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A war of endurance and exposure

Our overall assessment is that the war is settling into a harsher and more dangerous equilibrium, with zero indication of any imminent resolution. Four weeks of U.S.-Israeli bombardment have not stopped Iran’s missile and drone operations, although they have certainly reduced their rate of fire. Fresh Iranian missile waves hit Israel on 29 and 30 March; Israeli strikes also continued against Tehran and other targets, while Iran’s blockade of the Strait of Hormuz remained effective. At the same time, Israel has expanded operations in southern Lebanon, and the Houthis have entered the war directly against Israel, increasing the risk that pressure spreads from Hormuz to Bab al-Mandab.

The most important recent development is that Iran is showing it can still impose costs on U.S. and partner forces despite severe damage at home. An Iranian strike on Prince Sultan Air Base in Saudi Arabia wounded 12 U.S. troops, two of them seriously. The same attack reportedly damaged several U.S. refueling aircraft, while The Wall Street Journal said an E-3 Sentry AWACS aircraft at the base was also hit. That last point remains reported rather than fully settled.

Strategically, the Saudi strike matters because it hit the architecture that sustains U.S. air operations: surveillance, command and control, and aerial refueling. In practical terms, Iran may not need to defeat American forces outright to reduce U.S. effectiveness. It may be enough to make regional basing, sortie generation, and partner confidence more fragile. The same logic is visible in the wider pattern of attacks on Gulf infrastructure and shipping. Hormuz remains effectively blocked, regional powers are discussing proposals to reopen it, and Brent was around $115 a barrel on Monday after rising by roughly 60% since the war began.

The conflict therefore looks less like a short campaign and more like a contest over endurance, alliance credibility, and economic resilience. The immediate military balance still favors the U.S. and Israel in strike capacity, but Iran retains enough retaliatory capability to keep raising the price of the war. The central question is no longer whether Tehran can win conventionally. It is whether Iran can make the conflict costly enough, across oil, shipping, aviation, and Gulf security, to constrain U.S. options and weaken regional confidence.

The near-term danger is that diplomacy exists, but remains too weak to offset the pressure to escalate. Pakistan is trying to broker talks and proposals to reopen Hormuz, and President Donald Trump has said talks are underway. But more U.S. troops are arriving, Trump has floated the seizure of Kharg Island, and Iran has warned against any U.S. ground attack. That combination, negotiation alongside preparation for larger military moves, is inherently unstable.

Indeed, how could Iran believe that any diplomatic settlement it reached at this time would be lasting?

The bottom line is that the war is not out of control, but it is widening in ways that make control harder. The strike on U.S. aircraft in Saudi Arabia was a meaningful escalation because it suggests Iran can move beyond symbolic retaliation and hit enabling assets central to the American campaign. The most likely path remains a prolonged coercive war, punctuated by intermittent diplomatic probes. But the threshold for a much more dangerous escalation, especially if U.S. ground options or a second maritime chokepoint come into play, is now lower than it was even a few days ago.

The ultimate complex system

The global economy feels the strain

The world economy has moved into an energy and logistics shock, though not a full global recession. The immediate damage is being transmitted through oil, LNG, refined fuels, shipping, aviation, and industrial inputs, with Asia the most exposed because of its dependence on Gulf energy flows. Brent has risen by roughly 60% in March to around $115.66 a barrel, while WTI is up by about 52%. Roughly 12m barrels a day remain unavailable as the Strait of Hormuz stays largely closed.

That is now feeding directly into inflation. European gas prices have risen by more than 70% since the war began. Germany’s March harmonized inflation rate is expected to come in at 2.8%, up from 2.0% in February, while the broader euro zone is seen at 2.7%. Markets are therefore beginning to price in the possibility of European Central Bank rate increases. Australia has already halved fuel excise for three months, a package worth about A$2.55 billion (US$1.75 billion), in an effort to cushion households and keep fuel moving.

Trade and transport are also under pressure. Major shipping lines are rerouting around Africa, adding 10 to 14 days to some voyages and imposing new surcharges of about $1,500 to $4,000 per container. Airlines are being squeezed by sharply higher jet-fuel prices, which have roughly doubled since the conflict began; carriers including United, Cathay Pacific, and Air New Zealand have raised fares, added surcharges, or cut capacity. Europe’s aviation regulator has also renewed warnings over Iran, Israel, and parts of the Gulf through 10 April because of airspace and drone risks.

