This article actually consists of three different parts that are related but cover different themes and what we can observe and learn from the Iran War. The first part is a summary of the developments since our last article, also serving to demonstrate the accuracy of our models and predictions. In the second part, we go into the strategic lessons that can be drawn from the conflict. In the third part, we eventually move towards three broader, overarching factors that shape power structures in the 21st century.
While every war is horrible and an immense tragedy, in which the human cost and suffering can easily become abstract to those at a distance, it is also a state of extremes in which our models are put to the test. In that sense, wars are very revealing across a wide array of dimensions, including military, economic, political, social, technological, and perhaps most importantly, moral and informational. They can reveal that what we believed about a country, its motives, capabilities, and moral drivers may be very different from the reality on the ground.
It was not that long ago that many proclaimed the end of history, believing that liberal democracy and Western democratic values would prevail as the dominant system and could not be seriously contested by other models. The Iran War, however, shattered many established beliefs. It therefore seems to be the century-defining conflict at the moment, as it appears to signal the end of US hegemony and the emergence of a multi-polar world, raising the question of how this will shape the 21st century. It also raises the question of how a poor country that has been under severe sanctions since 1979, the year of the Islamic Revolution, could have achieved this so successfully and so craftfully.
Part I: Past predictions and major developments
Moving Beyond Economic Considerations Towards Clausewitzian Logic
At the time of the previous article, our assessment was that a peace deal seemed very unlikely, given that the political considerations in the war had only further exacerbated. This was, however, not the mainstream view, and after the article was written, the US and Iran signed a so-called Memorandum of Understanding (MOU), leading to a significant easing of restrictions on the Strait of Hormuz, though it was never fully reopened. Oil prices subsequently fell sharply as markets interpreted the agreement as a resolution of the conflict.
In our view, the MOU was ultimately an Iranian blunder, as the US was likely using it primarily to buy time rather than intending to honor its commitments. This was even admitted in a later stage, even by Trump. The assumption that the US would accept giving Iran effective control over the Strait of Hormuz, with all its strategic and economic implications, was difficult to sustain, while the expectation that Israel would withdraw from Lebanon during an election year presented an even greater obstacle. Also, the view that an MOU could demonstrate a willingness by Iran to negotiate and thereby alleviate pressure on the global economy makes little strategic sense, as the international community appears to be mostly apathetic even in the face of the conflict’s enormous impact. More importantly, expecting Iran to prioritize alleviating global economic pressure while facing an existential war seems strategically flawed.
A further point that is also remarkable was how readily the media accepted Trump’s repeated claims that a deal was imminent, while this ultimately did not materialize. This again highlights the irrationality of markets, as discussed in our last article. More broadly, it can be observed that the media, many experts and even the markets appear to be learning incrementally from events rather than seeing the bigger picture and understanding the strategic dynamics required to anticipate events. It therefore also became clear that their views offered little informational value regarding the direction of future developments.
All of this once again shows the strength of the Clausewitzian logic we have been employing in making our assessments. In this context, it is important to realize that we have arrived at a point in history in which power and security considerations far outweigh the economic considerations that are so often emphasized in academic books. In this logic, the Strait will never return to its former state and might not even ever again fully reopen. Additionally, the war has demonstrated the effectiveness of strategies targeting energy infrastructure and commodity routes, and this is unlikely to be confined to the Strait of Hormuz in the future. The idea, therefore, that commodity flows can simply be rerouted seems like another costly mistake, as these new commodity routes might simply become the new central target.
In the context of this war, the concept of a ‘deal’ has been used very frequently and stated to be imminent multiple times, particularly by Trump, whose Art of the Deal is notable in this regard. Here, however, one has to be particularly skeptical and question how a contract can ultimately be enforced. As a result, a contract is often more a summary and formalization of an existing balance of interests than a prescriptive framework for future behavior. It can be seen that this is not clearly understood by Western media and experts, but it is even more remarkable that this appears to be insufficiently understood within certain Iranian political circles, despite the past and recent experiences.
