Economic warfare: Why the collapse of US-Iran peace talks may prove bad for the survival of Pax Americana

As almost no economy has escaped Iran’s war-time oil choke, the whole world was let down—barring, perhaps, America’s partner in this war of choice against it, Israel. Renewed ravages of a rekindled war in West Asia now loom large as a risk. The big question, however, is whether that leaves Pax Americana, like the Raj of yore, staring at its sunset.

With the global economy already scarred by a war that has lasted for over six weeks, it’s imperative that misery not multiply. Alas, the odds of Islamabad Talks yielding a peace pact were slim to begin with. In general, wars are harder to stop if the fear of looking like a loser outweighs that of consequences.

This seemed true of both the US and Iran. In game-theory terms, they were locked in a Nash equilibrium. Or its ‘gnash’ version, to be specific—with both hurting but neither able to gain without a shift in the other’s strategy. Since no unilateral move could spell a win for either, they both needed a less painful balance.

Going into talks, both had played hardball. The US wielded an obliterative threat before holding off, while Iran had more than Hormuz in its arsenal; the latter could plausibly leverage not just its endurance, but also regional public opinion rallied in its favour by Tel Aviv’s Gaza horrors contrasted with Tehran’s bold stance on the region’s big unresolved crisis: Palestine. The White House listed “no nuclear weapon” as 99% of its Iran aim, with Hormuz to be opened “with or without” Iran’s support.

Tehran, above all, wanted to shake off US sanctions, enrich its own uranium, toll the strait and silence Israeli firepower. With some flexibility, these asks need not have clashed. In the event, America walked out saying Iran refused to forswear a nuke and the tools to make one; Tehran asserted its right to make fuel for nuclear energy; and whatever space had opened up for a deal was crushed by fear and rigidity.

The price of Brent crude oil, acting as an index of economic warfare, will be under close watch. Yet, this is also a moment to look longer over the horizon.

Although both sides have flouted global norms, US violations glare out in a world aghast to see global principles and interests cast aside to disarm a country cast by Israel as a hot threat. The very idea of ‘Pax Americana’—or a world order based on international law as framed by global opinion—takes a blow each time America discards the restraints it had once rallied the world to observe. Today, its Iran folly has not only left the globe worse off, its own ability to rally nations to a cause stands in doubt.

If ‘might is right’ is Uncle Sam’s credo, others can play this game too; it only exposes everyone to the risk of further wars and supply shocks. China, which gains the most from lost US authority, may now fancy a role for its currency in the Gulf’s oil trade. As reported, Tehran has been charging Hormuz tolls in both yuan and stablecoins.

This hints of how high the stakes are for America. Its long-term advantage of low-cost capital rests on dollar supremacy, but its view of economic warfare seems myopic, clouded by plumes of smoke and fumes of fury in a theatre that rewards strategic vision. That’s a pity. We may need to brace for severe bouts of instability as US influence ebbs.