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NextFin News - Seven months after the United States and Israel opened their air campaign against Iran, the war has settled into a pattern that no amount of firepower has broken: Washington can strike Iranian targets at will, and Tehran can close the world's most important oil choke point whenever it chooses. The conflict is no longer measured in sorties or missile salvos but in the price of a barrel of Brent crude, the yield on the 10-year Treasury, and the quiet monthly bill American households are absorbing. As Ali Vaez of the International Crisis Group argues in a new analysis, this is the anatomy of a "forever war" — one in which neither side can win, neither side can exit, and the global economy pays a recurring premium that outlasts every headline about a diplomatic breakthrough.
The Situation: A War Without Victory, a Premium Without End
The war began on February 28, 2026, when U.S. and Israeli forces launched roughly 900 strikes in the first 12 hours of what Washington called Operation Epic Fury, killing Supreme Leader Ali Khamenei and decapitating much of Iran's military command. Iran's answer was not a symmetrical counterstrike but an asymmetric one: the Revolutionary Guard closed the Strait of Hormuz, boarded merchant vessels, and seeded the choke point with sea mines. About one-fifth of the world's oil supply moves through that strait in peacetime. It has not moved freely since.
The market's reaction was immediate and violent. Brent crude jumped from around $72 a barrel on February 27 to nearly $120 at its peak in early March — a rise of roughly two-thirds, with the benchmark touching an intraday high of $119.50 on March 9 in what market participants described as one of the largest one-month oil price surges on record. Then came the diplomatic interlude. On June 17, Washington and Tehran signed a memorandum of understanding committing both sides to end military operations; Iran pledged to arrange safe passage for commercial shipping. Oil cooled back toward the prewar $70 level as traders priced in a negotiated exit.
That exit never arrived. Talks crumbled. The United States renewed its naval blockade of Iranian ports in mid-July; Iran resumed attacks on shipping. By early September, Brent had climbed back through $97, broke above $100 for the first time since July, and stood at $105.85 a barrel on September 25 — down 0.69% that day, though the prior session had settled up 3.4%. West Texas Intermediate, the U.S. benchmark, sat at $93.80. The war had found its equilibrium: not victory, not defeat, but a persistent risk premium embedded in every gallon of gasoline and every basis point of inflation.
The human accounting is equally stark. A household-cost estimate attributed to economist Mark Zandi puts the total burden of the war on the average American family at roughly $1,760: about $930 in higher fuel and energy costs, roughly $425 in elevated borrowing costs, and around $405 in defense spending that will be financed through debt or taxes. The conflict has cost the U.S. government an estimated $40 billion so far, against a 2026 defense budget of about $901 billion and a proposed 2027 budget of $1.5 trillion.
This is the phenomenon Vaez's analysis seeks to explain: why two adversaries keep fighting without a theory of victory, and why the economic consequences outlast every headline about breakthrough diplomacy. The answer lies less in ideology than in mechanism — in what Iran can do that the United States cannot undo.
Why This War Cannot Be Won: The Mechanism of Disruption
The central question is not whether the United States has military superiority. It does, overwhelmingly. The question is whether superiority can be converted into an outcome. In this war, it cannot — because Iran's decisive weapon is not a missile or a nuclear device but a piece of geography.
"In the attempt to try to prevent Iran from developing a weapon of mass destruction, the US handed Iran a weapon of mass disruption," Ali Vaez said of Tehran's control over the Strait of Hormuz.
The mechanism is brutally simple. The United States can destroy Iranian launchers, command bunkers, and nuclear sites. It cannot, at any acceptable cost, keep a strait that narrows to about 21 miles open against a determined adversary armed with sea mines, anti-ship missiles, drones, and fast attack craft. Mines are cheap, hidden, and slow to clear; a single incident is enough to send insurance rates for tankers higher and to persuade shipowners to reroute. Iran does not need to win a naval battle. It needs only to make passage uncertain — and uncertainty, in a just-in-time global energy market, is as effective as a blockade.
