Blain’s Morning Porridge March 12th, 2026 – Winning the Economic War
“I flew B-52 and bombed them with the blues..”
The War in Iran is a kinetic feature of the economic/hegemonic struggle between the USA and China. President Trump will lose because his Iran war is unwinnable. Iran won’t lose because it does doesn’t have to win. That’s a recipe for a forever war, and a definition of asymmetric warfare. The likely winner of a wider Economic War will be China. Energy and Supply Chains will determine the future.
What a curious world we live in. I had thought about writing on the rising likelihood of a Super-El-Nino event developing in the Eastern Pacific, and how it will trigger climate shocks and agricultural mayhem – but that’s going to happen tomorrow. What’s happening today is a much more immediate concern.
“War is a continuation of policy by other means,” said Carl Von Clausewitz, founder of the Prussian General Staff 200 years ago. Since then, we’ve come to understand Policy and Economics are interchangeable; war is a policy tool used to achieve economic objectives.
Thus far the immediate consequences of the Iran War are clear – economic instability from an energy shock due to blocked gas and oil supply chains. Further consequences are still to emerge and set what is a wider economic conflict between the America camp versus China and its Allies in stark reality.
What follows is a rough scenario of how the Economic War plays out in coming months/years.
Last night, the 32 nations of the International Energy Agency agreed to open-up their strategic reserves to provide short-term relief to what looks a long-term constraint to oil supplies. It’s a smoothing gesture – and unless the Straits of Hormuz are swiftly reopened, will do little to calm markets in the medium term. The volatility in oil prices highlights a nervous market: up and down in steep-amplitude short-cycle reactions to each and every comment and event – no matter how likely or unlikely they are.
The economic trend is seen in rising bond yields, highlighting how markets fear a stagflationary bust is coming. Some nations are more vulnerable than others for a variety of reasons, such as the UK’s energy insecurity, Germany’s military spending boost, while the USA’s energy self-sufficiency has seen a Pavlovian flight back to dollar quality – which I doubt will be sustained.
It is not clear what Trump’s objectives have been. He has demonstrated the unparalleled military might of the USA. American BUFs, B1s, B2s, F-15s, F-18s, F-22s and F-35s control the skies, dropping a phenomenal tonnage of bombs on the rubble of Tehran. Trump sees wreckage as victory. Israeli/US intel has been superb. The bombing of a girls’ school was a tragic mistake – amplified by Trump’s callous efforts to pin it on the Iranians.
But what has been achieved?
Give Trump some credit – intelligence suggests he may have re-obliterated the Iran Nuclear threat, having last obliterated it a few months ago. (There are intel reasons to think Iran was getting very close to testing a device with external assistance.)
Otherwise….? Thus far Trump’s war has empowered an even more hardline Iran government with greater reasons to hate the Great Satan. He’s destabilised the Gulf states. There are few signs of a mass Iranian civil opposition on the streets. Sinking a few tied-up speedboats and calling them minesweepers does not make the Strait of Hormuz safe for shipping or invalidate shipping insurance contract clauses.
In typical Trump style he’s managed to further destabilise the NATO/Western alliance by unnecessary insults and petty squabbles with the UK and Spain. Nato has become a much weaker and less certain alliance over the past year due to Trump’s narcissism and demands to be treated as the primary leader – which suits Russia and China perfectly.
As I wrote earlier this week Trump has walked himself into a bear-trap called Stalemate in Iran. The longer it lasts, the greater the economic damage to the West will be.
Trump does not appear to have understood the enemy and how asymmetric warfare works. Iran might be bombed flat and be beaten on every metric Trump presents, but it wins by inflicting a sustained energy shock on the global economy – which the West is singularly unprepared for. The consequences will be huge and extremely damaging. As I noted, bond markets are now pricing for potential inflation from an oil-spike driven recession. The fear of rising rates is triggering concerns on the sustainability of the current AI boom, Junk Bonds and Private Credit markets – all of which could prove highly contagious.
Politically, the war is perhaps even more dangerous in terms of further polarising Western Democracies and creating political instability around market weakness and rising consumer prices. It’s an extremely unpopular war – even Nigel Farage wants no part of it. It’s looking likely to cost Trump Congress – meaning 2 years of angry, ineffective lame-duckery and electoral denial after he’s wound everyone up. In Europe, the war has reinforced the rising tide of young people embracing the radical left – like the Greens in the UK – which will reduce national resilience and the willingness to fight.
Why does this benefit China?
China will not fight for Iran or become directly involved. It would rather hold back and preserve the air of mystery around its recently acquired military prowess. Xi has read and understood Sun Tzu and the Art of War. It is likely supplying targeting information, and on Drone and Satellite reconnaissance gaps, to Russia to pass on to Tehran. North Korea has been providing expertise on the nuclear options.
Russia has seen the value of its oil reserves rocket, and its power reinforced after Trump’s call with President Putin earlier this week. Putin will benefit from US war stocks being prioritised to further rubblising Iran rather than defending Ukraine and Europe.
China is prepared for an Economic war – some estimates say there are 3 years of oil reserves in stock. It can afford for the Straits of Hormuz to remain sealed – causing weakness in the West. If China can avoid the difficulties of mounting an invasion of Taiwan, but win over the Island by economic means, that’s a win for Xi. Otherwise, sapping US strength and running down war-stocks through a forever war in Iran is the second-best option. Its objective it to break through the First Island Chain gap between Taiwan and Okinawa to give its expanded navy full access to blue waters.
This is not just about oil. The Middle Kingdom also dominates the supply chains that enable the manufacture of practically everything in the West – particularly Rare Earths. The reality is without Chinese widgets (the nails to hold the shoe on the horse) Europe and the USA can’t actually build much – particularly complex weapon systems.
In terms of Energy the USA is being forced to extend Nuclear Power plants’ lives to power the AI Boom – but it still buys most of its Uranium from Russia!
The ducks are aligning badly for the West. Inflation undermining markets, political polarisation and disenchantment with current leaders, an energy shock, and supply chain blocks – could all combine to confirm China as the leading global power.
Out of time, and off to do the day job…
Bill Blain
Author of the Morning Porridge
Advisor – Spitfire Strategic Capital
