Opinion

What if the US loses the 2026 Hormuz Conflict

​What happens if the US loses the 2026 Hormuz Conflict? At the time of writing (Mar 25, 2026), Iran has succeeded in closing the Strait of Hormuz to effectively all shipping without their permission. The majority of transiters have Iran’s permission, and may even have to pay a fee to transit. The U.S. claims it is working through a timetable of targets and cannot simultaneously service those targets and escort ships through the strait. They have asked allies which rely on the strait, including Europe and the gulf, to contribute forces to reopen the strait. All such states except the UAE have so far refused. This blog post considers the long-run political and economic future of a “worst-case” scenario. Worst case means that the U.S. is unable to permanently wrest control of the strait or compel Iran to end its blockade. In this scenario, the U.S. may temporarily open the strait once or even several times, possibly by placing troops on nearby Iranian islands. But Iran is successful at waiting these forces out and maintaining their supply of anti-ship drones. Meanwhile, the U.S. bombing campaign fails to trigger a successful uprising or a coup within Iran, and the Iranian regime is unable or unwilling to come to an agreement. In that case, the U.S. could not indefinitely fight in the Strait and would eventually have to give up and pivot to other theaters.But the U.S. giving up on the strait would create a new game, pitting the gulf states and the world’s oil consumers against Iran. After driving off the U.S., Iran will have a strong desire to keep control of the strait, either by taxing transit or by directly continuing a blockade. Controlling the strait would give Iran a devastating threat to hold over the Gulf states. Control could easily earn Iran tens of billions of dollars per year as well. But continued Iranian control would be very bad for both the Gulf states and the oil-consuming states, most importantly, Europe, India, and China. For shorthand, I will refer to the gulf states and Europe India and China as GEIC. Currently, GEIC is acting as if they expect the U.S. to win, which would solve its problems with minimal effort. Should the U.S. succeed, this strategy will work out handsomely. But it seems the GEIC countries have not seriously considered what would happen if the U.S. fails. For instance, the Royal Navy has called a meeting with defense chiefs in France, Germany, Italy, the Netherlands, Japan, and Canada to discuss “on a two-stage coalition mission involving warships and autonomous systems to reopen the Strait of Hormuz once the conflict subsides.” The Royal Navy seems confident it will succeed in a scenario where the larger and more experienced U.S. Navy has just failed.The difficult thing about international relations is that it is “strategic,” meaning that each player’s actions depend on what they expect other players to do. Finding the best action in a strategic context requires each player to work backward from potential end states, considering the other players’ moves at each juncture. I will model the Strait Crisis as a sequential game, since this game set is relatively simple to solve and fits the situation well.The first choice after the U.S. defeat would be Iran’s. Iran would have three major options. 1. Continue the blockade until the Gulf States kick out all American bases2. Tax ships transiting the strait3. Allow free passageThe GEIC powers will also have several main options1. Fight to reopen the Strait2. acquiesce to Iranian demands3. Counter-blockade Iran4. Bypass the straitBlockade the straitFirstly, the Iranians could continue their current policy of blockading all other Persian Gulf states until each removes all U.S. Military forces. This path necessitates far greater confrontation with both the Gulf states and the consumer states.Because meeting this demand would effectively surrender the sovereignty of the Gulf states, they will refuse. The Gulf states maintain strong ties with the U.S. military because they are small but rich and have untested militaries. U.S. presence gives them a surety that no Arab army can provide (see Armies of Sand by Pollock) . Although in this scenario the U.S. was ultimately exhausted in efforts to open the strait, the U.S. military would remain the most powerful military in the region. Even Qatar, which is the most pro-Iran gulf state, could not kick the U.S. out due to its vulnerability to Saudi Arabia and the United Arab Emirates. Perhaps Iraq would force U.S. forces out, but even that would require overcoming major veto players who fear Iran’s influence.Instead, the Gulf states are likely to expand their pipelines that bypass Hormuz. Such an expansion would take at least a year, during which exports would be greatly reduced. For LNG, mainly made in Qatar, the situation is even worse because the existing pipelines are for oil and it the liquification infrastructure exists only in Qatar, so the market disruption would be longer and more severe.All