. Military: The weapons burn rate has been incredibly high; the US could have maintained the original operational tempo for 6 weeks maximum. The cost asymmetry is also skewed agains the US, with 4 F-15s, among others, destroyed, as well as 13 service members dead. This has damaged the US’ credibility and given a road map to resisting their military power.

2. Financial: The Pentagon initially briefed that the first 6 days cost $11.3bn, excluding munitions stockpile replenishment, there are estimates that at its peak it cost 2b per day, and the total could be 1t. It also impacted the US’ debt situation with the 1.5t budget, the single largest defence expansion since the Second World War.

3. Regional: The war has exposed the ineffectiveness of the American security umbrella, has damaged relations with the Gulf states by hurting their economies, and disrupted energy supplies globally.

4. Diplomatic: NATO and the EU were not consulted on the decision to go to war, nor warned. Spain closed its airspace to the US, France blocked US and Israeli weapon flights, even the UK initially refused to allow UK base usage. US in response have delayed Foreign Military Sales to rebuild own arsenal, withdrawn from exercises, and to escalate rhetorically. These are damaged relationships as no NATO power will be able or willing to trust the US in the short or the long run.

5. Global: This war has handed the strategic initiative to China, as well as taking resources and focus away from the Ukraine war benefitting Russia. This is deleterious to the United States’ reputation, and ability to leverage issues on a global stage.

Crazy Ivan

Aside from having the cascade of failures laid out cleanly, Tahir Azad places the correct amount of emphasis on what are the more catastrophic failures, namely the diplomatic and regional damage. Robert Kagan (of all people) on the 28th of May spoke about how this war has done irreparable damage to the US reputation. We think this is correct, as this will embolden US enemies to take more provocative actions, and essentially hamper the ability of America to build coalitions to tackle problems. An example of this is the Abraham Accords, which were holding before this war, and are now in pieces; President Trump is attempting to make signing them a pre requisite for Gulf states in his peace deal, and the only outcome of that will be a divergence between the US & Israel and the Arab nations.

Changing American Strategy

That new stage is one that has been present in war ever since humanity got tired of wandering around and built homes with walls to keep their enemies out, a siege. The United States military playbook has often used a form of siege tactics to starve their targets into submission. This often took the form of excluding the target from the global economic system rather than a military action; see Fidel Castro. However the US have spent the last decade either passively watching the multilateral system crumble, or actively dismantling it. Where during the Gulf War the United States could count on a united allied front, they are now forced to wage economic warfare against Iran by themselves. Rather than the VLCCs laden with Iranian oil being turned away from ports by nations too scared of the US’ economic wrath, the US navy must now put itself in harms way due to the degradation of every other weapon that could have been brought to bear. Secretary Rubio’s statement pivoting the American war aim to guaranteeing the freedom of the seas is a tacit admission that the original goal of regime change has failed. As well as being an unsubtle attempt to reframe the US’ position as a defender and attempt to construct a coalition.

Strategic Patience

The new American War strategy is one of strategic patience, maintaining their operational intensity was unsustainable. The damage that Iran could do to American allies in the Gulf, and therefore the global economy meant that there needed to be a rethink. Beyond disengaging the larger military assets, like the carrier groups, the degradation of the US’ ability to intercept Iranian projectiles means that remaining in this limbo-like state of a naval blockade and holding a low kinetic tempo is to the United States’ advantage. The aim is to put pressure on the Iranian system, in particular their oil industry and their currency. So far, the Iranian Rial is under severe pressure and inflation within Iran is noticeable and causing some unrest. Since the twelve day war last year and the beginning of President Trump’s campaign against Iran, the Rial has lost 68% of its value. However the Iranian oil industry is proving resilient. Moreover, the original US intelligence that Iran’s industry would collapse in short order has been corrected to show that the Iranian regime could last months without undergoing catastrophic failure, as well as maintaining a fully operational missile and drone stockpile.

Iranian Resilience

That stockpile is already being put to good use, in response to US interdiction of the Iranian Navy last week, the Iranians struck Fujairah, one of the key ports for the UAE outside of the Strait of Hormuz, and thus a key path for at least some oil to exit the region. This reveals something crucial about the Iranian negotiations, their capacity to damage the rest of the region is their leverage, not the Hormuz tollbooth. If the US are committed to the concept that this war is about the freedom of the seas, there is no amount of diplomacy that will lead to a lasting peace. The US cannot afford to look weak, particularly given the China summit, and the precedent that nations can block the seaways at will wouldn’t exactly project strength. A world where there is a revanchist Egypt and Turkey blocking Suez and the Bosphorus respectively, and perhaps even a militant Malaysia mining the Malacca narrows, is not one where the United States are in control. However, this war is not about that, the war has always been about regime change and pivoting Iran away from China. The failure of the bombing campaign and the shift to Iran’s guerrilla economic warfare was a strategic failure from the moment that the regime survived the death of the Ayatollah.

Compellance

That being said, although the US are shifting to siege tactics, away from the highly kinetic airstrikes and the threat of ground troops, they both come from the same strategic intellectual lineage. The strategy is compellence, giving Iran an off-ramp (a US favorable deal) while threatening them with destruction and suffering. The issue with the current administration’s interpretation of this is threefold. First, as mentioned earlier, American intelligence estimates have been overly optimistic regarding how much punishment Iran can withstand. Second, the US aren’t providing an offramp that the Iranians can realistically take and have the regime survive; so they wont take the deal. Compellence doesn’t work when the aggressive power is bent on humiliating the defender. And Third, the Americans are underestimating the damage that Iran can inflict on the global economy, and how quickly they can escalate the conflict. This last part is particularly important as the narrative surrounding this war often relegates the Gulf states to observers, but their economic suffering along with that of America’s European and Asian allies will be a large factor in the outcome of the Iran War.