This is the structural core of the forever war. A structural claim requires evidence of a durable regime change, and the evidence here is that the prewar status quo is gone. Before February 2026, across 47 years of U.S.-Iran animosity, the Strait of Hormuz had never been shut. Iran had always treated open passage as a mutual interest. That norm is now broken, and norms, once shattered in a conflict, do not self-repair. Even if today's fighting ends, Tehran has learned that the strait is its ultimate deterrent — the one asset that forces Washington to calculate costs before every escalation. Future Iranian leaders, whatever their politics, will retain that capability. The disruption option is now baked into the region's strategic architecture.
Contrast this with a cyclical reading. A cyclical conflict is mean-reverting: supply comes back, prices fall, politics normalize. The oil spike from $72 to $120 was cyclical in that sense — and it did revert, back toward $70, when the June memorandum raised hopes of reopening. The price path itself proves the cyclical layer exists. But the capacity to re-impose the disruption at will is structural. The two forces operate on different time horizons, and confusing them is the most common analytical error in this war. The spike is cyclical. The weapon is structural.
The Second-Order Effect: Inflation, the Fed, and the Consumer Squeeze
The first-order effect of the war is obvious: oil is more expensive. The second-order effect is what is doing the real damage, and it travels through a longer chain. Higher oil prices feed into gasoline, freight, plastics, and fertilizer costs, which lift headline inflation. Inflation, in turn, ties the hands of the Federal Reserve — which had been preparing to cut rates — and pushes policymakers to hold, or even to tighten. Higher-for-longer rates then compound the pain through mortgages, auto loans, and credit cards, hitting the same households already paying more at the pump.
The data bear this out. The Federal Reserve, which had held its benchmark rate at 3.5%–3.75% since December, revised its year-end inflation forecast to 2.7%, up from the 2.4% projected in December. On September 16, the central bank raised rates to 3.75%–4.00%, its first increase in three years, as oil-driven price pressures and a 10-year Treasury yield climbing to 4.79% — the highest since January 2025 — left it little room to look through the shock. The effective interest rate on the 10-year note rose as oil surged, tightening financial conditions precisely when the economy was absorbing an energy hit.
This is the two-punch dynamic that the $1,760 household figure captures: the oil component and the rates component are not independent line items but linked transmissions of the same shock. A war that began as a Middle East air campaign has become a domestic affordability problem, and that is why it is politically durable. Wars that stay abroad can be ignored; wars that arrive in the form of a higher grocery bill and a pricier car loan become the central fact of a political season. President Donald Trump has acknowledged as much, saying oil prices are unlikely to fall until after November's midterm elections — an admission that the administration itself sees the conflict as a fiscal and political drag rather than a quick victory.
There is a third-order expectation gap worth naming. Markets initially treated the war as a supply shock pure and simple — buy oil, sell equities, buy defense stocks. That trade worked in March. It has not worked since, because the market has begun to price the more uncomfortable truth: a prolonged conflict at $100 oil is worse for almost every asset class than a short war at $120. At $120, the shock is acute and reversible. At $100, it is chronic, and chronic inflation is what forces central banks to choose between price stability and growth. The market is no longer pricing escalation risk alone; it is pricing the probability that the Fed stays restrictive longer than the economy can comfortably bear.
The Counter-Thesis: The War Is Already De-escalating
The strongest case against the forever-war reading is that the de-escalation machinery is already in place and already working. On September 25, negotiators from the United States and Iran met in New York to explore a phased path out of the war: Tehran would reopen the Strait of Hormuz, and Washington would lift its economic blockade of Iranian ports. Brent's dip to $105.85 that day, on news of the talks, was the market's vote of confidence in that path. Vaez himself, in a July analysis, described a "strange moment of opportunity" — senior American and Iranian officials had met directly for the first time in nearly a decade, and the two sides were discussing compromises and even a military-to-military hotline to prevent accidental escalation.
The counter-thesis has real evidence behind it. The June 17 memorandum of understanding still exists on paper. Both capitals have signaled that they can bear the costs only for so long. And the market has already rewarded every hint of diplomacy: oil retreated from $120 to the $70s once, and it can do so again. If the phased deal holds, the strait reopens, and Brent settles back below $80, the "forever war" framing will look like the pessimism of a moment, not the diagnosis of an era.
