On February 28, 2026, the US and Israel began Operation Epic Fury, carrying out almost 900 strikes in 12 hours on Iran’s nuclear, missile, and leadership sites. Iran’s Supreme Leader Ali Khamenei was killed. A few days later, Iran closed the Strait of Hormuz, reducing commercial traffic by over 90%. Brent crude prices jumped above $120 per barrel. Tankers waited as operators evaluated the risks. The International Energy Agency described it as “the largest supply disruption in the history of the global oil market.” A military decision in Washington and Tel Aviv quickly turned into an economic crisis that reached Tokyo, Berlin, Mumbai, and Karachi.
This story goes beyond the immediate conflict and shows the deeper weaknesses in the international political economy. Relying on interdependence rather than self-sufficiency now carries serious risks.
The liberal view in international political economy suggests that trade creates dependency, which should prevent conflict. Robert Keohane and Joseph Nye called this idea “complex interdependence,” meaning that when economies are closely connected, disruption becomes too costly. The Strait of Hormuz has always challenged this theory. About 20 million barrels of oil move through it each day, which is one-fifth of global consumption and over a quarter of all seaborne trade. JPMorgan Chase warned that a full blockade lasting more than 25 days could force major producers to stop output, with nowhere for the oil to go. The 2026 war proved this warning true. Liberal interdependence did not stop conflict; it only made the consequences global.
The realist IPE perspective has also been proven correct. Hegemonic Stability Theory, developed by Charles Kindleberger and Robert Gilpin, holds that open economic systems require a dominant power to function. For years, the US Fifth Fleet kept the Strait of Hormuz open for global trade. However, after the US became a net energy exporter due to the shale revolution, it had less reason to pay these costs. At the same time, China, the largest Gulf oil importer, increased its involvement in the region but did not assume security responsibilities. When war broke out, China and Pakistan, not the US, arranged the April 7 ceasefire. The dominant power started the war, but did not end it. International political economy (IPE). The ceasefire and unsuccessful Islamabad negotiations have revealed a multipolar diplomatic environment that traditional theories struggle to explain. Beijing’s 2023 Saudi-Iran rapprochement anticipated this development, and the 2026 conflict accelerated the transition. The world is experiencing a ‘power transition’ from a US-led unipolar order to a multipolar and uncertain landscape. The petrodollar system is under increasing pressure, as evidenced by Saudi Arabia trading oil in yuan and by BRICS nations advocating for alternative reserve currencies. While these changes do not immediately end dollar dominance, the trajectory is evident. The recent conflict has highlighted both the extent of US military power and its diplomatic limitations, thereby accelerating this shift.
The economic impact of the conflict is a clear example of what IPE scholars call “systemic risk,” where problems in one part of a connected system spread unpredictably. Iran’s counter-attacks hit US military bases in the Gulf, damaged civilian infrastructure in Arab countries, and struck Dubai International Airport, one of the world’s busiest. Both the Strait of Hormuz and the Red Sea were disrupted simultaneously, forcing shipping lines to find new routes. The risk of stagflation, not seen since the 1970s oil crisis, became real again. Vietnam faced fuel shortages and panic buying. Asian economies that rely on Gulf LNG rushed to find other sources. The car industry changed its global production plans. Barclays estimated that every $10-per-barrel increase in oil prices would cut global economic growth by 10 to 20 basis points. If the disruption lasts a month, the impact could be severe.
The war has also made clear what IPE theorists call the “security-economy nexus.” For years, Gulf Arab states pursued economic modernisation, such as Saudi Arabia’s Vision 2030 and Dubai’s rise as a financial centre, based on the belief that the US would provide security. Iran’s strikes on these states broke that belief. The Gulf Cooperation Council’s economic model, which depends on open trade, foreign investment, and tourism, has taken what experts call a systemic shock. The luxury hotels hit by Iranian drones were not military targets; they were symbols of globalization being intentionally destroyed as part of the conflict.
What makes this moment different in international political economy is that traditional tools have failed. Decades of sanctions made Iran poorer but did not change its actions. Military deterrence by the Fifth Fleet did not prevent conflict; it enabled it. Diplomacy had made progress as recently as February 2026, but the Trump administration ended talks, saying it was “not thrilled,” and chose military action instead. The ceasefire that followed is weak. US strikes on Iranian missile sites in late May 2026 led to Iranian threats, and talks are still stuck on nuclear and sanction issues.
It is clear that the 2026 US-Iran war shows a failure of global governance. The Strait of Hormuz, which is key to global energy flows, lacks a multilateral framework. There is no treaty, institution, or shared system to keep it open. This was once seen as mainly America’s job, but the conflict showed that this approach cannot last. When the United States itself causes instability, the whole system is at risk of falling apart.
The solutions are complex and will take time, but they are clear. The international community should establish a robust multilateral framework to manage the Strait of Hormuz, treating it as a global public good. All countries that benefit should share security responsibilities. Speeding up the shift to renewable energy is crucial, not just for climate reasons but also for global security. Every new renewable project and every step away from oil reduces the Strait’s strategic importance. There also needs to be an honest review of sanctions as the primary tool in foreign policy. Sanctions alone, without real diplomacy, do not bring security or justice.
Ships are now moving slowly through the Strait again, facing uncertainty under a weak ceasefire and ongoing threats. The war did not solve the main problems in international political economy, such as declining dominance, the shift to a multipolar world, weak governance, and energy dependence. Instead, it made these problems worse, leaving the world less stable than before the first missile hit Tehran.
The Strait of Hormuz has always mirrored the world. Today, the Strait of Hormuz reflects the state of the world. Today, it shows disorder. Whether the countries involved can fix this is the key question of the decade.
About the author: Amina Taj Abbasi is an undergraduate student of International Relations at the National Defence University, Islamabad. Her area of interest is Middle Eastern politics.