The Shifting Axis

Two of the most crucial moments in the war, and ones that represent seismic shifts in both regional and global security have happened in the past few days. The first, which demonstrates a fracture in the security architecture of the Middle East, was the denial of airspace to the US by both Saudi Arabia and Kuwait. This was a pointed message, the rollback of Project Freedom, as well as the downplaying of the renewed assault on Gulf infrastructure have challenged the fragile coalition that has been in existence since Trump I, and the Abraham accords. That architecture was reliant on US support, and gave tacit acceptance of Israel and its security concerns, but it was fundamentally not led by Israel. American actions have given the impression that the new ‘Axis of Abraham is more about an Israeli led security system which is incompatible with the Saudi view of the region. While this will happen slowly, the repolarisation of the Middle East has begun. It has already been taking shape with the Saudi development of their Quadrilateral alliance system, of Egypt, Turkey and Pakistan, a system that magically surrounds both Israel and Iran with powers aligned to Saudi Interests. This is an extension of the Saudi hedging that was referenced in Deep Dives #1, because the Saudis are not pivoting towards Iran, but rather towards strategic autonomy.

The Role of China

A key part of this autonomy comes from the presence of China as an alternative trading partner and security ally to the United States. This shift has been occurring for some time. In 2024 China’s investment in Saudi Arabia increased by nearly 30% to $8.2 billion and the Saudi Public Investment Fund has signed a $50 billion deal with major Chinese financial institutions covering petrochemicals. Furthermore, China is now Saudi’s largest trading partner, equivalent to 90% of Saudi Arabia’s total trade volume with the entire G7 combined. China’s role in creating the conditions for the erosion of American security architecture is an important one. China’s relationship with Iran is also very close, and further polarisation could easily lead to Israel being the last US ally in the region, and the rest either strategically neutral or even aligned with China. It’s not for nothing that the Iranian tollbooth is denominated in Yuan. The ‘Petroyuan’ was a direct challenge to the US led system, but the second crucial moment is just as serious a threat if not more so.

Collapsing Sanctions

In retaliation for Chinese operational support for Iranian military operations, Secretary Bessent announced sanctions on several Chinese Firms accused of buying Iranian Oil. In an unprecedented move, the Chinese government denounced these sanctions, as well as compliance with the sanctions, as illegal. This is two crises wrapped in one, a challenge to the entire US sanctions architecture, and a complex decision for nations doing business with both the US and China, leaving affected companies open to legal action in both China and the US depending on who they obey. This is a further consequence of the weakening of the US led global order, by using it, and damaging it the way they have the US have invited an open challenge to their position as irreplaceable trading partner. As well as, through the Petroyuan, a challenge to their currency. China are actively dismantling the tool that won the US the Cold War, by forcing a decision on whether the cost of compliance is higher or lower than the cost of ignoring the US sanctions orders. However, returning to the Iran conflict, if sanctions on Iranian oil can be ignored the entire economic logic of the siege begins to collapse. So the US will have to maintain a military blockade, putting lives at risk, and choking the global economy until they either get a favorable deal, or Iran finally run out of hard currency. The markets however, are not pricing any of this correctly, and the gap between where oil futures are and the state of the Middle East is not so much a disconnect as a gaping chasm.

The Markets

To understand what is likely to happen to the price of Oil and in the Strait of Hormuz, it is wise to look at the actions of Aramco. Prior to the Iran War, as the US military presence in the Gulf rose, Aramco raised production and sent oil to storage facilities in Alexandria, Egypt, and Rotterdam, The Netherlands. On May 11, the CEO of Aramco said that every week the Strait of Hormuz is closed, the market loses 100 Million barrels of oil. For context, the US SPR release was 172 Million barrels. There is, due to this shortage, a disconnect between oil futures and the spot (real) price of oil. Even after the American rejection of Iranian demands, the future price of oil is hovering around $98-101, when the price of a barrel is actually $135. This tells us that the market is pricing this ceasefire in as permanent.

The Oil Disconnect

There are in fact three main reasons that oil is currently wildly underpriced. The first is that the market is reacting more to President Trump’s rhetoric than to the geopolitical realities in the Middle East. At the Milken Conference, one banker was heard to say “Does anyone really care if the Strait of Hormuz is open?”. The markets are pricing a resolution that simply doesn’t exist. Ali Vaez, a lead analyst on Iran said ‘Both sides would either have to make painful concessions or leave the main areas of disagreement vague if they are to finalise a framework understanding’. The second reason is that the market is pricing the deal as being one that President Trump wants, not one in which the Hormuz Tollbooth is a permanent feature, and the strait is laced with smart mines allowing Iran to shut it at will. Third, and probably most importantly, is that the Fujairah strikes, and President Trump’s rejection of Iran’s offer means that the kinetic tempo is about to go up. This will place Gulf Infrastructure under more pressure and further damage the global economy, particularly as the US is not well placed to defend her allies from further barrages.

The 1970s all over again

The permanence of the Hormuz tollbooth has the potential to have the greatest long term impact on oil prices. In the same way that the nationalisation of oil fields in the 1970s led to a fundamental change in the way that the Oil Majors operated, the presence of the tollbooth could shift the way that oil moves around the globe. Between the formation of OPEC, and the manner in which after costs are recouped the majority of oil wealth would go to the nation holding the oil equities, the changes of the 1970s dealt a huge blow to the global economy. These reassertions of physical control caused a decade of inflation and two recessions. But where the 1970s were about the control of one resource, the 2020s could end up being about the control of the passage of all of them. If the United States capitulates on the tollbooth and thus sets the precedent that sea lanes can be shut at will, the shipping industry will react in a similar vein as Exxon and its cohort did back then. By passing the costs on to the consumer. It could be argued that this is decolonisation taken to an extreme. Iran’s propaganda that it is standing up to the imperialist West shows that this argument is not going away. That the strategic infrastructure captured, and the precedents set during the apogee of the West are not going to be respected. This possibility, or even just the idea that 20 million barrels of oil a day will be stuck behind a tollbooth, has not been priced into the market. The malignant optimism that has infected American strategic thinking has made its way from the White House to Wall Street.

Conclusion

The market should in fact be pricing oil as if this conflict is not slowly winding down but rather as if it is moving to a new phase. There has been a shift in American tactics, from kinetic bombardment to naval siege, but the underlying strategy has remained the same. The historical irony that the abandonment of global norms and system the US spent so long building is what’s causing it so much grief at this moment should not be ignored. Bretton Woods, NATO and the Petrodollar all existed to advance American interests but now the US is wholly reliant on kinetic force. Iran entered this war as a slowly collapsing Theocratic state, but the United States, by creating these siege conditions is not creating the conditions for change but rather forging it into something new, a Praetorian revanchist power, as we argued in our SitRep. So it doesn’t matter exactly when the war ends, the Middle East it is ending into is fundamentally altered. The post Iran War landscape will likely have an Iranian tollbooth on Hormuz, a cooling Saudi-US alliance, and a hole below the waterline on American sanctions architecture. Regardless of the deal they get, America will struggle to claim a credible victory.