In line with this logic, the MOU eventually failed and both sides withdrew. The hostilities resumed following the commemoration of Khamenei’s death, but this time they did not last long. It became clear that Iran had the upper hand in the conflict, while it also became apparent that the US had depleted a large portion of its precision missiles and interceptors. Additionally, the US was increasingly suffering from logistical constraints due to disrupted supply lines resulting from the closure of the Strait, creating significant operational and, ultimately, strategic pressure.
As of now, the US does not seem to have the capabilities to wage a conventional war and instead has to rely primarily on economic pressure on Iran. While there is still some kinetic activity, it is limited, and in this regard Iran has taken the initiative. It can also be seen that the US has narrowed its objectives to simply reopening the Strait and relinquishing some of its more ambitious objectives, such as those relating to the nuclear dossier.
Other notable developments include the expansion of the war into the Red Sea, while Yemen and Saudi Arabia have become increasingly involved. Saudi Arabia also entered a joint defense agreement with Pakistan and Türkiye, whose practical implications remain to be seen. Looking at the Ukraine-Russia war, it can also be seen here that energy infrastructure is increasingly being targeted, which demonstrates how energy supplies themselves have become a strategic weapon in modern warfare.
Implications on Commodity Prices and the Financial System
These developments signal to the markets, however overly optimistic or irrational they might be, that the conflict is likely to become a long-term disruption, putting renewed pressure on the oil price, while the price still appears far too low given the geopolitical risk and the potential impact on oil supplies. While countries will try to stabilize prices by drawing down their oil reserves, this is not a sustainable solution. For example, the US Strategic Petroleum Reserve (SPR) has already fallen considerably below 300 million barrels, raising concerns about the strategic buffer available to the US in the event of a prolonged disruption.
At the same time, the conflict leads to higher inflation due to rising energy and commodity prices, putting further pressure on financial markets as central banks face the difficult choice between supporting economic activity and keeping inflation under control.
At the time of writing, interest rates on government bonds have been rising globally, with the 10-year US government bond being particularly notable. The rise in yields has already forced the US government to intervene in the Treasury market, highlighting the increasing difficulty of financing the US government at current debt levels. Another interesting case is Japan, where the Japanese yen has come under increasing pressure. This has already prompted the US and Japan to intervene jointly in the currency market to support the yen. Japan is one of the largest holders of US government bonds, meaning that further pressure on the yen could have implications not only for Japan but also for the US Treasury market and global liquidity.
This creates another important dimension of the conflict, as the consequences are no longer confined to the Middle East or the oil market but increasingly affect the broader global financial system. It is hard to predict which part of the system will crack first.
Part II: Studying Strategy
In this intermediate section, we would like to explore some impactful strategic doctrines and concepts that have come to prominence in current conflicts and have so far had a decisive effect on the way these conflicts have unfolded.
Deterrence and the Porcupine Strategy
In a way, war resembles dynamics found in nature, or, as Clausewitz described it, a duel on a larger scale. When we look at animals, many have developed ways of signaling their capabilities, as signaling is much less costly for both sides than actually demonstrating them, and thereby deter others from messing with them. One can think of very bright colors, or the quills of a porcupine. These adaptations are meant to deter in a credible way; in this context, the notion of credibility is key. This, however, does not stop other animals, predominantly predators, from occasionally harassing and testing them regardless of the signals they convey. In such a situation, the visual or conveyed signal is not sufficient, and the ability to demonstrate that a real cost can be inflicted becomes necessary to restore deterrence. One can imagine that a sensible predator that messes with a porcupine and pays a very high price will not do so a second time.
At the geopolitical level, one should therefore not be surprised that this logic has been translated into a broader military doctrine, for example by Taiwan. It is a strategy that uses asymmetric warfare to make the price of aggression so steep that the attacker will be deterred. The strategy, as with many asymmetric approaches, shares some characteristics with this logic of the porcupine.
