With peace talks underway in Islamabad, Iran is preparing to assess the incantatory power of the word “Hormuz” to restore power and extract concessions. Its negotiating position consists of 10 widely publicized, ludicrous points. And while the US administration insists those demands are detached from reality, it also insisted on opening Hormuz as a prerequisite to talks. Yet the strait remains largely sealed to maritime traffic. With uncharacteristic meekness, President Donald Trump objected that Iran “is doing a very poor job, dishonorable some would say, of allowing Oil to go through the Strait of Hormuz.”

However peace talks with the Iranians turn out – and the Iranians have a bazaar merchant’s feral sense of how far they can push their customer – the US has suffered a staggering strategic setback in the region. The questions are why and how. The US experienced few combat losses and seems to have destroyed every target it aimed at. If you could win a war on points, the victory would resound.

The decision to sue for peace stems from soaring gasoline prices, resurgent inflation, cratering political support, and impending midterm elections. Plainly Trump has been informed that the US military is running low on both high-value targets and munitions. Iran’s theocratic-military power blob – the Islamic Revolutionary Guards Corps and whoever currently speaks for Iran’s clerisy – has not fractured and, despite the material losses, remains far stronger than any potential domestic rival.

So the answer to the “why” question is clear: the US perceives itself as militarily stuck with the political sun quickly setting. The more salient question, the one that threatens to haunt not only the remainder of Trump’s second term but future generations of policymakers, is how America could blunder into such a come-from-ahead defeat. And the answer, in my view, stems from the decision to forgo the only potent strategic weapon it had against the IRGC – the threat of destroying the energy infrastructure that sustains not only Iran’s shaky economy but the IRGC’s wealth and strength.

The US lost this war when it emphatically declared Iran’s petroleum installations off-limits. Indeed, it not only refrained from any attacks on those installations but, when Israel struck an Iranian gas field after coordinating with US officials, Trump falsely called it an unacceptable surprise. At that point, Iran knew it had won. All of the sunk ships, the destroyed missiles and nuclear enrichment equipment, the lost military production capacity – all of it can be replaced with future petrodollars and Chinese production. Iran could afford to take the ultimate risk of shutting down Hormuz knowing its wealth was safe and its eventual recovery assured. Even Trump’s cartoonish impersonation of Dr. Evil threatening civilizational apocalypse did not mention Iran’s oil and gas, even as an empty threat.

Whoever made or instigated the decision to place Iran’s energy infrastructure off-limits lost the war. And so we turn to another question of why. Iran accounts for only a few percent of global oil production. Perhaps the US administration feared and continues to fear that, faced with destruction of its economic lifeline, the IRGC might use its remaining missiles against its neighbors’ oil and gas infrastructure and plunge the world into deep recession. This is not an idle fear. But it assumes, first, that the logic of mutually assured destruction is all or nothing. It excludes the possibility that IRGC unity would collapse at the prospect of imminent national destitution. It may also overestimate Iran’s destructive capabilities and understate the ability of the Gulf countries, with US assistance, to mobilize worldwide resources to repair damage and restore capacity. We’ll never know.

Just as importantly, the fear of hypothetical consequences distracts from the actual risk of the current strategy. Imagine the head-slapping among IRGC leaders when they realized that, after decades of existential risk and economic sacrifice in the pursuit of a nuclear security guarantee, they could have achieved the same immunity for the price of a few cheap drones launched from anywhere into Hormuz. With targeting information helpfully supplied by Russia – which boasts that its ships freely transit the strait – few if any ships will take the uninsurable, life-threatening risk of challenging Iran’s control of the waterway.

If Iran can use its chokehold over international commerce to coerce an essentially permanent immunity from military threat, it won’t need nuclear weapons – though it will surely pursue them. In the meantime, it can use unfrozen assets, sanctions relief, and a rumored $2 million per-ship payment to transit Hormuz to restore and improve all that was destroyed. It will be Iran’s “build back better” program. Even if it doesn’t raise its protection fee, Iran could rake in a trillion dollars in little more than a decade.

In broadly publicizing its humiliating surrender terms, Iran clearly feels confident and eager to explore the reach of its newfound strength. It may relax those terms, which are as risible as Trump’s threats, so long as it achieves formal acquiescence to its extortion racket.

And then what? Beyond achieving regional dominance, exporting revolution lies at the heart of the Iranian regime’s self-conception. Will uttering “Hormuz,” combined with an already-advanced intercontinental missile program, allow Iran to exert full control over Iraq and finally establish its Shia Crescent to the Mediterranean? Will it prevent Israel from reining in Hezbollah or preventing the next October 7?

For Israel, which would have attacked Iran on its own because the successes of last June’s war proved fleeting, the current end to hostilities is a measured success: Iran’s capabilities have been degraded, at least temporarily. For the US, the consequences of lost deterrence, the exposed limits of hard power, and the willful alienation of allies are devastating. Iran is rising, China is watching, and so is North Korea. What they have learned will define the next crisis, and the one after that.

© The Times of Israel (Blogs)