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TLDR

The Iran War has been running for nearly two months. The headline conflict American and Israeli airpower versus Iranian drones and economic coercion has dominated coverage. This week’s reading is about everything else. The secondary effects, the actors managing their positions quietly, the damage after the warfighting. Saudi Arabia hedging it’s bets, China watching the Pacific window, the weakness of the ceasefire, and the helium shortage nobody is talking about. These are the stories underneath the story.

How Saudi Arabia are managing the War: Can Saudi Arabia Keep Hedging?

Foreign Affairs - Maria Fantappie and Vali Nasr - April 20, 2026

Despite not starting the Iran War Saudi Arabia has very specific ambitions for its outcome, particularly maintaining a strategic balance, or tension, between Iran and Israel. While neighbors such as the UAE are acting hawkishly to further their aims in the region, Saudi’s main goal is to hedge their bets; a weak Iran, and a constrained Israel is their goal here. This is why Saudi are facilitating the peace talks through their ally Pakistan. This is a theme in Saudi foreign policy going back to the Soviet-Afghan war where they used their economic clout and reliance to maintain distance from events while still exerting pressure. Rebuilding an entente with both Tehran and Jerusalem is high on their agenda.

The two other things that the war has clarified for Saudi Arabia is their need to remain strategically independent and their economic vulnerability to Iran and its proxies. Part of the Saudi reticence to engage militarily is due to the threat the Houthis pose to the remainder of their energy exports through the Red Sea, hence their desire to maintain balance. The strategic independence however is born of a fear of a resurgent Israel in the aftermath of the Gaza conflict. Israel have shown military strength and intent; a willingness to pursue its goals very aggressively, preemptively and kinetically. There is also the fear that the new Iranian regime (IRGC controlled Khamenei), will similarly be bullish in its ambitions. In the face of this situation Saudi Arabia are reinforcing the coalition of Turkey, Egypt and Pakistan, as opposed to backing some of the other Gulf States aggression towards Iran. Notably, the geography of that alliance constrains both Israel and Iran.

Regarding Saudi vulnerability, beyond the immediate threat to exports, there are several scenarios that Riyadh would find unpalatable. First, the Iranian tollbooth would hurt the Saudi economy by imposing costs on the oil leaving its ports, forcing Saudi to either swallow it, or to build the infrastructure to reroute exports from the Strait. Second, if the conflict resolves into a low level but perpetual nuisance conflict, Saudi, as they have with the Houthis, will likely bear the brunt of the consequences as opposed to the United States or Israel. Finally in the case of massive escalation, Saudi energy production is the biggest target for the Iranian economic coercion strategy. None of these would be good for Saudi Arabia, so their desire to hedge and chart a middle strategy is their best chance of coming out of the Iran War in a strong position.

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The consequences of the Iran War for Taiwan: An Opportunity or an Illusion?

The Diplomat - Allen Zhang - April 14, 2026

The American military expenditure in the Gulf has been intensive; billions of dollars, stockpile depletion, the loss of several military aircraft. There has also been a significant redeployment of US forces from the Pacific theater, leading to American capability in the Indo-Pacific being at its lowest ebb in some time. The natural fear here is that this presents an opportunity for China regarding Taiwan, however there has been no military posturing or escalation thus far. The perception however, could be that the US is pre-occupied, and willing to trade Taiwan for interests elsewhere. On the other hand, China’s military preparedness is also at a low ebb, due to high ranking purges, corruption, and decrease in strategic organisation. The Iranian conflict could have the opposite effect on Chinese strategic thinking as well, due to the Trump administration’s willingness to use kinetic force. Chinese strategy in the South China Sea overall has always stopped short of lethal force, so President Trump’s unpredictability could deter Chinese aggression.

Chinese efforts to take Taiwan short of invasion however have been increasing of late. Utilising methods such as persuasion, economic coercion, and limited kinetic operations. On March 18^th China attempted to take advantage of the energy shock created by the US (which has disproportionately affected Asian markets) by offering energy guarantees in exchange for peaceful unification. This has occurred alongside Chinese disinformation about Taiwanese energy stores running out. US reconnaissance sorties have decreased by 30% in the Taiwan strait since the Iran War began. If, as seems likely, this conflict continues to draw assets away from the Indo-Pacific, Chinese strategic calculus may begin to change.

Why The Ceasefire is Going to Fail: A Fragile Ceasefire with Iran and the Price of Ending the War

War on the Rocks - Federico Manfredi Firmian & Anthony Wanis-St. John - April 16, 2026

The US and Iran are negotiating via Pakistan, and Israel and Lebanon are negotiating in Washington. However, Israel is still attacking Bint Jbeil in Lebanon and the US and the Iranians have mutually blockaded each other in the Strait of Hormuz. A lasting ceasefire requires less rushed and less public negotiating. As well as a far more specific process that involves state department experts rather than Witkoff and Kushner, whose track record has been poor to say the least. The administration would need to rein in the Israelis and Netanyahu to achieve the conditions for genuine peace talks. However that bumps up against the multiple war thesis.

One of the issues is that the US, Israel and Iran, all have very different war aims, none of which have been achieved. Despite the multiple declarations of victory made by President Trump regarding regime change, and destruction of Iranian military capacity. As I mentioned in my last article, and supported here, the IRGC have taken power using Khamenei as a puppet figure. So rather than installing a friendly regime the US have encouraged the emergence of a hardline militarist regime with genuine grievances against the US to exploit and legitimise themselves. Furthermore the Gulf States are horrified by President Trump’s seeming acquiescence over the Iranian toll in his efforts to wash his hands of the war. The US negotiation stance is in line with Netanyahu’s maximalist positions, which means the negotiations are inherently linked to Israeli war goals rather than American aims. The ceasefire itself is barely holding, and the varying stances of the involved parties mean it is unlikely to hold much longer.

