Iran shifts to offensive tactics, threatening 20% of global oil trade

Iran launched a surprise attack on US forces in Jordan on July 29, abandoning a brief pause in hostilities and shifting to offensive operations that threaten the Strait of Hormuz, a waterway handling 20 percent of global energy trade.

"Something appears to have changed fundamentally in Iran's approach, particularly regarding its willingness to initiate a strike if it considers that to be the only viable option," Hamid Reza Azizi, a researcher at the German Institute for International and Security Affairs, said.

The attack came hours after Israeli Prime Minister Benjamin Netanyahu met with President Donald Trump in Washington, and shortly after Israeli Defense Minister Israel Katz said Israel had wanted to strike Iranian energy infrastructure but was held back by the administration. US Central Command and Saudi forces jointly struck Iran-backed militias in Iraq in response to more than 30 drone attacks over the prior 72 hours.

The escalation threatens to push crude prices higher as the Strait of Hormuz — through which 23 million barrels of energy products transited daily before the war — remains partially closed. Iran's deputy foreign minister, Kazem Gharibabadi, said Tehran regards any rival shipping route through the strait as a red line, warning that allowing such routes would reduce Iran's claim to sovereignty over the waterway to "nothing more than a fantasy."

Iran's shift comes as the five-month-old war has inflicted severe damage on its economy. The IMF estimates Iran's GDP will contract by more than 6 percent in 2026, with inflation exceeding 70 percent. Labor participation has fallen to around 40 percent, according to reports, as most of the population works outside the official labor market. Yet Tehran shows no willingness to meet US preconditions for a ceasefire, including limits on its ballistic missile program, suspension of support for proxies, and dismantling of its nuclear capabilities.

The US air campaign has struck thousands of Iranian military targets, devastated Iran's air force, navy and defense industry, and killed dozens of senior commanders. But Iran's ballistic missile inventory remains about 70 percent intact, according to the New York Times, owing to hardened operational sites and the military's ability to rapidly repair damaged equipment. Iran has incorporated tactics learned from Russia's war in Ukraine, using smaller missile salvos and drones to distract US air defense systems.

Gulf States Race to Bypass Hormuz

The prolonged conflict has accelerated a fundamental redrawing of the Middle East's energy map. Before the war, approximately 23 million barrels of energy products passed through the Strait of Hormuz daily — the single chokepoint for exports from Iraq, Kuwait, Qatar and Bahrain, and the main transit route for Saudi Arabia and the UAE.

Gulf states are now investing heavily in alternative export routes. Saudi Arabia is expanding its east-west pipeline from 7 million barrels per day to 9 million by the end of 2029. The UAE plans to double its bypass capacity to 3.6 million barrels per day by the end of 2027. Iraq is pursuing multiple pipeline projects to the Mediterranean, Turkey and Jordan that could add 4 million to 6.5 million barrels per day of capacity by 2030. Goldman Sachs estimates that existing and planned bypass routes could carry about 60 percent of the oil typically shipped through Hormuz by the end of 2028.

The last time a major energy chokepoint was bypassed at scale was the Baku-Tbilisi-Ceyhan pipeline, completed in 2006, which permanently reduced dependence on Russian-controlled export routes. That project required billions of dollars and years of sustained US diplomacy — a precedent the current administration is now applying to the Gulf.

Defense Realignment Reshapes Regional Alliances

Iran's missile and drone strikes have also prompted a reassessment of security arrangements across the Gulf. Kuwait became the second Gulf state to ratify a defense agreement with Pakistan last week, following Saudi Arabia's signing of a Strategic Mutual Defense Agreement that includes a clause similar to NATO's Article 5. Pakistan has positioned itself as a mediator between Tehran and Washington while expanding military ties with Gulf capitals.

The UAE, meanwhile, asked Pakistan to repay a $3.5 billion loan in April, indicating unease over Islamabad's expanding defense ties with Saudi Arabia and its mediatory role in the Iran-US conflict. India has forged strong ties with Israel and the UAE, creating overlapping security partnerships that analysts say make regional crises more complex to manage.

For markets, the key risk is that Iran's offensive posture keeps the Strait of Hormuz commercially unreliable for an extended period. Brent crude prices are likely to reflect a sustained risk premium, while defense sector stocks and alternative energy infrastructure projects benefit from the security realignment. The Federal Reserve faces the added complication of energy-driven inflation, which could slow the pace of any rate normalization.

This article is for informational purposes only and does not constitute investment advice.