Negotiations on Iran have continued throughout May, and all parties are clearly seeking to avoid a full-scale regional war. But the risks do not appear to be decreasing. The conflict has shifted from military confrontation to a broader stress test of the international order, where energy, the defence industry, inflation and great power politics are intertwined.

The central issue is no longer whether Iran can be pushed back militarily, but how the conflict alters the balance of power between the United States, Europe and China, and whether the West has the industrial endurance to handle simultaneous crises in the Middle East, Europe and the Indo-Pacific.

This points to a transition away from a contained regional conflict towards a catalyst for a new global security order.

US Dominance but Growing Burden

Militarily, the United States retains the upper hand, with unmatched ability to project air and naval power. However, the key challenge is endurance. Winning individual operations differs significantly from sustaining a global strategic presence over time.

Modern high-intensity conflicts consume advanced weapons systems at a rate that Western defence industry capacity struggles to support. Replenishment timelines often extend into years rather than months. This raises questions about the United States’ ability to manage multiple major conflicts simultaneously.

The link to China is critical. Resources deployed in the Middle East reduce availability in the Indo-Pacific. The United States faces a multi-front dilemma, balancing commitments across the Middle East, Ukraine and Taiwan.

Economic pressures are increasing. Higher energy prices, rising defence spending and persistent inflation are adding strain. The question is whether the US economy can sustain prolonged great-power competition without domestic consequences.

Europe’s Second Energy Shock

Europe’s primary challenge is geoeconomic. Its vulnerability is structural rather than military. Disruption in the Strait of Hormuz directly impacts energy costs, adding to existing pressures from defence spending linked to Ukraine. The conflict risks triggering a second energy shock in a short period.

Central Europe’s industrial economies are especially exposed. Germany and Italy depend on stable energy supplies and are sensitive to rising costs across transport, chemicals, steel and manufacturing. Even prior to further disruption, EU electricity prices for energy-intensive industry were significantly higher than in the United States and China.

The combination of rising energy costs and defence spending creates tension between security policy and economic stability.

The conflict also highlights political divisions within the EU and NATO. Eastern Europe prioritises Russia as the primary threat, while southern European countries focus more on energy costs and social stability. The result is economic strength combined with political fragmentation.

Sweden benefits from nuclear and fossil-free electricity, but its integration into European supply chains limits this advantage due to broader economic pressures.

China’s Strategy Without Battle

China has responded cautiously, balancing the need to avoid destabilisation that threatens energy supply with the strategic benefit of US resource diversion. As the United States remains engaged in the Middle East, its capacity to focus on Taiwan is reduced.

China does not need direct military victory to strengthen its position. It benefits as the US and Europe expend economic and military resources, while China positions itself as a stable diplomatic and economic partner across Asia, the Middle East and the Global South.

The conflict has accelerated China’s efforts to reduce dependence on Western systems. Energy security, alternative payment systems and regional trade networks are gaining importance. Control of industrial value chains and technology is central to its strategy.

As long as US resources are stretched globally, time favours China. This approach aligns with a broader strategy of advancing influence without direct confrontation.

Pain in a Global Nerve

The Strait of Hormuz illustrates how a regional crisis can quickly become a global economic risk. It is a critical artery of the world economy, and disruptions immediately affect energy prices, shipping costs, insurance and financial markets.

Indirect effects are significant. The conflict impacts the availability of LNG, fertilisers, helium and other key inputs essential for industry, agriculture and technology.

This is driving a reassessment of globalisation. Efficiency is being replaced with resilience. Just-in-time systems are giving way to stockpiling, and cost minimisation is уступed to security of supply.

Geopolitical risk is increasingly priced as a permanent feature of the global economy. For investors, defence, energy infrastructure and critical materials are becoming structural, rather than cyclical, allocations.

Asymmetry as Strategy

Iran demonstrates how a weaker military actor can create significant strategic impact through asymmetric methods. Cyberattacks, sabotage, drone operations, infrastructure disruption and information campaigns are relatively low-cost but impose high economic and political costs on opponents.

This approach raises the cost of sustaining conflict. For Europe, it creates a more diffuse and persistent threat environment, where civilian infrastructure such as ports, energy systems and telecommunications become strategic targets.

Strategic Conclusions

• The United States remains the dominant military power but faces increasing strain from multi-front commitments.
• Europe is economically strong but vulnerable due to energy dependence and political fragmentation.
• China is positioned to convert Western resource strain into long-term strategic advantage.

The key question is whether the West can maintain economic stability, industrial capacity and political cohesion in an environment where security, trade, energy and technology are increasingly interconnected.