Between Saturday and Monday, the world suddenly shifted from panic to relief.
The United States now seems to be indicating it wanted an end to the hostilities and is speaking of a five day pause. Stock markets around the world cheered and oil prices which were touching USD 120 a barrel started cooling down to below USD 100.
Last Saturday, the US President Donald Trump had threatened to “obliterate” Iran’s power infrastructure.
By Monday morning, the language had softened to “productive conversations.”
The tonal shift was abrupt, though sweet news for the world at large. The question that arises is what prompted this change.
It seems the underlying forces that drove it were cumulative, structural, and, most importantly, quantifiable in pure economic and political terms.
“What changed was not Tehran’s posture. It was Washington’s cost curve. That curve has kept rising since the war began,” said Prof Biswajit Dhar, former WTO Chair at Indian Institute of Foreign Trade.
Within days, the Pentagon’s projected costs for fighting the long range war with Tehran ballooned into the tens of billions, forcing the administration to seek supplemental funding from Congress.
Pentagon officials are believed to have told lawmakers in a closed-door briefing that the cost of the war had already exceeded USD 11.3bn in its first six days. According to an estimate by the Center for Strategic and International Studies, by March 19, that is 20 days from when the war had started, it had cost the American exchequer USD 18 billion.
What had been framed as a short, contained operation which would last “days, not weeks”, had quickly evolved into an open-ended financial commitment. In a polarised legislature, where many Congressmen had doubts about the war’s justification, this rising expenditure was like a red rag.
Very few nations understand that this is the first constraint on modern American power: not capability, but consent. Despite the sympathies the then US President Franklin D Roosevelt had for the Allied cause, the USA could not join the Second World War till the Japanese attacked Pearl Harbour in December 1941.
Since Vietnam and the outrage over the deaths of conscripted soldiers for a war which citizens did not see as their own, military escalation now requires continuous political underwriting. Without it, even the most forceful posture becomes provisional.
If Congress posed a political constraint, the US Federal Reserve imposed an economic one. By holding interest rates steady and revising inflation expectations upward in response to energy shocks, the Fed effectively reframed the war as a macroeconomic liability.
Every tanker stuck in the Persian Gulf translated into higher consumer prices, tighter credit, and delayed monetary easing.
In previous eras, war could stimulate economic expansion. In today’s inflation-sensitive environment, it can do the opposite. The conflict signalled scarcity to the markets – and commodity, stocks and currencies responded to that.
Another problem for President Trump was that he had taken the United States into a war without consulting his allies.
Their feeling can be summed up in one short sentence — “This is not their war”. To add insult to injury, their economies are facing steep cost over-runs because of this war which they seem to feel could have been avoided.
When the US finally asked allies to join in by sending battleships to patrol the crucial Strait of Hormuz, there were no takers.
“Joint operations did not materialise. Even as countries prepared for contingencies, releasing reserves, stabilising markets, they stopped short of direct involvement,” pointed out Smruti Patnaik, Senior Fellow with the Institute of Defence Studies and Analysis.
The next shock was outlined by Fatih Birol, head of the International Energy Agency, who pointed out that the war’s fallout was in the interruptions to the “vital arteries of the global economy”, which included petrochemicals, fertilisers, sulphur and helium.
Birol warned the world, that at least 40 energy assets in the Persian Gulf region had been severely damaged or totally destroyed. Which meant even the end of the war did not guarantee that supplies of crude gas, fertiliser or helium would be brought back to normal in the short or medium term.
Oil price spikes cascade into fertiliser shortages, which in turn can disrupt or reduce food production throwing up the possibility of shortages. And in an increasingly globalised world, shocks do not remain localised, shortage of fertilisers leading to lower production in one country could mean famine elsewhere.
Perhaps the most under-appreciated pressure came not from oil, but from semiconductors. The fulcrum of this vulnerability was Taiwan which through the TSMC makes nearly a fifth of all semiconductors for the world, including for the US.
From Nvidia GPUs to Apple chips, the digital economy runs through this narrow industrial corridor in Taiwan which depends on two byproducts from the oil drills in the Guld – natural gas and helium.
Disruptions in the Strait of Hormuz meant natural gas which powers the semiconductor fabrication plants were prone to shortages. Helium another by product which is essential in making semiconductors.
Helium plays a crucial role in the intricate process of chip fabrication as this noble gas is needed for maintaining optimal conditions during various stages of production.
Wars no longer threatens nations and populations, they can threaten the digital infrastructure of globalisation itself.
However, for President Trump the clincher perhaps was the looming elections.
Rising fuel prices, declining approval ratings, and a sceptical electorate impose a political ceiling on strategic ambition.
Elections to the United States House of Representatives are slated to be held coming November as part of the 2026 mid-term elections. Voters will elect representatives for 435 congressional districts and if this vote goes against the ruling Republicans, then President Trump will have a tougher legislature to contend with.
Under such circumstances, a prolonged “war on oil” which sees prices escalate and allies unhappy could be the proverbial ‘hangman’s noose’ for the current administration.
Jayanta Roy Chowdhury
