By Abida Khan
ISLAMABAD, Saturday, April 4, 2026 (WNP): The war between the United States, Israel and Iran has now entered its fifth week, raising a defining question for policymakers and observers alike: who holds the strategic leverage, Washington or Tehran?
Beyond the battlefield, this conflict is deeply intertwined with the global economy, particularly the strategic importance of the Strait of Hormuz. While the United States is largely self-sufficient in oil and gas, much of the world including Europe, China, India, Pakistan, Japan, and South Korea remains heavily dependent on this vital maritime corridor.
Tensions in the Strait have already driven up global oil prices, with ripple effects reaching the American economy. Fuel prices in the United States have surged by more than 40 percent, and projections from the Organisation for Economic Co-operation and Development suggest inflation could rise to 4.2 percent, the highest among Group of Seven (G7) economies.
At the heart of the economic dimension lies a deeper challenge: the future of the US dollar. Since World War II, the dollar has functioned as the world’s primary reserve currency, further reinforced by the 1974 US-Saudi agreement that established the “petrodollar” system, anchoring global oil trade in dollars. Iran has long opposed this system, as well as the presence of US military bases across the region.
In the current conflict, Iran has directly targeted US military infrastructure. Reports indicate that several American bases across the region have suffered significant damage, forcing personnel relocations and operational disruptions. Some units have reportedly shifted to remote coordination, an unusual wartime adjustment being described informally as “war from home.”
Strikes have reportedly affected installations in Kuwait, Qatar, Bahrain, and Saudi Arabia, including communications systems, radar networks, and refueling facilities. One notable loss includes a high-value E-3 AWACS surveillance aircraft, significantly impacting US aerial monitoring capabilities.
Analysts suggest these developments indicate that Washington may not have been fully prepared for the scale and precision of the conflict. There are also claims that external intelligence support may be enhancing Iran’s targeting capabilities, allowing for more calculated strikes.
On the economic front, Iran appears to be leveraging the Strait of Hormuz as a strategic tool. Such a move, experts argue, could weaken the dominance of the US dollar and accelerate a shift toward alternative systems, including the concept of “petro-yuan”, oil trade conducted in Chinese currency.
There are already signs of this transition. India has reportedly begun purchasing Russian oil using non-dollar currencies, while some transactions globally are being conducted in UAE dirhams and Chinese yuan. If such practices expand, the global financial system, long anchored in dollar-based trade and reserves, could face structural change.
The Gulf region, however, is bearing significant economic costs. Energy infrastructure has come under strain, with damages running into billions of dollars. Reports suggest that an attack on a liquefied natural gas facility in Qatar alone could account for losses approaching $100 billion.
At the same time, the United States may derive limited economic advantage through increased oil and gas exports, with estimates suggesting American energy firms could generate up to $63 billion in additional profits during the conflict.
Yet the broader strategic implications are more complex. Confidence among Gulf states in US security guarantees could weaken, particularly if Iran maintains pressure on critical maritime routes. Such a scenario could result in military and financial strain on Washington, reputational damage on the global stage, and potential erosion of the dollar’s dominance.
Financial indicators already point to mounting stress. Yields on 30-year US Treasury bonds have risen by around 40 basis points, reaching nearly 5 percent, levels considered concerning for long-term borrowing. As the United States relies heavily on bond markets to finance its deficits, higher yields translate into more expensive debt.
Rising inflationary pressures may also force the US Federal Reserve to consider interest rate hikes, contrary to the preferences of political leadership, including President Donald Trump. While higher rates may temporarily support the dollar, increased bond selling signals declining investor confidence.
The cumulative effect is clear: the US economy is beginning to feel sustained pressure, while the global economy is absorbing the shockwaves of a conflict that extends far beyond military engagement.
As the war continues, the balance of leverage will not be determined solely on the battlefield. It will increasingly depend on economic resilience, control of critical trade routes, and the ability to shape the evolving global financial order.