Industry is beginning to feel second-round effects. Aluminum prices have jumped after Iranian attacks damaged major Gulf smelters; Gulf producers account for around 9% of global output. Petrochemical supply has also tightened, with plastic prices reaching four-year highs as flows of polyethylene and polypropylene through Hormuz are choked.

Food and agriculture are the next major transmission channel. Fertilizer prices have risen sharply, and the strait remains critical for urea and other inputs. The U.N. has warned that a prolonged disruption through June could push tens of millions more people into food insecurity. This is no longer just an oil story. It is becoming a broader cost-of-living and food-security problem, especially for import-dependent economies.

Financial markets are behaving as though this is an inflation shock with geopolitical tail risk. Global equities have been under pressure, especially in Asia, while liquidity has deteriorated in Treasuries, oil, gold, and currency markets as investors reduce risk and unwind positions.

The base case is now slower growth combined with higher inflation, with Asia and energy-importing countries under the greatest pressure. The world economy can probably absorb this if disruption in Hormuz eases and the war stops short of a wider maritime shutdown. But if the conflict expands further, especially into a longer closure of Hormuz or a renewed Red Sea squeeze, the danger shifts from an energy shock to a broader stagflationary downturn.

Trade system takes another blow

The world trading system has suffered another setback. Talks at the World Trade Organization’s ministerial meeting in Yaoundé, Cameroon, ended without agreement on institutional reform or on extending the long-standing moratorium on customs duties for electronic transmissions, the rule that has shielded digital downloads and streaming services from tariffs since 1998. With no consensus, the moratorium has lapsed for now, and negotiations are due to resume in Geneva in May.

The failure matters for more than the WTO alone. It shows how much harder it has become to preserve common trade rules in an age of strategic rivalry, industrial policy, and growing mistrust between advanced and emerging economies. The deadlock in Yaoundé reflected widening disagreement not only over digital trade, but also over the broader direction of reform at an institution already struggling to remain relevant.

At the same time, fresh evidence from the European Central Bank points to another uncomfortable reality: tariffs are not borne chiefly by foreign exporters. In a study published on 30 March, the ECB said the costs of higher U.S. tariffs are falling mostly on American firms and consumers, with only about 5% borne by foreign firms. Consumers are currently absorbing around a third of the burden, and that share could rise to more than half over time as domestic firms lose room to absorb the shock through their margins.

Taken together, the two developments point in the same direction. The rules-based trading order is becoming more fragmented, while tariffs are behaving less like a weapon paid for by foreigners and more like a tax that feeds into domestic prices and supply-chain friction. The result is a trade environment that is not only less predictable, but also more prone to inflationary pressure.

Monroe doctrine with Trump corollary

Cuba’s crisis deepens

On Cuba, the situation is grave. The island has, in effect, been under an oil blockade since Venezuelan state shipments stopped following the U.S. ouster of Nicolas Maduro in January. Cuba is said to have gone three months without state fuel deliveries, even though its normal import requirement had recently been about 100,000 barrels a day.

The energy shock has spread through the Cuban system. The grid suffered repeated major failures in March, including two total collapses within a single week, an unusual pattern even by Cuba’s recent standards. Healthcare is deteriorating as blackouts, shortages and exceptionally low pay push doctors out of the profession; 96,000 people are reportedly on surgery waiting lists, including 11,000 children. Tourism, one of the island’s main sources of foreign exchange, was also under strain. Cuba received only 1.8m visitors in 2025, down from 2.2m in 2024, the lowest figure in more than two decades.

Politically, Cuba appears tense, though not on the verge of regime collapse. There have been rare riots over blackouts, but fear of another harsh crackdown still seems to be limiting the chances of a repeat of the nationwide protests of 11 July 2021.

At the same time, Havana is pursuing several avenues at once: talks with Washington, outreach to the Vatican, continued reliance on partners such as Mexico, and even a new invitation for Cuban exiles to invest in businesses on the island. The government appears to be trying to buy time rather than address the deeper causes of the crisis.

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