The threat to AI from Iran: The Helium Crisis

The Motley Fool - Micah Zimmerman - April 18, 2026

The oil crisis has been the headline news throughout the entirety of the Iran conflict, however it is hardly the only shortage emanating from the Strait of Hormuz. Fertiliser and metals are other commodity markets being shaken by the conflict. However, while 20% of the worlds oil supply comes through Hormuz, 30-38% of the worlds helium comes from Qatar alone. The facilities at Ras Laffan hit by Iranian Shaheds caused damage that will take 3-5 years to repair. This matters beyond fewer balloons at birthday parties, helium is a key, and irreplaceable, component of semiconductor manufacture. Chip manufacturers don’t have a large stockpile, and 200 specialised containers are stuck behind the Iranian toll booth, so even if the Strait opens tomorrow, it will still take time for this to resolve. Given the competition between AI companies for chips to feed their ever growing LLMs and their data centers, this is a chokepoint that has gone under the radar.

Ultimately the impact on the markets, both short and long term, has been driven by oil prices and the expected TACOs. But there are many more things going on behind the headlines that are going to damage strategy and portfolios for months to come.

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In Washington, Jerusalem, and Riyadh a victory of sorts is being claimed in Operation Epic Fury, after 33 days the job is nearly done; or so the party line goes. Meanwhile, multiple carrier strike groups, the USS Tripoli - accompanied by the 31^st Marine Expeditionary Unit, US strike bombers, and, for good measure, the 82^nd Airborne, are moving into position around the Strait of Hormuz, with another escalation seemingly inevitable. President Trump has oscillated between declaring victory outright and preemptively claiming the conflict will end after the United States ‘blows Iran back to the stone ages’. For their part the Iranian regime has responded by claiming outright sovereignty over the strait, and that it is closed to America and her allies, which tells us that they have no intention of allowing any sort of peace with honour. The need to declare victory is born of domestic political calculus, Hormuz transits are down 95%, and none of the ships that passed were friendly to the United States, Brent crude is trading at around $105, having surged 60% during the conflict, the United States, and in particular President Trump, cannot survive that level of economic disruption happily. However, the key here is that there is more than one conflict taking place within the Iran war, there are four; to answer how bad this is going to get, how long it is going to last, and how wide its going to go we need to understand that.

The Four Conflicts

There are four conflicts running simultaneously, each with its own logic and its own definition of victory. The US-Israeli air campaign to degrade and decapitate the Iranian regime. Iran’s asymmetric economic campaign against America and her allies. Saudi Arabia’s opportunistic campaign to reshape the Gulf order in its own image, with Iran weakened and Israel’s parallel war to permanently destroy Iran’s nuclear program and proxy network, particularly in Lebanon. The last two matter as they don’t involve the United States, severely limiting American agency in ending the conflict as a whole, and with Iran’s economic war being as successful as it is, and the growing energy crisis there seems to be little reason for them to accept America’s terms.

HOW BAD IS IT GOING TO GET?

The headline numbers surrounding the energy crisis are important. Somewhere around 15 million barrels a day are being removed from the global market, meaning half a billion barrels and counting, and the IEA’s 400 million barrel emergency release across 32 member states; the largest in the agency’s history, is very rapidly running out. Beyond gas prices, the impact on other industries like fertiliser production, aluminium, and anything that moves through a Gulf port, is going to ensure that no matter what happens next there are going to be long lasting consequences. In particular, the fact that the geopolitical fragility of the oil trade has finally been exposed, and that fragility is going to be reflected in the price of oil long after the guns fall silent.

The Phantom Tollbooth

Iran have effectively weaponized this fragility by imposing a toll on ships transiting the Strait of Hormuz. Crucially this toll is Yuan-denominated, Chinese, Russian and non-aligned vessels move while western allies are stuck. A key point here is that 84% of Hormuz transiting oil goes to the Asian markets, the US can’t stop the ships without catastrophically damaging multiple allies. The Hormuz tollbooth not only economically benefits Iran, but using the Yuan as the backing currency directly attacks the Petrodollar architecture and shows that Iran, and others, are willing to operate outside the the American dominated system. The Petrodollar has been the backbone of American financial dominance, based on a 1974 agreement that priced and settled Gulf oil contracts exclusively in US dollars. It being challenged could end up being the most significant thing that happens. However, this isn’t the only assumption that is being challenged by Iran weaponizing the strait.

Interceptor Degradation

The Iranian drone strategy to rapidly erode the Gulf States’ and America’s stockpile of interceptors has shown the weaknesses in the American defence industry. The American arsenal was built for a specific kind of war; limited engagement where overwhelming technological superiority brings about a swift and comprehensive victory, even against a peer power. The systems it has are incredibly expensive and complex and so are not produced in great numbers. The Patriot PAC-3 is $4m a unit and 600 per year are produced, the THAAD is $15.5m and 96 per year are produced, these are remarkably effective systems, capable of stopping almost anything thrown at it. However, a Shahed drone costs about $20k, and there are far more of them, and they are being replaced at a much faster rate. Iranian targeting of major cities, military bases, and civilian infrastructure has forced a heavy burn rate of interceptors in the early stages of the conflict, and this leaves the US missile shield severely depleted. Iran have also demonstrated an unsettling reality for the Gulf States, and the rest of the world, that the risk premium from the coercive threat their drones pose is enough to allow them to continue exerting pressure no matter how degraded their command structure and conventional military becomes.

Abqiaq and Kharg Island

The progression of this conflict depends on what decision the United States makes next. Iran have escalated the conflict in lockstep with the United States, they call but they don’t raise, keeping things in reserve so they have room to keep up. Last week President Trump threatened to strike Iranian energy assets and gave them a ticking clock, he then extended it, twice. The walk back was not because Iran opened negotiations or offered concessions, it was because if the United States put energy assets in play, Iran could do damage to the markets that would be measured not in months but in years. Iran have also held off from striking two facilities, Abqiaq - 7% of global supply and Ras Tanura - 6 million barrels per day. If the United States escalates the conflict by seizing the Kharg Island oil terminal or one of the outlying islands in the strait such as Abu Musa, these facilities would be natural targets. A handful of drones finding their mark at Abqaiq or Ras Tanura would leave the United States, with troops on the ground and vulnerable at Kharg or Abu Musa, contemplating their next move, either a humiliating withdrawal or a genuine ground war with a country whose terrain makes Afghanistan look inviting. Any escalation in the next few days puts us closer to truly damaging scenarios than most people realise.

