What's At Stake In The Strait Of Hormuz
The entire postwar order.
Trump’s Test of the Postwar Order
On Saturday, President Trump issued an ultimatum to Iran: reopen the Strait of Hormuz within 48 hours, or the United States will begin destroying Iranian power plants.
The threat came as the war entered a more dangerous phase, with Iran restricting transit through the world’s most important oil chokepoint and warning that U.S. and allied energy infrastructure in the Gulf could be hit in response. The Strait of Hormuz carries about one-fifth of global petroleum liquids consumption and roughly one-fifth of global LNG trade, so this is not a regional sideshow. It is a pressure point for the global economy.
Years ago, Henry Kissinger said Trump might be,
one of those figures in history who appears from time to time to mark the end of an era and to force it to give up its old pretenses
That line has aged well. Because what is being tested in the Gulf right now is not just whether Iran can be coerced into reopening a waterway. What is being tested is whether the old American security architecture still means what everyone has long assumed it means.
Two Possible Outcomes
There are really only two broad possibilities here.
The first is that the United States, Israel, and perhaps Gulf allies and NATO, impose a decisive outcome on Iran. That likely means more than punitive strikes. It means breaking Iran’s ability to threaten shipping, retaliate against Gulf states, and continue the war on acceptable terms. In practice, that may mean something close to regime change, whether anyone wants to use that phrase or not.
The second possibility is more consequential. If the United States cannot force Iran to reopen Hormuz, or cannot prevent Iran from imposing unacceptable costs on America’s Gulf allies while doing so, then a long list of assumptions about the world has to be revised.
What Failure Would Mean in the Gulf
Start with the Gulf itself. If U.S. bases in the region cannot protect the countries that host them, then those bases begin to look less like shields and more like target magnets. The rationale for maintaining them would come under obvious pressure. Gulf monarchies would still want external partners, but they would have to ask a harder question: protection from whom, and on what terms?
That would feed directly into a broader strategic retrenchment. In that scenario, the logic of a new Monroe Doctrine (or “Donroe Doctrine”) would get much stronger. If Washington cannot reliably impose order in the Gulf after decades of military investment and forward deployment, then the argument for narrowing America’s sphere of active concern to the Western Hemisphere becomes much easier to make. A failed attempt to compel Iran would not just be a setback in one theater. It would be an argument for giving up on the universalist posture that has defined U.S. grand strategy for generations. I wrote about that possibility previously here:
And here:
The Question of Military Spending
Failure to reopen Hormuz would also raise a key question about defense spending. The United States spends more on its military than any other power, and more than many of them put together. If that level of expenditure still does not enable Washington to compel a regional power like Iran to reopen the world’s key energy chokepoint, then voters, allies, rivals, and budget hawks are all going to ask what exactly they are buying. This is not an argument for disarmament. It is an argument that failure in a test case this visible would force a reassessment of the relationship between spending and actual coercive power.
Recalibrating Military Power
Just as important, it would trigger a global recalibration of military reputations. Over the last several months, a number of American commentators have drawn sweeping conclusions from the U.S. military’s successful abduction of Maduro from Venezuela and the subsequent capture of a Russian-flagged tanker. The general claims were that Chinese and Russian anti-aircraft technology was inferior and the U.S. military was operating on an entirely different level to the rest of the world. As I wrote at the time, those were dangerous assumptions:
The common thread isn’t that the U.S. isn’t capable. It clearly is. The problem is what happens when impressive tactical wins get wrapped in a layer of self-congratulatory myth: people start to believe the U.S. is unstoppable and near-peer adversaries are hopelessly outclassed.
That’s a dangerous mindset to trade with—and an even more dangerous one to make policy with.
As we’ve seen so far, American and Israeli air defense have had their own challenges. The lesson there isn’t that they’re necessarily inferior to Russian or Chinese technology but that there is no full-proof defense against missiles and drones, and anyone suggesting otherwise is likely selling very expensive systems that they hope will never be challenged. In any case, if the U.S. and its allies are unable to subdue Iran, that will demonstrate that easy assumptions about American overmatch were overstated.
Taiwan Implications
And that would have immediate implications for Taiwan.
If the United States cannot decisively beat Iran, then it becomes glaringly obvious that there’s no way it could win a war against China in China’s front yard. That should prompt a rethink of Taiwan strategy. What exactly are we trying to accomplish there? Is it to keep Taiwan’s chips out of China’s hands, as Zaid Jilani suggests below?
If so, there’s an easier way to do that than fighting a war against China.
If the point is to prevent eventual reunification of Taiwan with Mainland China, the U.S. should abandon that goal and start facilitating negotiations between Taiwan and the Chinese government while any concessions are still possible.
The Limits of Exile Politics
There is another lesson here too, and it has less to do with missiles than with political judgment. For years, exiles and expats from various countries have urged Western governments to take military action on the theory that the regime in question is hollow, despised, and one hard shove away from collapse. Sometimes they are right about the regime’s unpopularity. But that does not mean they are right about the population’s willingness or ability to rise up in the middle of war. If, after weeks of decapitation strikes and systemic pressure, no meaningful Iranian resistance emerges to threaten the regime, then one conclusion should become standard going forward: exile politics is not a reliable guide to internal state resilience. The next time expats promise that “the people are ready,” policymakers should treat that claim with much more skepticism.
The Real Stakes
None of this means the United States is certain to fail. It means the stakes of failure are much larger than the immediate question of shipping lanes or oil prices.
Trump’s ultimatum has clarified the issue. This is no longer just about punishing Iran, signaling resolve, or restoring deterrence in some abstract sense. It is about whether the American-led order can still enforce outcomes in a region it has dominated militarily for decades. If it can, then one era continues a little longer. If it can’t, than there’s no longer any debate about unipolarity versus multipolarity: the unipolar moment will be decisively over.
Ultimately, that may not be a bad thing for the United States, as it can turn its focus on its many internal problems. It will be a bigger challenge for the Gulf states, Israel, and other countries that have benefited from American military supremacy.
Investment Implications
After the Maduro raid, we placed a bullish options trade on an oil field services company that appeared positioned to profit from the quasi-regime change there. As I wrote then,
TechnipFMC (FTI -1.19%↓) and its predecessor Technip have been involved in key Venezuelan heavy-oil projects in the Orinoco Belt, doing front-end engineering for PDVSA upgraders. That makes them a natural contender to win refurbishment and restart work if a pro-U.S. government wants to fast-track getting production back online. Fortunately for Portfolio Armor subscribers, we already have an open position in FTI, from this trade alert in November.
This was the FTI trade we opened then,
Reindustrialization / offshore energy infrastructure theme
The stock is TechnipFMC (FTI -1.19%↓), and our trade is a combo consisting of these three legs:
Buying the July 17th, 2026 $50 calls,
Selling the April 17th, 2026 $40 puts, and
Buying the April 17th, 2026 $35 puts,
For a max net debit of $2.05.
FTI closed above $65 on Friday, so that trade we entered for $2.05 per contract is now worth about $17.
That same company now looks positioned to benefit from the repair work that is likely to be needed on Gulf oil infrastructure after this war ends, so we have another trade teed up for it on Monday, using a different structure more suitable for the current market environment.
We’ll also be watching for buying opportunities in Israeli companies if that market tanks on Monday. As it happens, we’re currently up on a trade in one Israeli name we entered last month, Tower Semiconductor (TSEM 0.00%↑), which we noted here.