The War Economy Has No Exit Ramp

The U.S.-Israel war on Iran has reached the phase at which every participant can still describe events as a plan, provided nobody asks to see the plan. Six months after the war began on February 28, Iran’s political leadership has suffered extraordinary losses, including the killing of Ayatollah Ali Khamenei in strikes on Tehran. Yet Iran’s government remains in place, its highly enriched uranium remains a live issue, and the Strait of Hormuz is effectively closed, according to Al Jazeera’s account of the conflict’s domestic fallout.

That is not a trivial distinction between incomplete and failed. It is the distinction on which wars consume decades. Washington’s original claim that Iranian nuclear capacity had been destroyed now appears unsupported by the campaign’s visible results, while the hoped-for public rupture inside Iran has not materialized. The military operation may have killed leaders and devastated targets; it has not obviously supplied the political mechanism that turns destruction into a durable settlement.

The home fronts are registering this gap with the primitive accuracy of a pain receptor. U.S. petrol prices have reportedly risen 50% since the war began, fewer than one in three Americans backed the conflict in a recent Ipsos poll, and midterm elections are due in November. In Israel, criticism of the Iran campaign sits atop existing frustration over Gaza and Lebanon. As former Israeli government adviser Daniel Levy put it, “The war hasn’t gone as planned, so it hasn’t given him that momentum.” The electorate, rude as ever, has declined to grade on a curve.

At the G20 finance meeting in Asheville, Treasury Secretary Scott Bessent intends to ask other governments to reduce trade imbalances, spur growth, and cut business ties with Tehran. This is an ambitious menu for an administration simultaneously rebuilding broad tariffs after the Supreme Court struck down its earlier version and threatening secondary sanctions against countries that buy Iranian oil or facilitate transactions with Iran. Reuters’ preview of the meeting is, in effect, a report on a diplomatic exercise in asking others to help stabilize a system while being handed a wrench.

The economic logic of the Iran war is no longer confined to oil tankers and insurance premiums. Hormuz’s closure has hurt growth across nearly all G20 economies, the report says. The United States has already imposed curbs on an Egypt-based bank over alleged Iran links through branches in the United Arab Emirates. The intended message is clear: access to the dollar system comes with geopolitical terms and conditions, which are apparently longer than the terms-and-conditions page itself.

But credibility is a financial asset, and it cannot be manufactured by communiqué. U.S. public debt passed $40 trillion this month, while 30-year Treasury yields reached a 19-year high. Bessent’s decision to double planned longer-dated Treasury buybacks to $4 billion per operation briefly cooled yields, but it also invites the question foreign officials are asking: is Washington enforcing discipline abroad while improvising it at home? As Atlantic Council economist Josh Lipsky observed, “They'll want to talk about tariffs.” One imagines this was not meant as a compliment.

European central bankers came away from Jackson Hole unsettled not simply by American policy, but by American method. U.S. Treasury intervention to support the Japanese yen on August 1 involved euro sales without the customary warning to European counterparts, according to officials cited by Reuters. The transaction may have been aimed at disorderly yen movements, as a U.S. official said, rather than Europe. But coordination is one of those things that looks optional until its absence becomes the story.

The irritation matters because the dollar-based system depends on habits of consultation that are neither sentimental nor decorative. During stress, Federal Reserve swap lines help banks worldwide retain dollar access; European officials voiced hypothetical worries that political interference might one day touch those arrangements, though they stressed there was no indication the facilities were currently at risk. The point is not that the plumbing has broken. It is that people who rely on the plumbing have started checking whether anyone has been removing bolts.

Treasury also insists that its expanded long-bond buybacks are about market liquidity rather than monetary policy or an attempt to cap interest rates. European officials nonetheless worry about the precedent. Their concern is not irrational: a government prosecuting an oil-route war, refashioning trade policy, using sanctions as a diplomatic lever, and trying to lower its own long-term borrowing costs is asking markets to distinguish an awful lot of separate intentions. One official summarized the diplomatic atmosphere with unusual economy: “The message to me is that the U.S. does whatever it wants.” Great powers often find unilateralism exhilarating right up until they require cooperation.

The administration’s answer to a Hormuz-constrained oil market now includes a proposed Venezuelan arrangement with the emotional pitch of a land rush and the paperwork of a magic trick. President Trump announced what he called “THE BIGGEST OIL DEAL IN WORLD HISTORY”: a new company, formed by the U.S. government and an unnamed private operator, would receive 100-year rights to untapped Venezuelan fields, with the United States receiving 55% of its effective output. The agreement’s text has not been released, the operator is unidentified, and key questions about ownership, investment obligations, legal durability, and production timing are unresolved.

There is a real strategic temptation here. A U.S. official said oil bought under the arrangement could go to strategic reserves and the military; Venezuelan acting president Delcy Rodríguez said 17 fields could hold 65 billion barrels of potential reserves and attract major investment. Yet oil reserves are not oil barrels arriving obediently at a refinery before the next electoral deadline. Venezuela’s infrastructure is badly damaged, will require years and billions of dollars to repair, and is not expected to deliver a rapid production increase. As energy analyst Amy Myers Jaffe said of any retail-price effect, it may be “helpful in the long run, but it's not going to do anything to change the price of gasoline at the retail station for Labor Day weekend.”

That is the larger lesson of this week’s geopolitical accounting. Iran cannot be subdued into a neat endpoint by bombardment and sanctions alone; allies cannot be ordered into confidence; bond markets cannot be persuaded by sheer executive posture; and Venezuelan crude cannot be summoned like a reserve character in a video game. The war’s most stubborn adversary may be time. It appears in refinery repairs, legal challenges, voter anger, inflation, shipping routes, and the slow reconstruction of trust—things with no missile-defense system and, inconveniently, no launch button.