HOW LONG IS IT GOING TO LAST?

Clausewitz’s maxim ‘War is the extension of politics by other mean’ is a cliche quoted far too often, but centuries later it still holds true; in a limited war it means that the aim is to make it so the enemy is better off complying with you rather than carrying on. One of the structural issues with the Iran war, and in fact American wars in the Middle East in general, is that you cannot conduct a limited war against an enemy for whom the war is a matter of survival, Total War must be met with Total War. The same is true for Operation Epic Fury, relying on air power alone to enact regime change had absolutely no chance of working in Iran, because they failed to understand that fundamental truth of modern warfare. Nobody with any skin in the game benefits from the war ending now, so it won’t.

The United States' dilemma

For the United States, the domestic political calculus is the primary consideration in ending the conflict. President Trump’s domestic position is difficult to say the least; with the midterm elections rapidly approaching. The Iran War has almost no domestic support, it is driving gas prices up rapidly, and perhaps most importantly it is eroding his image of projecting American power. The ‘Donroe’ doctrine which worked in Venezuela, a form of gunboat diplomacy using short sharp bursts of force to extract specific concessions to tie a regime to the United States and remove it from the Chinese sphere of influence, has not borne the same fruit in the Middle East. It worked in Venezuela because the regime actors cared about themselves more than the regime, it has failed in Iran because the actors believe the regime is more important than themselves. Another problem is that decisions are being made with a gutted State Department and a hollowed out intelligence branch, the failures don’t just represent overreach, it reflects degraded analytic capacity. It is in this context that President Trump is faced with the decision to either escalate the conflict to achieve his original goals or claim victory under very tenuous circumstances, against an enemy who may continue to fight on, whatever the White House claims.

Iran and the IRGC

The Iranian Revolutionary Guard (IRGC) has seized control of Iran, transforming it into a Praetorian state from the ashes of the airstrikes that killed the Ayatollah. Their legitimacy now is built on war and a secular revanchism that necessitates an ongoing conflict with the West to build the foundations of the new regime. The new leader of Iran, Mojtaba Khamanei, is not dictating the war effort, he is the Claudius to the IRGC’s Praetorian guard, elected emperor while hiding in a bunker rather than behind a curtain. Meanwhile operational command has been decentralised in order to counter the US/Israeli decapitation strikes. The confirmation that the IRGC have taken control is the resignations of, or even open dissents from, the reformist figures in the theocratic regime. Iran is now run by a junta whose domestic credibility comes from defeating the United States. A junta whose insurgent economic warfare is yielding incredibly effective results and frustrating a superpower. The IRGC have absolutely no incentive to end the conflict now even if doing so would inflict a humiliating defeat on the ‘Great Satan’ as they would not get enough concessions to guarantee the long term survival of the new order.

Israel

Israel also have limited interest in ending the conflict immediately. Israel entered this conflict for far broader reasons than the United States did, and purportedly were the instigators of the operation. Their goals are consistent and are still being executed: destroying the Iranian nuclear program, decapitating the IRGC, and dismantling the Shia proxy network. Israel are far less affected by the economic warfare being waged by Iran. A skyrocketing Brent price is a Western issue, an Iranian nuke is an Israeli issue. With the United States underwriting Israeli actions as the senior partner in the relationship, Israel have minimal incentive to refrain from escalating until their goals have been achieved. The issue with this is that, like Austro-Hungary in 1914, and the blank cheque written by their senior partner, in this case the US, could very well lead them to overreach and trigger escalations that extend this war in some form for months or years, including economic warfare with nations supporting Iran, a ground war, or endemic pressures on the Suez Canal from the Houthis and in the Strait of Hormuz.

The Escalation Trap

This is a prime example of Professor Robert Pape’s Escalation Trap. The United States strikes Iranian military infrastructure, Iran expands the theater horizontally and raises the cost to America’s Gulf partners. America responds, Iran calls and doesn’t raise, keeping enough in reserve to match the next move. Each attempt to restore American dominance creates the conditions for the next Iranian escalation, and each Iranian escalation creates domestic pressure, and creates the conditions where the United States have to up the ante. The trap isn’t an endless spiral to nuclear war, it’s how what starts as airstrikes could end with the 82^nd Airborne fighting a rearguard action in the Zagros Mountains. It is a conflict with more actors, wider geography, and higher stakes, in which the party with the most to lose financially is also the one with the least coherent exit strategy. There is no de-escalation ladder available, because the United States does not control all the players. Trump can declare victory tonight. The Strait of will still be closed tomorrow, unless you pay the toll.

HOW WIDE WILL IT GET?

As Otto Von Bismarck once said ‘waging a preventative war is like committing suicide out of fear of dying’. The central irony of Operation Epic Fury is that, in combination with the strikes last year, it has accelerated the transition of power from the theocracy to the IRGC. The IRGC already controlled 20-40% of the economy, and held the ‘monopoly on violence’, and by removing the Ayatollah the United States have empowered this Praetorian class, one which is far less likely to accept a return to the status quo. Many of the IRGC commanders have been battle forged in Syria, Iraq and Yemen alongside their Shia proxies, they are hardened, uninterested in concession and have different ambitions to the old regime. The issue is that rather than seeing these proxies as allies in an idealogical struggle against the ‘Great Satan’, the IRGC commanders likely see their proxies as tools of nationalism. Once you strip away the theology, you are left with a militaristic nationalist state using religion as a means of control, and one that has absorbed the full power of American and Israeli airpower, and regardless of outcome, will be emboldened by their resilience.

TP-AJAX

The anti-western nature of this nationalism is perhaps informed by the trauma of 1953; Operation TP-AJAX, the CIA operation to depose Mohammed Mossadegh’s secular, but left leaning, government in Tehran. The primary drivers of this Cold War intervention were Anglo-American oil interests, and the usual American concerns over Soviet influence. The regime installed by the United States presided over a liberal and modern Iran, but was toppled by the theocratic Islamic Republic 26 years later, primarily as a backlash against imperialism. The internal lessons drawn from Ajax seem to have been to retain control of the oil flow at all costs, and to build in anti-coup resilience, such as the IRGC’s parallel governance structure, and the decentralisation of command. What is important to realise about the changing nature of the opposition, is that the Islamic Republic was one generations expression of that nationalism, the current elite in Iran seems to have a more militaristic vision of that same notion. The Islamic Republic was a legible enemy, its goals were clear and it could be planned around, Praetorian Iran is something different. They are willing to strike widely at neighbours and nations uninvolved in their current conflict, it is less containable as it is not hiding behind fundamentalist proxies. This new threat calculus is shown by the delay in utilising their Houthi proxy force, they are treated as an asset to be activated as part of an escalation as opposed to a perennial insurgency.

