During the opening months of the Second World War, things moved slowly first in the period that became known as the Phony War, or Sitzkrieg in German. Following the fall of Poland in September 1939, and before Germany invaded Denmark and Norway in April 1940, the absence of sustained military operations created the illusion of normalcy. The conflict had not yet escalated, though the belligerents were planning, repositioning, replenishing, and preparing for the next phase. Despite the belligerents’ massive wartime potential, populations and policymakers were lulled into a false sense of control.
The apparent ceasefire among the U.S., Israel, the Gulf states, and Iran bears an uncomfortable resemblance to an earlier period. The underlying strategic dynamics, including Iranian aspirations to dominate the Middle East and, through it, gain significant leverage over Europe and the U.S., have not fundamentally changed. If anything, developments in recent weeks suggest that this pause may be an intermission before renewed confrontation. At least, that’s what the bellicose rhetoric from Tehran suggests.
Much Ado About Markets
The global energy market should be a key lens for evaluating this ceasefire. The Strait of Hormuz is the Gulf’s hydrocarbon chokepoint: 30 percent of global oil production and about 20 percent of the global LNG trade pass through the narrow channel between Iran and Oman. It is the fulcrum of this entire conflict. At the time of writing, as the Marine Traffic map shows, tanker traffic is barely moving through the Strait, and many ships, unable to obtain insurance or with their owners frightened at the level of risk involved, are refusing to advance. The threats from Tehran continue to compel behavioral change.
Stability cannot be measured solely by the absence of missile strikes over several days. It must be judged by whether the conditions that allow the uninterrupted movement of energy have actually improved. Unfortunately, there is little indication that they have.
Markets have responded to the absence of immediate escalation, with WTI hovering around $70/bbl, but the strategic conditions that generated the crisis persist. Iran continues to occupy a commanding geographic position astride one of the world’s most important maritime chokepoints, while its network of regional partners, especially the Houthis, retains the ability to disrupt commercial shipping across key waterways: the Gulf of Aden, Bab el-Mandeb, and the Red Sea. Moreover, the Houthis are expanding and improving their missile arsenal.
Trends and Leadership
As Clausewitz, the great 19th-century Prussian war theorist and general, famously opined, “War is the continuation of politics by other means.” While American and Israeli forces have imposed meaningful costs on Iran, their operations have failed to produce the kind of political outcome that ultimately matters, at least for now. This could lead to a grave setback, as Iran is preparing for a protracted conflict while many in the U.S. have no stomach for it.
The decimation of Iran’s naval and air capabilities, which President Trump has repeatedly emphasized, has proven insufficient to transform the Iranian military-religious leaders into responsible guarantors of security in the Persian Gulf or reliable stakeholders in preserving global freedom of navigation.
Developments in the field are accompanied by internal divisions within both the Islamic Republic and the U.S. In Tehran, there appears to be increasing disagreement over the appropriate path forward after the recent confrontation. Whether tactical or strategic, these differences suggest that the Iranian leadership is actively debating how best to preserve its position while avoiding what it considers to be unacceptable costs.
The fate of the newly appointed Supreme Leader is unclear; the Islamic Revolutionary Guard Corps appears to have seized power at the expense of other agencies, and the President of Iran reportedly offered his resignation, citing a “total takeover” by the IRGC. He and his foreign minister were reported to have been explicitly threatened by the hardliners, whether this occurred in reality or was used as a tactic to scare the West that “worse” leaders may be waiting in the wings. In an earlier era, the Western media duly reported that the “moderate” Soviet dictator Joseph Stalin was being threatened by the “hardliner” Vyacheslav Molotov (whose wife Polina was arrested and sent into exile, but Molotov remained Stalin’s loyal follower).
Recent comments by Iran’s Deputy Foreign Minister Gharibabadi reflect the regime’s repeated willingness to harden its positions. His warning that Iran will implement its “new sovereignty and policy” in the Strait of Hormuz, even without an agreement with Oman, should not be dismissed as mere rhetoric. Instead, it underscores that Tehran continues to view the attempted seizure of military control over international waters as an instrument of statecraft rather than, post-World War I, a settled question governed by the norms of public international law.
Washington is experiencing its own divide. One camp, represented by Secretary of State and National Security Advisor Marco Rubio, appears to recognize that Iran will continue to exhibit the same level of aggression it has historically displayed unless confronted with substantial pressure. Another faction, associated with Vice President JD Vance and influenced by a more isolationist outlook, seeks to contain the crisis and avoid further escalation, ignoring periodic attacks on Gulf countries and ships attempting to traffic the Strait of Hormuz as well as the firebrand anti-American rhetoric coming from the IRGC and its allies and regional proxies.
Political calculations surrounding the 2028 presidential election inevitably shape these competing perspectives, but electoral considerations cannot replace strategic reality.
Paths Forward
If there is no fundamental change in the Iranian leadership’s rhetoric and policy, the United States must begin preparing, alongside its partners, for a more decisive phase of wartime policymaking. That preparation should involve close coordination with allies across the Gulf, Europe, the broader Middle East, and East Asia, whose economies remain deeply dependent on uninterrupted access to Middle Eastern energy resources.
The objective should not be war for its own sake. Rather, it should be to compel Iran to comply with the conditions necessary for lasting regional security. Those include freedom of navigation through the Strait of Hormuz without tolls or fees; an end to belligerence toward all countries in the Middle East, including Israel; the verifiable dismantling of the nuclear program, including the full cessation of uranium enrichment; and the dismantling of the regime’s long-range ballistic arsenal. Iran must permanently cease attacks on commercial shipping. It must also cease training, equipping, and financing terrorist proxies throughout the Middle East, including Hezbollah, the Houthis, and the Iraqi militias. Nuclear disarmament obligations must be fulfilled completely and verifiably.
Credible diplomacy ultimately rests upon credible force. The United States should therefore replenish critical military inventories while strengthening its capabilities for any future contingency, including Tomahawk cruise missiles, Patriot batteries, THAAD systems, unmanned platforms, and the maritime assets necessary for mine clearing and the protection of commercial navigation. Allied participation should likewise be expanded so that deterrence is shared rather than carried by Washington alone for the benefit of freeloaders who consume Middle Eastern hydrocarbons and fertilizers.
The Phony War ended in the Spring of 1940 because one side eventually concluded that the strategic environment favored renewed military action. History rarely repeats itself precisely, but it often rewards those who recognize when a flawed ceasefire merely conceals one side’s belligerence and preparations for the next conflict. The current ceasefire is likely a prelude to the next round of war. Markets, investors, and policymakers should treat it accordingly.
