Markets rebounded Monday after President Donald Trump retreated from his threat to destroy Iranian energy infrastructure and revealed talks with the regime, but the world is unlikely to revert to its prewar status quo, according to a geopolitics expert.
In a Washington Post op-ed on Thursday, Eurasia Group Chairman and former State Department official Cliff Kupchan predicted the Iranian regime, dominated by successive layers of hardliners, will remain hostile to the U.S.
“The end of the war, therefore, is unlikely to usher in a stable peace,” he warned. “That reality means the Strait of Hormuz will become a source of geopolitical risk for a long time—a live wire down the middle of the global economy.”
Even if Tehran eventually negotiates away its uranium enrichment program and longer-range ballistic missiles, it will still have drones, mines and fast attack boats that can threaten tankers, Kupchan pointed out.
And Iran wouldn’t have to use its diminished capabilities very often to scare investors. In fact, despite the U.S. and Israel decimating its military with thousands of airstrikes, the Islamic Revolutionary Guard Corps has been able to keep the Strait of Hormuz largely closed with occasional attacks on ships.
That threat has effectively bottled up about one-fifth of the world’s oil and liquified natural gas, and prices have soared, though they pulled back somewhat on Monday. Still, the genie is already out of the bottle.
“From now on traders will act based on the knowledge that Iran might at any time attack, and that new perception will create new risk premia in critically important sectors,” Kupchan said.
Indeed, Brent crude oil prices are still above $100 a barrel after tumbling 10% Monday. He expects them to trade in the $80 range for several months due to the lingering risk as well as the time needed to restore output. Oil giants like Saudi Arabia and Iraq slashed production as their exports have been throttled by the Hormuz closure.
Likewise for the LNG market, which suffered a major shock last week when Iran struck a top natural gas field in Qatar that will take years to repair. Meanwhile, the Gulf is also a major source of fertilizer, aluminum, and helium, meaning shortages will curb crop yields, industrial output, and semiconductor supplies, respectively.
The new risk environment will cause prices to stay higher globally and further stoke inflation, Kupchan added. At the same time, the United Arab Emirates, Saudi Arabia and Qatar will struggle to rehabilitate their images as safe places to invest, affecting the AI and defense sectors too.
“Capital is a coward, going only where it feels safe,” he noted. “Once unimaginable images of office and hotel towers burning after Iranian strikes will pierce investor sentiment.”
To be sure, the U.S. will likely help allies rebuild after the war and increase regional integration, but the Gulf will need a long time to become a global safe haven for capital again, Kupchan wrote.
There are indications, however, that the Iran war will persist or eventually reignite if there’s a ceasefire. Thousands of Marines are still headed for the Middle East for a potential ground assault on Iran’s main oil-export hub, Kharg Island, or perhaps coastal areas to reopen the Strait of Hormuz.
The UAE also hinted at an increasingly hardened position toward Iran that aligns more closely with the U.S. and Israeli stance.
“Our thinking does not stop at a ceasefire, but rather turns toward solutions that ensure lasting security in the Arabian Gulf, curbing the nuclear threat, missiles, drones, and the bullying of the straits,” Anwar Gargash, a senior UAE diplomat, wrote on X over the weekend. “It is inconceivable that this aggression should turn into a permanent state of threat.”
Even NATO, which nearly collapsed earlier this year as Trump threatened to seize Greenland, will eventually come around to support the Iran war, despite several members rejecting U.S. demands to provide naval escorts, Secretary General Mark Rutte said Sunday.
That’s after Iran launched ballistic missiles at a U.S.-U.K. base 2,500 miles away on the island of Diego Garcia in the Indian Ocean. The attack was unsuccessful, but it demonstrated that Iran’s missiles have much longer range than previously known and could theoretically reach most of Europe.
“If Iran would have the nuclear capability, including, together with the missile capability, it will be a direct threat, a existential threat, to Israel, to the region, to Europe, to the stability in the world,” Rutte told CBS News. “So the president doing this is crucial, and I’ve seen the polling, but I really hope the American people will be with him, because he is doing this to make the whole world safer.”