Echoes of Suez

The strategic model of using economic chokepoints to defeat a greater power is nothing new, for example Nasser’s seizure of the Suez Canal in 1956. Nasser never had to defeat Britain, France and Israel militarily, the economic and political conditions surrounding the seizure forced a ceasefire as the intervening powers were unable to live with the consequences. Similarly, Iran do not need to defeat the United States militarily, but while Nasser’s leverage was partly ideological and Iran’s is purely geographical, they will attempt to make the Hormuz tollbooth a structural part of the global economy in the same manner as Nasser.

The Petroyuan

Both Ajax and the Suez crisis have to be placed in their Cold War context, but they do have echoes in the current conflict. This is great power competition using regional conflicts as an arena, the American intervention is in part aimed at excluding China from the region and seizing control of the energy architecture. The issue is that it has not been successful, Beijing is benefiting from American strategic overreach. Since 84% of Hormuz oil goes to Asian refineries, it has an outsize impact on that region, control over the strait gives leverage over China, Japan, Korea and the rest. For the United States a friendly Iran would be a useful tool in their competition over resources with China, however the creation of the Petro-yuan tollbooth means that China have asserted a measure of control over the Asian energy infrastructure, denominated in Yuan, while the United States burns through interceptors and political credibility. Washington won the Cold War by winning more than they lost in these regional amphitheaters, they appear to be losing in this one so far.

Current Situation

On the 4th of December 2023 the Venezuelan people voted in favour of a consultative referendum on whether to annex the province of Guayana Essequibo in direct contravention of a ruling by the ICJ. Subsequently, Maduro has doubled down on his position by provocatively giving licences to Venezuelan companies to begin resource extraction in Essequibo. The referendum has two purposes, one domestic and one international. Domestically it was designed to consolidate Maduro’s position as head of the Chavist regime, and internationally it was to protect Venezuela’s regional position as China’s primary ally and as the major oil producer in Latin America. Guyana has responded by appealing to the United States and the global community for support. Maduro and Guyanese President Irfaan Ali met in St Vincent and the Grenadines on December 14th to discuss a resolution to the issue; mediated by President Lula da Silva of Brazil, it yielded a commitment to not use force in the dispute. However it did not address the claims made by Venezuela, and the failure to delegitimize them makes this agreement fairly meaningless.

Venezuelan Domestic Politics

In October 2023 Maduro and his domestic opposition signed the ‘Barbados Agreement’, mediated by Norway and encouraged by US intimations that it would reduce sanctions on Venezuela’s economy. Under the terms of the deal there would be ‘free and fair elections’ in 2024, practically speaking, without the usual subversion tactics by the government. However, Maduro was forced to take this step owing to the declining legitimacy of his Government in the face of multiple political and socio-economic crises. So while it was ostensibly progress in the right direction, it was in fact an internal threat to the Chavist regime. Maduro’s rationale for making the deal was to aid the Venezuelan economy by reducing US sanctions, and to improve his domestic political situation by providing the illusion of democracy. What has really happened is that Maduro has created a conflict to distract the Venezuelan people from his Government's failings and refocus the election on this issue.

By placing this border dispute at the heart of the election, Maduro can force his opponent - María Corina Machado - to either support his government or appear unpatriotic, and through her actions, and those of those around her, then use the courts to remove her as a candidate. Disqualifying candidates is a practised tactic of the Chavist government, and indeed many authoritarian states. The political implications in Caracas have been the primary focus of most analysts at the expense of the geopolitical risks and while a direct invasion is unlikely, the way we understand war has been changing in the last few years, and the history of the dispute is critical to understand the grievances fuelling it, and why there is a risk of escalation.

Colonial History

The border dispute between Venezuela and Guyana is defined by the legacy of Colonialism. In 1814 the Convention of London between Great Britain and the Netherlands settled several territorial disputes arising from the Napoleonic Wars in the Caribbean and Southeast Asia, pertinently ceding the territory West of the Essequibo River to the British Empire. On the other bank of the river lay the Spanish colony of Venezuela, however this was in practice a more complicated border due to the presence of British settlers. As Britain consolidated its territory, revolution was sweeping across Latin America under the leadership of the Venezuelan patriot Simon Bolivar. Bolivar formed the nation of Gran Colombia from newly liberated Venezuela, Ecuador, Colombia and Peru, throwing off the Spanish shackles. However after Bolivar’s death factionalism destroyed his nation, with Gran Colombia disintegrating into different states a year later in 1831, the same year Britain formalised the colony of British Guiana. Bolivar’s legacy of anti-colonial violence remains a powerful force in Venezuelan politics.

The resulting states, Venezuela, and the British Guiana colony, had very different interpretations of the border, exacerbated by the rich mineral wealth of the region. However it only came to a head in the 1890s when the United States became involved under the Monroe Doctrine, and in 1897 an international tribunal of judges was formed in Paris; two American, two British, and one Russian. This tribunal’s decision is at the core of Venezuela’s argument, since it awarded the territory to the British. The fact that it was composed of colonial powers imposing a decision on a nation that had won its independence, combined with the alleged corruption of the Russian judge, created a grievance still present in Venezuelan politics. British influence over the Russian judge is the cornerstone of Venezuela’s rejection of the decision. The sense of betrayal by the global community still informs Venezuela’s rejection of international arbitration today.However the aggressiveness of the United States’ protection of its interest under the aegis of the Monroe Doctrine, as well as the overwhelming military strength of the British Empire led Venezuela to accept the ruling in 1905. 

