Hope for a ceasefire in the Middle East and the complete, or at least partial, reopening of the Strait of Hormuz was not exactly dashed last week, but once again, promises of an imminent deal proved premature. President Trump called off a decisive military attack on Iran a week ago because “the perimeter of a deal has been agreed to.” His Treasury Secretary was quick to assure markets on Tuesday that “freedom of movement” was only hours away. In the meantime, Iran denied being in direct talks with the US. Nonetheless, oil prices fell over the course of the week, while equities rallied.

What an RBC Capital Markets analyst aptly coined “optimism bias” seems to be fading once again as the new week gets underway. In the latest mood swing, oil prices are edging higher, despite talks between Iran and Oman over control of traffic through the Strait of Hormuz appearing to be nearing an end. The catch is that any deal remains contingent on the US meeting conditions such as paying compensation for war damage, lifting its blockade, and halting strikes against Iranian allies. In any case, even a favourable outcome would likely offer only a temporary remedy. All the while, the Israeli Prime Minister rejected the 15-point plan for Gaza put forward by Mr Trump’s Board of Peace. At the same time, the Houthis attacked Aramco’s Jazan refinery on the Red Sea and the port of Mocha after the Kingdom signed a defence pact with Turkey and Pakistan. The protracted conflict is putting pressure on central banks, and although expectations of a September rate hike by the Fed were scaled back on Friday after the latest nonfarm payroll data came in below expectations, inflationary fears could be reignited when this Wednesday’s CPI report is released.

Under the Roman Empire, all roads led to Rome. In 2026, they lead to Tehran. There is a growing conviction that Iran is playing for time and has no real intention of allowing ships to transit the Strait uninterrupted. Even if oil starts flowing out of the region again, stabilising relations between Iran, the US, and the regional powers will be a cumbersome and prolonged process. The US cornered itself when it launched its offensive against Iran at the end of February. This miscalculation will haunt the US President for the remainder of his political life. He might know that, although he will never acknowledge it: he can check out of this conflict any time he likes, but he can never leave.
 

Choking the Adversaries

In the past six months, the phrase 'chokepoint' has almost become a swearword for investors who despise unpredictability and market volatility. After the US launched its military operation against Iran at the end of February and killed the country's Supreme Leader, Iran retaliated by closing the vital shipping artery, the Strait of Hormuz, through which around one-fifth of the world's oil and liquefied natural gas shipments pass each day in peacetime. The Iranians quickly discovered that control of this narrow, and therefore critical, waterway gave them more devastating leverage than their nuclear capabilities.

How devastating the closure of the Strait has been depends on one's perspective. After all, the initial spike in oil prices reversed relatively quickly, and the retracement from above $120/bbl demonstrated the market's resilience and adaptability. Yet the impact of the closure is undeniable. Inflationary pressures increased, particularly in developed economies; the closure created friction among allies and forced regional oil producers to seek alternative routes for transporting crude oil. In addition, efforts to launch new transport projects that bypass the Strait have intensified. The UAE is fast-tracking a new crude oil pipeline to Fujairah; Kuwait, Saudi Arabia and the UAE are considering building a new overland route to the Red Sea; and Iraq and Syria are discussing reviving the Kirkuk–Baniyas oil pipeline to the Mediterranean.

These projects, should they come to fruition, would seemingly eliminate some of the risks posed by the possible future closure of this pivotal chokepoint. However, as the opening of a new front in the latest chapter of the Middle East conflict, the attacks in the Red Sea, and the threats to other chokepoints, such as the Bab el-Mandeb Strait and the Suez Canal, have laid bare, these schemes would not provide complete protection. After all, malicious actors need only mines or drones to attack pipelines or ports, just as commercial vessels have been targeted in the Persian Gulf.

The point is that chokepoints have always been, and will always remain, critical tools in geopolitical and geoeconomic conflicts. Moreover, the weaponry extends far beyond maritime corridors. If a chokepoint is defined as a physical or virtual location where the flow of goods, services, people or information is restricted, then manufacturing centres, warehouses, data centres, fibre-optic cables and financial infrastructure all become potential targets in military, political or economic conflicts.

It can be—and indeed is—a frightening weapon. Look no further than the US dollar. Restricting its flow, or weaponising it, can inflict substantial damage on America's adversaries. It has been used through secondary sanctions against Asian, Indian and even European companies that conducted business with US-sanctioned trading partners. Another financial chokepoint is the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Once banks are cut off from the network, as happened to many Russian financial institutions after the full-scale invasion of Ukraine, cross-border financial transactions become arduous and costly undertakings.

In the age of artificial intelligence, restricting access to advanced semiconductors or critical minerals, as seen in the dispute between the US (Nvidia chips) and China (rare earth minerals) during their tit-for-tat trade war, can also inflict considerable economic harm. Economic chokepoints may prove even more effective than geographic ones and have the added advantage (what a cynical word in this context) of not requiring military mobilisation.

The gradual dismantling of the rules-based international order since 2008 has produced a more inward-looking and polarised world, marked by an intensification of trade wars in which governments increasingly weaponise their economic power. Chokepoints are one of the most potent weapons in that arsenal. Moribund international institutions such as the World Trade Organisation and the International Court of Justice have proved unable to ensure a fair and level playing field in a world where might makes right. Chokepoints, as instruments of political and economic dominance, are therefore likely to be employed with increasing frequency. The history of the 1990s and the early 2000s showed that breaking bread is more beneficial and far less painful and messy than engaging in a food fight. Yet, it seems, history teaches us nothing.

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