This logic can, for example, be seen in the way Iran has dealt with the Gulf countries, an approach that has proven highly effective and has, on multiple occasions, deterred the US from carrying out attacks on its energy infrastructure. Iran demonstrated that it could and would retaliate against critical infrastructure in the Gulf, which would have added further catastrophic and potentially permanent damage to an already heavily disrupted world economy, with consequences extending over a very long period.
This mode of thinking can also teach us how unconventional warfare would unfold and, as of now, very fortunately, has not occurred. Because, if even a single tactical nuclear weapon is used and such an attack is not deterred, it will most likely invite similar follow-up attacks, as the use of such a weapon is intended to force complete surrender. Retaliation therefore becomes an existential necessity, however counter-intuitive this may sound. From this logic, one can quickly understand why the use of these types of weapons is very likely to escalate beyond control and ultimately lead to a global nuclear war, a logic that was previously captured by the concept of mutually assured destruction, fittingly abbreviated as MAD.
The Mosaic Defense
Events in recent years and decades have shown that Western military doctrine places significant emphasis on decapitating leadership, very recently demonstrated, for example, by the U.S. abduction and extraction of Venezuelan President Maduro. Modern technology has made it increasingly easier to target political and military leadership with long-range missiles, as was also demonstrated in the Iran War.
In response to this, but also drawing on the lessons of the Iraq War, in which the centralized command structure made it difficult to execute even simple maneuvers, Iran has developed a decentralized, locally organized and multi-layered defense known as the mosaic defense. This approach is designed to make the military more resilient to decapitation and disruption, while also allowing forces to continue operating and adapting independently when central command is disrupted. In this system, all 31 Iranian provinces are given their own command structure, and officers are given the freedom to act in pursuit of defined objectives and within pre-defined strategic boundaries.
The mosaic defense has proven to be a highly successful doctrine, as central decapitation failed to prevent the decentralized forces from continuing to operate and adapt. This meant that the attacker had to neutralize at least a large number of the distributed command centers, which proved neither realistic nor sustainable and contributed to the depletion of long-range missile inventories. It is also interesting to see that the US was, before the initiation of the war, not fully convinced of the practical effectiveness of such a command structure, as otherwise it would have been deterred from pursuing a strategy that has proven to be enormously costly. So while the mosaic defense offers a compelling theoretical model, its real value lies in demonstrating its effectiveness in practice.
The mosaic defense can also create problems for both sides, as it makes conducting talks and negotiations much more difficult. In a centralized system, it is clear who has the authority to negotiate and commit to an agreement. Under the mosaic defense, this becomes much less clear, while the introduction of more centers of power creates additional actors that have to be coordinated and aligned with. In this way, a decapitation doctrine can actually backfire, as removing the central leadership can make it more difficult to reach a settlement, which particularly becomes a problem for the US in the context of an energy crisis that it wants to counter.
Interestingly, Model Thinking can also help explain why the mosaic defense is effective. Decentralized command structures allow for the simultaneous employment and testing of multiple models. This allows the system to learn faster, as it provides experience on which models are the most battle-tested or ‘best’, which can then be shared with the other centers. The learning cycle is the topic of the next section.
The Learning Cycle
An interesting point that was made in Part I is that many actors in the West can be seen to be incremental learners rather than Model or Strategic Thinkers. In this context, it is important to recognize that war tends to become a competition over who can learn and adapt the fastest, as survival depends on how well one is able to learn and adapt, and second chances are rare in war. A key principle from Model Thinking applies particularly well here: the importance of continuously remodeling rather than relying on a strong but static model. Because when one steps into a conflict, one encounters the Clausewitzian concept of friction — the accumulation of unforeseen difficulties, mistakes, accidents and obstacles that make the real world fundamentally different from how it was anticipated — as well as a continuously changing reality with an adversary that is itself continuously learning and adapting. Otherwise, even an initially highly effective strategy can become obsolete as it is figured out and countered, for example through new strategies and technologies.