In 1966, the decolonisation of the British Empire provided a new opportunity for Venezuela to stake its claim to the territory. It appealed unsuccessfully to the UN on the basis of the illegitimacy of the Paris Tribunal. Venezuela’s lack of success in global forums led it to consider military action, a rejection of the rules-based system that is still present in Venezuelan policy particularly on the Essequibo issue. The CIA was concerned about a Venezuelan invasion in 1969 using Amerindian rights as a pretext, this also accompanied a change of regime in Venezuela; from Accion Democrativa to the Social Christian party. The CIA report stated that while Venezuela was aware of the likelihood of an ‘adverse reaction’ in the global community, there was confidence that a combined political and military approach would not lead to intervention by either the US, UN or Organisation of American States (OAS). This can be explained by the fact that Venezuela was then an ally of the US, and Guyana was feared to be a potential target for communist takeover. However, a series of military factors and the threat of American hyper-interventionism stayed Venezuela’s hand.

These historical factors demonstrate that the Essequibo issue is one which Venezuelan governments, regardless of political allegiance or ideology, will ignite given the opportunity. While the current conflict is not a colonial dispute, it is an important part of the grievance within Venezuelan politics, and the broader geopolitics of the region. Not for nothing is the oilfield at the heart of the dispute named after the former President of the Dutch West India Company.

Recent History

The Chavist regime has used the Essequibo dispute to shore up domestic support in the past. In 2006, President Hugo Chavez announced the addition of an eighth star to the Venezuelan flag representing the territory of ‘Guayana’ which had been claimed by Simon Bolivar. Chavez’s motivation was political, this act directly preceded the first presidential elections since Chavez survived a recall vote in 2004. Conjuring up the spectre of Bolivar was a very specific message to establish historical legitimacy for the regime. The same language has been used today by Maduro. 

Other incidents involving Essequibo, and the creation of an external enemy, line up with instability in Caracas. In 2019, Maduro’s government appeared on the verge of collapse, with the US stepping up its sanctions regime, as well as most states aligned with international bodies recognising Maduro’s opposition, Juan Guiadó, as the legitimate leader of Venezuela after the 2018 elections. Around this time, Venezuela increased its naval operations against Guyana, and increased its anti-ICJ rhetoric. These rejections of the rules-based system pushed Venezuela to develop even closer ties with nations like Russia, China and Iran than it had already cultivated. 

Venezuela’s strategic interests have also played a role in this issue historically. In 2013 when the Venezuelan Navy stopped a Guyanese ship surveying the oil fields offshore, the language was similarly delegitimising, calling Guyana an heir to the British Empire. There have been a number of incidents in recent years, whereby Venezuela used its naval strength to intimidate ships searching for oil in disputed waters. These provocations by the Venezuelan Government led to the lawsuit filed by Guyana in 2018 with the ICJ. Maduro stated at the time that Venezuela would not recognise the ICJ’s ruling on the matter and continued to issue directives and make claims on the disputed territories. In December 2018, the day after ‘vote of no confidence’ in then President of Guyana, David A. Granger, the Venezuelan Navy forced two ships conducting seismic work for Exxon in Guyanese waters to flee. The Essequibo issue is not always about domestic political benefit but also the exploitation of circumstance, this suggests there is more to this conflict than just Maduro maintaining his grip on power in Caracas. It suggests a very real fear in Caracas that the oil discoveries in Guyana will radically alter the geopolitics of the region.

The Oil Problem

Guyana’s burgeoning oil industry is a threat to Venezuela. China’s involvement with the Guyanese oil project, as well as the superior quality of the oil in the Stabroek Block, presents a strategic problem for Caracas. Guyanese oil is of the sweet light variety (similar to that found in Texas), as opposed to the extra heavy crude found in Venezuela, meaning that not only is it easier to export, but it will be at a premium on the market. Venezuela’s oil is tricky to refine, and while its partners, including China, have the capacity to refine it, a Guyanese-Chinese partnership would leave Venezuela further isolated. This has already begun with CNOOC holding a 25% partnership in the Exxon project in the Stabroek block. This particular play for Essequibo could be as much of a desperation move in terms of Maduro’s government on the global stage as much as it is at home in Caracas. This is because Venezuela’s oil production has fallen from its peak of 3.2m barrels per day in 2000 to 735k per day in September 2023, whereas Guyana is now producing 500k barrels per day and is predicted to be producing 1.2m barrels per day in the coming years from a total reserve of 11.4 billion. While this is still less than the proven reserves in Venezuela, it represents a threat to the Venezuelan economy, since 150k barrels of its oil goes to the United States even under sanctions, if this were to be replaced by the new Guyana project the Venezuelan economy would only get worse, particularly as the largest portion of its oil goes to China at low prices to pay down its national debt. The role of China in this region is important.

Chinese Involvement

The Caribbean is America’s backyard and it has long taken any threat to its dominance over the region very seriously. However since the Cold War China has long been engaged in so-called ‘softer forms’ of intervention across the globe, ranging from its own backyard in the South China Sea through Zaire and Angola, and even Guyana itself in the 1970s. The difference now is that we see an America that is less concerned with broader ideological threats in comparison with immediate geostrategic concerns. China began building its relationship with Venezuela in 1999 when Hugo Chavez became President of Venezuela. It was viewed as a fellow socialist state, likely to oppose American interests in the region and also held the largest proven oil reserves in the world, something that would help China to establish its own power base and diminish America’s hegemonic position. Venezuela was one of the first nations to be absorbed into the Maritime Silk Road project and China has assisted Venezuela in fields ranging from healthcare and infrastructure to security. As is common with Chinese assistance, there are now a myriad of strings tying Caracas to Beijing. However, China has also invested heavily in Guyana, not only in the Exxon project, but with broader economic assistance. Guyana joined the Maritime Silk Road project officially in July 2018, and the Belt and Road initiative (BRI) in July 2023; threatening Venezuela’s position as China’s regional bulwark.

China’s modes of control are very different to those of the US, reliant on economic and diplomatic support rather than boots on the ground. However, it is no less interventionist and exerts similar control over the target nation. In both Guyana and Venezuela we can see similar tactics, but at different stages of development.  China’s position as patròn for these regional rivals places it in a difficult position, as it’s Venezuelan position is heavily reliant on Maduro’s regime rather than historical ties to the country. China’s leveraging of financial assistance ties it to leaders rather than nations, and has the potential to commit it to a regime that will do more harm than good to Chinese interests. The series of triggers for Venezuela’s referendum could include Guyana joining the BRI, where Maduro sensing the weakening of his alliance with China, is trying to force Beijing’s hand to commit to Caracas as their regional bulwark. This is particularly important for Maduro, as his security and economic strategies are heavily reliant on Chinese support. Any change to this situation could lead to the end of the Maduro regime, hence why brinkmanship with the US and Guyana is a move worth making, both on the domestic stage and the global one. 