But the counter-thesis rests on a fragile assumption: that the current leadership in Tehran can deliver compliance from the forces that actually control the strait. The Revolutionary Guard, not the negotiators, holds the mines and the missiles. A deal signed in New York must be implemented in the Persian Gulf, and the gap between the two has sunk many an agreement. Moreover, the counter-thesis underestimates the domestic politics on both sides. An American administration that has spent political capital on the war cannot easily declare a draw; an Iranian leadership that has absorbed the killing of its supreme leader cannot easily concede without appearing to capitulate. Deadlocks are stable. Breakthroughs are rare.
The defense-industry data add a final wrinkle to the counter-thesis. Conventional wisdom says war is good for defense stocks. This war has not been. Lockheed Martin and RTX fell about 3% on September 16 when Hormuz-reopening reports lifted oil's rivals and pressured the broader market. More fundamentally, analysts cut their 2026 earnings-growth expectations for the major defense primes — General Dynamics, Lockheed Martin, Northrop Grumman, L3Harris, and RTX — to around 12% by late March from about 15% at the start of the year. Douglas Harned of Bernstein put the logic plainly: "Nothing that has happened so far suggests that a $1.5 trillion 2027 defense budget could be exceeded. For these reasons, one should not expect upside to come from the current conflict." The market has concluded, correctly, that a forever war of attrition does not require a forever expansion of the procurement budget.
What Comes Next: Three Horizons and Three Scenarios
The forward look must be split by time horizon, because the same war points in opposite directions depending on the lens.
Short term (weeks to a few months): sentiment and liquidity dominate. Every rumor of a Hormuz reopening pushes oil down and risk assets up; every strike on a tanker reverses it. Trading ranges will be wide, and the direction will be set by headlines from the New York talks rather than by fundamentals. The base case is continued volatility with a modest downward bias in oil as diplomacy retains a foothold.
Medium term (three to twelve months): fundamentals reassert themselves. The key variables are the inflation print, the Fed's reaction function, and the actual volume of oil moving through the strait. If core inflation holds above the Fed's comfort zone while growth slows, the stagflation trade becomes the dominant portfolio posture; if inflation fades and the central bank resumes cutting, the war premium drains out of assets and risk markets recover.
Long term (years): the structural shift wins. Even in a best-case peace scenario, shippers, insurers, and navies will price Hormuz as a permanent risk. Insurance premia, routing options, and strategic petroleum reserves will all carry a war discount no longer. The era in which a mid-power could weaponize a choke point and impose a recurring tax on global trade is not ending with this conflict; it is being established as a playbook that others will study.
Three scenarios frame the range:
- Base case: a phased deal limps forward. The strait reopens intermittently, Brent trades in a $85–$105 range, and the Fed holds rates steady while inflation grinds slowly lower. The war continues at low intensity without threatening global growth.
- Upside case: a comprehensive agreement restores full Hormuz traffic, the U.S. lifts its blockade, and Brent returns to the $70s within months. Rate-cut expectations revive, duration rallies, and the consumer bill from the war begins to unwind.
- Downside case: talks collapse, Iran fully blocks the strait, and Brent sustains above $110 — the level it touched in March. Core inflation re-accelerates, the Fed is forced to hike again, and the global economy tips into the stagflation scenario that strategists have been modeling since spring.
The falsifying signal for the forever-war thesis is specific and observable: if the Strait of Hormuz reopens and remains open for 30 consecutive days with commercial flows exceeding 2 million barrels per day, and Brent settles below $80 for two consecutive weeks, the structural-disruption argument is wrong — the weapon has been neutralized, and the conflict is cyclical after all. Until that combination prints, the burden of proof rests on the optimists.
The war in Iran will end when one side can no longer bear it, or when both sides find a face-saving exit. But the structure it has created — a regional power holding a global choke point hostage as its ultimate deterrent — will outlast any ceasefire. Markets have learned to trade the headlines; the deeper lesson is that some premiums, once introduced, never fully leave. This is not a war the United States can win with more strikes. It is a risk the global economy must learn to price.
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