These dynamics can also be seen in strategic frameworks like the OODA loop, in which it is not only about having a faster decision cycle, but also about disrupting the decision cycle of the enemy. In this context, the reliability of information becomes crucial, and the Fog of War becomes a major source of uncertainty and friction.
During the war, it is therefore also important to observe which party is changing its doctrine and making adjustments, as this can demonstrate who is learning from the experience of the conflict. Looking at the US, it can be seen that its fundamental doctrine has not changed that much, but it has shifted its mode of conflict towards a less kinetic and more economic approach. Iran, on the other hand, has adopted a more offensive posture, introduced new and adapted weaponry, and moved away from the expectation of settling the conflict through negotiation as a result of its experience.
This also demonstrates a rational process in which factions within a country whose models have proven most accurate when tested against experience and data, producing more successful predictions and outcomes, gradually gain more esteem and influence over the direction of strategy. In this context it can be seen that systems like the mosaic defense further create an environment in which competition among different models is possible and encouraged.
Part III: Determinants of power in the geo-political arena
Strategy & Resources: A Game Analogy
To develop an intuition for our argument that strategy and commodities are two of the main factors determining outcomes at the geopolitical level, it is useful to draw analogies from different games.
Take, for example, Texas Hold’em poker. While luck plays a significant role, the game is ultimately about two things: one’s approach, associated with strategy, and the number of chips one has, or one’s economic resources. When one has more chips, one can afford to take greater risks and put more pressure on one’s opponents. However, it is surprisingly easy to lose a lead, as only a few bad turns can quickly change the balance of the game.
An even more direct analogy can be found in real-time strategy video games, such as the popular game StarCraft. In StarCraft, the player controls one of three species, one being human and the other two alien species. The game is played in real time, with resources being collected and converted into different types of units and technologies, with the ultimate goal of eliminating the opponent and all of their bases. It therefore provides a useful illustration of the importance of both economic resources and strategic decisions in determining the outcome of a conflict.
The real-world setting is of course much more complex than these game examples, but they provide a useful model for thinking about what we see as two main determinants. At the same time, these types of games illustrate an important point: one needs a strategy to secure sufficient access to commodities, while the commodities available also determine what kind of strategy is feasible.
The third component: Culture
In the real world, everything is much messier, and a strategy is ultimately an expression of the culture from which it emerges and which is willing to pay the necessary toll to realize it. People cannot simply be commanded to endure and sacrifice, as if they were characters in a video game. People have to be heavily involved, because the ability to achieve victory ultimately depends on their will to sustain the effort until that victory is achieved. This also explains for example the power of nationalism, which can mobilize people around a shared sense of purpose, but also the importance of manufacturing consent by governments in order to sustain support for a strategy. This is why we see culture as the third main component among the main determining factors of geopolitical power.
At the same time, however, culture is becoming an increasingly limiting factor, as modernity has introduced many forms of comfort and passivity, but has also made, for example, access to alternative media and competing narratives easier, so that there is less of a shared narrative, to the point that we think many countries simply lack a culture from which a greater strategy can arise. The result is that many countries are unable to develop, let alone pursue, a meaningful strategy, because their prevailing culture does not allow it. This is an interesting observation that deserves further study, and possibly a next article.
The visible and the invisible
Certain aspects of what we have written about are easy to observe. For example, the competition for vital commodities has become a very prominent topic on the front pages of newspapers and in the mainstream news. Or we can notice the effects ourselves in the prices we pay at the gas station or supermarket. Other elements require a greater degree of awareness and an intuition for ‘how to look’, and can only really be noticed through an understanding of the frameworks we have developed and write about. But interestingly, what ongoing conflicts have shown is that these factors, which are more difficult to observe and appreciate, such as cultural dynamics, tend to have the most impactful effects.