Prospects for War

The Venezuelan Military is heavily linked to two other nations besides China – Iran and Russia – both of which are experts at proxy and irregular warfare. Russia’s involvement is particularly interesting as the presence of Rosneft in the Venezuelan oil sector, and the Maduro regime’s rejection of the West makes it an important ally for Russia on the global stage. This sort of dyadic relationship outside of global norms is one of the factors that could lead to the escalation of this dispute. The coalition of Venezuela’s supporters is not a group that America can consider friends, and their increasing boldness globally, and presence locally, should be of great concern to American policymakers. The potential for warfare in this context is limited to either increased naval aggression in the Caribbean or irregular forces operating within the borders of Guyana to reduce government control over the region and legitimise Venezuela’s claim. The revival of the Amerindian pretext could offer Moreover the outright size of Venezuela’s military compared to Guyana’s is a classic case of capacity building by Venezuela’s allies. The combination of Chinese strategic interests in the region and American desire to see Venezuela and its oil reserves returned to the global community could also encourage PMC (Private Military Company) operations within Essequibo, for example to protect the mining and drilling operations that Maduro has given licences for in the region. It would also benefit Chinese interests to have the US distracted by a low level proxy war in its own backyard as a counter to US activities in the South China Sea. The American response to this dispute will be the defining factor as to if and how this conflict escalates.

The Monroe Doctrine

The Stabroek block discoveries have made Guyana a significant player in Latin American regional politics, as well as a nation with increasing importance to both the United States and China, we are likely to see a large degree of manoeuvring by both superpowers to assert themselves as the primary ally, though China’s ties to Venezuela have created an opportunity for the United States to invoke the ghosts of the Monroe Doctrine. The United States’ history of intervention in Latin America under the aegis of the Monroe doctrine is rooted in realism, the only consistency being the protection of American interests. The US has the opportunity to heavily support Guyana and position itself in such a way as to force China out of Latin American politics. This would be a return to Cold War era strategy where the US used active measures to preserve its interests, both economic and ideological, with a degree of ruthlessness that has not been present in the past few decades.

In 1969 President Nixon was told that there was no Venezuelan politician ‘willing or able to defuse the dispute with Guyana’, since there was a belief that military forces in Venezuela were attempting to force President-Elect Caldera’s hands. United States policy in Latin America during the Cold War revolved around ensuring the presence of compliant regimes either through covert action or offering military support to coups, with decisions made on the basis of leaders’ loyalty to the United States rather than popular support. Operation Brother Sam in 1964 was a US military operation to support the CIA’s efforts to remove Joao Goulart as the President of Brazil which involved a carrier group sitting off the coast of Sao Paulo threatening an amphibious landing. While this was never feasible, the American use of gunboat diplomacy during the Cold War tells us about the American attitude to threats to its dominance over the region. We can also use the Bay of Pigs invasion and the ousting of President Arbenz of Guatemala in 1954 as indicators of America’s willingness to use force to protect its interests as a form of modern Monroe Doctrine. However, these are primarily political solutions, rather than extended interventions. In Guyana in 1964, the CIA and MI5 collaborated to prevent Cheddi Jagan from taking power of an independent Guyana through a combination of covert action, propaganda and alteration of the political system. 

In the modern era, the United States tends to use military cooperation and assistance with its allies, and place sanctions on those states it considers enemies. The Venezuelan sanction scheme is an example of this, which has had a catastrophic effect on the Venezuelan economy, as well as making it something of a pariah in the region. American SOUTHCOM exercises with nations like Colombia and Brazil are a way of demonstrating force in Latin America, but the Essequibo dispute will act as a test of US resolve in the region. The two prongs of American strategy will be to use Brazil as a proxy actor for diplomatic and military strategies, and, as they already have, utilise specialised American forces, such as the military assistance brigade, to reinforce Guyana. Brazil activated a mechanised cavalry regiment two years earlier than planned to reinforce the Roraima border crossing between Brazil and Venezuela as a military deterrent, given that it is the only strategic land entry point into Guyanese territory. Lula also mediated the meeting between Presidents Ali and Maduro on December 14th, having been carefully rebuilding the Brazil-Venezuela relationship, signifying his importance as America’s regional ally.

The United States will continue to support the Guyanese government as well as appealing to both sides to abide by UN and ICJ rulings, knowing that Venezuela is unlikely to do so and may have to be compelled to back down. Moreover, if the United States can find some sort of victory here, in terms of a humiliation of Maduro in Caracas, it would be more effective than any sanctions regime which can - as Russia have shown during the Ukraine War - be subverted. A win for the West in this theatre would be the expulsion of Chinese influence from Latin America. In practical terms this would involve Guyana remaining entrenched in its position with the promise of concrete military and diplomatic support from Western powers, as well as an increase in sanctions on Venezuela, and Maduro in particular, for breaching not only the terms of the Barbados Agreement, but the rulings of the ICJ and the United Nations.

Where next?

The meeting on 14 December did not lead to any meaningful de-escalation as Irfaan Ali has been emboldened by the strong support of the US to state that ‘not one blade of Guyanese grass will be yielded’, and Maduro has not even achieved his domestic goal at this point. The arrival of US military forces in the region, including an overflight by US fighters on 12 December, as well as the number of geostrategic interests at play means that this should perhaps be more of a concern than it currently is. Furthermore, this presents a very interesting opportunity for the United States and its allies in the broader geo-political spectrum. Events have moved very rapidly, and with China caught in a compromising position supporting both sides, there is a chance to split Guyana away from the Belt and Road initiative by supporting it quickly and aggressively. States are most easily influenceable when there is a threat, by forcing Maduro to back down on his own, his credibility could be shredded, and as sanctions ramp back up as a result the best case scenario for the West would be a situation akin to Galtieri after the Falklands, the sudden collapse of the regime, but without the bloodshed. Maduro’s rhetoric has placed his regime in a situation where it’s legitimacy and credibility is at stake. While the concern should exist about his next moves, especially given the noises coming from the Venezuelan military demanding conflict, this may not be a tactical diplomatic ploy, but rather a desperate play at the endgame of a regime.

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