of these effects would put much greater pressure on the consumer nations to do something. India and China would both suffer considerably higher prices. India has already signalled its willingness to defend its interests by sending ships to escort vessels after they pass through the strait. China would suffer a loss of export demand from other oil-consuming nations. While China is unlikely to fight Iran directly, they have leverage over the mullah regime through Iran’s supply lines and Central Asian partnerships. Together, the Gulf states, India, and China probably have enough force to deter Iran from an indefinite blockade.Therefore, an indefinite blockade of Hormuz would create a powerful countervailing coalition. Since Iran knows this in advance, they are unlikely to adopt the policy, even after exhausting the U.S.Section 3 Ask Not for Whom the Sound TollsIran’s second option would be to apply sound tolls to any ships passing through the strait. Such tolls would violate the law of the sea and are therefore illegal blah blah blah. The Iranians definitely will not care about international law.Sound tolls on Hormuz could generate substantial revenue for Iran. The Egyptian tolls on the Suez Canal generate 10 B in a good year. The total value of goods flowing through Hormuz is 500 $B annually, about half that of Suez. So a ballpark estimate for Iran’s revenue would be 2-5 $B annually from Hormuz tolls. That’s a lot of moolah for the mullahs, and would enable Iran to fund the rearming and refitting of its military. Iran could use that money to rebuild its military and better control the strait, making the toll policy more sustainable. The toll policy is also more likely to be accepted by the consumer states. Most of the tax would be paid by the producer states. A sound toll wouldn’t change the quantity produced by most Gulf states because their cost of production is so low relative to other oil-producing regions.This means the option of forcing the strait would be less appealing to India and the other consumers. In fact, most of the European powers and Japan have already ruled out any action to protect their interests in Hormuz. They could revise this position later, but I doubt a sound toll alone would be enough.France made its policy clear in a speech on March 17th https://www.elysee.fr/en/emmanuel-macron/2026/03/17/national-defence-and-security-council-on-the-situation-in-iran-and-the-middle-east”We are ready, with other nations, to take responsibility for an escort system. This would entail political and technical work, with all of the actors working in maritime transport, with insurers and operational actors. We have begun discussions with India, with several other European partners and partners in the region. This work will require discussions and deconfliction with Iran, because under no circumstances can this be an operation of force”In an incredible paragraph, Macron communicated that Iran is welcome to continue the blockade indefinitely, and France would do nothing in that case. But he made himself sound very brave as he said it. At best, Macron is offering to remove Iran’s mines for them, with their permission, of course.Japan has also bravely offered to help remove mines with Iran’s permission. https://www.aa.com.tr/en/asia-pacific/japan-hints-at-dispatching-forces-to-strait-of-hormuz-for-minesweeping-after-ceasefire-/3874501 Wow, well those mines had better watch out!The UK debated the issue in the House of Commons. It looks like some people wanted efforts to reopen the strait, but more of the speakers advocated for “negotiating a settlement” or complained that they lack military capacity. The problem with just negotiations is that once you have foregone any threat of force, Iran has no reason to listen to you. Negotiation and force have to be used together, not separately. Anyway, it does not seem that the UK would seriously contribute to reopening the strait.The UAE and other Gulf states would probably still fight. The UAE has very few alternatives for exporting its oil, with only a small pipeline that bypasses Hormuz (which could still be attacked anyway). So if the U.S. fails the UAE would at least offer to try and reopen the strait. However, the Gulf states could probably not reopen the strait alone.Given that the Gulf states could not open the strait, they would probably bypass instead in response to sound tolls. Eventually, most Persian Gulf resources would be pipelined around the Iranian toll zone.This outcome would be pretty good for Iran, which would still get to tax any non-pipelineable exports and imports.Option 1: Allow free passage of the strait:This third option would give Iran some goodwill abroad. It would also please Iran’s friends in China.But it would forego the billions of dollars to be made from sound tolls. So Iran would only take this if they expect the sound tolls idea to fail. As I discussed above, I think sound tolls would be workable once Iran defeats the U.S., so free passage is an unlikely long-term outcome. Discuss ​Read More

​What happens if the US loses the 2026 Hormuz Conflict? At the time of writing (Mar 25, 2026), Iran has succeeded in closing the Strait of Hormuz to effectively all shipping without their permission. The majority of transiters have Iran’s permission, and may even have to pay a fee to transit. The U.S. claims it is working through a timetable of targets and cannot simultaneously service those targets and escort ships through the strait. They have asked allies which rely on the strait, including Europe and the gulf, to contribute forces to reopen the strait. All such states except the UAE have so far refused. This blog post considers the long-run political and economic future of a “worst-case” scenario. Worst case means that the U.S. is unable to permanently wrest control of the strait or compel Iran to end its blockade. In this scenario, the U.S. may temporarily open the strait once or even several times, possibly by placing troops on nearby Iranian islands. But Iran is successful at waiting these forces out and maintaining their supply of anti-ship drones. Meanwhile, the U.S. bombing campaign fails to trigger a successful uprising or a coup within Iran, and the Iranian regime is unable or unwilling to come to an agreement. In that case, the U.S. could not indefinitely fight in the Strait and would eventually have to give up and pivot to other theaters.But the U.S. giving up on the strait would create a new game, pitting the gulf states and the world’s oil consumers against Iran. After driving off the U.S., Iran will have a strong desire to keep control of the strait, either by taxing transit or by directly continuing a blockade. Controlling the strait would give Iran a devastating threat to hold over the Gulf states. Control could easily earn Iran tens of billions of dollars per year as well. But continued Iranian control would be very bad for both the Gulf states and the oil-consuming states, most importantly, Europe, India, and China. For shorthand, I will refer to the gulf states and Europe India and China as GEIC. Currently, GEIC is acting as if they expect the U.S. to win, which would solve its problems with minimal effort. Should the U.S. succeed, this strategy will work out handsomely. But it seems the GEIC countries have not seriously considered what would happen if the U.S. fails. For instance, the Royal Navy has called a meeting with defense chiefs in France, Germany, Italy, the Netherlands, Japan, and Canada to discuss “on a two-stage coalition mission involving warships and autonomous systems to reopen the Strait of Hormuz once the conflict subsides.” The Royal Navy seems confident it will succeed in a scenario where the larger and more experienced U.S. Navy has just failed.The difficult thing about international relations is that it is “strategic,” meaning that each player’s actions depend on what they expect other players to do. Finding the best action in a strategic context requires each player to work backward from potential end states, considering the other players’ moves at each juncture. I will model the Strait Crisis as a sequential game, since this game set is relatively simple to solve and fits the situation well.The first choice after the U.S. defeat would be Iran’s. Iran would have three major options. 1. Continue the blockade until the Gulf States kick out all American bases2. Tax ships transiting the strait3. Allow free passageThe GEIC powers will also have several main options1. Fight to reopen the Strait2. acquiesce to Iranian demands3. Counter-blockade Iran4. Bypass the straitBlockade the straitFirstly, the Iranians could continue their current policy of blockading all other Persian Gulf states until each removes all U.S. Military forces. This path necessitates far greater confrontation with both the Gulf states and the consumer states.Because meeting this demand would effectively surrender the sovereignty of the Gulf states, they will refuse. The Gulf states maintain strong ties with the U.S. military because they are small but rich and have untested militaries. U.S. presence gives them a surety that no Arab army can provide (see Armies of Sand by Pollock) . Although in this scenario the U.S. was ultimately exhausted in efforts to open the strait, the U.S. military would remain the most powerful military in the region. Even Qatar, which is the most pro-Iran gulf state, could not kick the U.S. out due to its vulnerability to Saudi Arabia and the United Arab Emirates. Perhaps Iraq would force U.S. forces out, but even that would require overcoming major veto players who fear Iran’s influence.Instead, the Gulf states are likely to expand their pipelines that bypass Hormuz. Such an expansion would take at least a year, during which exports would be greatly reduced. For LNG, mainly made in Qatar, the situation is even worse because the existing pipelines are for oil and it the liquification infrastructure exists only in Qatar, so the market disruption would be longer and more severe.All of these effects would put much greater pressure on the consumer nations to do something. India and China would both suffer considerably higher prices. India has already signalled its willingness to defend its interests by sending ships to escort vessels after they pass through the strait. China would suffer a loss of export demand from other oil-consuming nations. While China is unlikely to fight Iran directly, they have leverage over the mullah regime through Iran’s supply lines and Central Asian partnerships. Together, the Gulf states, India, and China probably have enough force to deter Iran from an indefinite blockade.Therefore, an indefinite blockade of Hormuz would create a powerful countervailing coalition. Since Iran knows this in advance, they are unlikely to adopt the policy, even after exhausting the U.S.Section 3 Ask Not for Whom the Sound TollsIran’s second option would be to apply sound tolls to any ships passing through the strait. Such tolls would violate the law of the sea and are therefore illegal blah blah blah. The Iranians definitely will not care about international law.Sound tolls on Hormuz could generate substantial revenue for Iran. The Egyptian tolls on the Suez Canal generate 10 B in a good year. The total value of goods flowing through Hormuz is 500 $B annually, about half that of Suez. So a ballpark estimate for Iran’s revenue would be 2-5 $B annually from Hormuz tolls. That’s a lot of moolah for the mullahs, and would enable Iran to fund the rearming and refitting of its military. Iran could use that money to rebuild its military and better control the strait, making the toll policy more sustainable. The toll policy is also more likely to be accepted by the consumer states. Most of the tax would be paid by the producer states. A sound toll wouldn’t change the quantity produced by most Gulf states because their cost of production is so low relative to other oil-producing regions.This means the option of forcing the strait would be less appealing to India and the other consumers. In fact, most of the European powers and Japan have already ruled out any action to protect their interests in Hormuz. They could revise this position later, but I doubt a sound toll alone would be enough.France made its policy clear in a speech on March 17th https://www.elysee.fr/en/emmanuel-macron/2026/03/17/national-defence-and-security-council-on-the-situation-in-iran-and-the-middle-east”We are ready, with other nations, to take responsibility for an escort system. This would entail political and technical work, with all of the actors working in maritime transport, with insurers and operational actors. We have begun discussions with India, with several other European partners and partners in the region. This work will require discussions and deconfliction with Iran, because under no circumstances can this be an operation of force”In an incredible paragraph, Macron communicated that Iran is welcome to continue the blockade indefinitely, and France would do nothing in that case. But he made himself sound very brave as he said it. At best, Macron is offering to remove Iran’s mines for them, with their permission, of course.Japan has also bravely offered to help remove mines with Iran’s permission. https://www.aa.com.tr/en/asia-pacific/japan-hints-at-dispatching-forces-to-strait-of-hormuz-for-minesweeping-after-ceasefire-/3874501 Wow, well those mines had better watch out!The UK debated the issue in the House of Commons. It looks like some people wanted efforts to reopen the strait, but more of the speakers advocated for “negotiating a settlement” or complained that they lack military capacity. The problem with just negotiations is that once you have foregone any threat of force, Iran has no reason to listen to you. Negotiation and force have to be used together, not separately. Anyway, it does not seem that the UK would seriously contribute to reopening the strait.The UAE and other Gulf states would probably still fight. The UAE has very few alternatives for exporting its oil, with only a small pipeline that bypasses Hormuz (which could still be attacked anyway). So if the U.S. fails the UAE would at least offer to try and reopen the strait. However, the Gulf states could probably not reopen the strait alone.Given that the Gulf states could not open the strait, they would probably bypass instead in response to sound tolls. Eventually, most Persian Gulf resources would be pipelined around the Iranian toll zone.This outcome would be pretty good for Iran, which would still get to tax any non-pipelineable exports and imports.Option 1: Allow free passage of the strait:This third option would give Iran some goodwill abroad. It would also please Iran’s friends in China.But it would forego the billions of dollars to be made from sound tolls. So Iran would only take this if they expect the sound tolls idea to fail. As I discussed above, I think sound tolls would be workable once Iran defeats the U.S., so free passage is an unlikely long-term outcome. Discuss ​Read More

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