Since the invasion of Iran by U.S-Israel on 28 Feb 2026 the global geopolitics, maritime geopolitics, diplomacy, and economy has been suffering. On geopolitical and diplomatic front new World Order is emerging where China and Russia seems to taking the lead over the U.S. It will be vital to recall that during 2002 U.S considered it self so strong that it adopted ‘Pre-emption Policy’ in Sep 2002 to initiate a ‘Preventive’ war against a nation that even poses a threat to the U.S. The doctrine of pre-emption being unjust offended other powers, who continued their efforts to build economic and military muscles. On the other hand pursuance of the policy brought U.S under severe economic implications and forced U.S to adopt a new ‘Defense Strategy’ just to Sustain its Global leadership to offset the Chinese influence in energy rich Indian Ocean Region. By cutting down its defense budget to U.S $ 987 billion over a decade and to maintain its domination in IOR against the China by shifting 60% of its naval resources in Asia Pacific Region by remaining poised towards Indian and Pacific Oceans including South China Sea. However presently due to diminishing facet of petro dollar, U.S losing its influence over NATO and Europe, trade contest with China and its recent war on Iran has particular made it impossible for U.S to even sustain its global leadership. The recent U.S-Israel war on Iran is making it difficult for the U.S to maintain its influence in Indian Ocean. The two sided closure of is taking more toll on European and the U.S economy over Middle Eastern economy.
The closure of the Strait of Hormuz in 2026 has imposed significant economic losses on both Europe and the U.S due to its pivotal role in global oil and natural gas trade. This strategic chokepoint normally carries around 20% of global oil and a substantial share of liquefied natural gas (LNG) for Europe through Bab-El Mandeb Strait through which 10 to 12 % of global trade passes. Following the outbreak of the U.S –Israel and Iran conflict in February 2026, shipping through the Strait of Hormuz has reduced down to 90%, out which only 10 to15 million barrels of oil is passing instead of 21 million barrels per day before the conflict. Europe and Americas are getting only about 2 million barrels which is not even 50 % of their imports from ME. Hydrocarbon flow Europe is further vulnerable due to Iranian influence over the strait of Bab-El Mandeb. The conflict has triggered one of the largest energy shocks since the 1970s, with oil prices surging above $ U.S 120 per barrel, sharply increasing production and transportation costs across Western economies.
In Europe, natural gas prices nearly doubled to above € 60/MWh, while energy inflation rose by 11%, contributing to near economic stagnation with GDP growth of only 0.1% in early 2026. Industrial sectors such as chemicals and steel have faced cost increases of up to 30%, forcing production cuts and raising the risk of deindustrialization. The European Central Bank has also reduced growth forecasts to below 1%, warning of possible stagflation if disruptions persist.
The United States, while less dependent on Middle Eastern imports, has still experienced indirect losses through global market disruptions. Higher oil prices have increased inflationary pressures, disrupted supply chains, and created volatility in financial markets. Additionally, the war’s inflationary effects such as rising U.S. fuel prices (over $ U.S 4 per gallon) and broader supply chain shocks are weakening the purchasing power and global attractiveness of the dollar. Overall, the closure has slowed global economic growth from an expected 3.4% to around 3.1%, with risks of falling to 2%, indicating near-recession conditions.
The ongoing U.S.–Israel war on Iran since 28 Feb 2026 is significantly affecting the petrodollar system, which has underpinned U.S. global economic dominance since the 1970s. The petrodollar refers to the practice of pricing and trading oil primarily in U.S. dollars, ensuring global demand for the currency. However, recent geopolitical and energy disruptions are weakening this system. The conflict has pushed oil prices above to $ U.S 120 per barrel, increasing volatility in global energy markets. While high oil prices can temporarily increase dollar demand, however it is gradually leading to de-dollarization trends. Iran has actively encouraged oil trade in alternative currencies, particularly the Chinese yuan, especially for countries seeking safe passage through contested waters. At the same time, China, Russia, and BRICS economies are expanding non-dollar energy trade mechanisms, signalling structural shifts away from dollar dominance. It has been evaluated that if the conflict it could shatter the petrodollar architecture and accelerate a transition toward a multipolar currency system.
Consequently in the domain of maritime geopolitics the U.S navy is losing its influence in South China Sea despite the initiatives like QUAD, AUKUS and Five Eyes etc. and is trying to consolidate along the 5th Island Chain in Djibouti where as China is further limiting the already Ocean fixed U.S along 6th Island Chain in Atlantic. It is being defined and understood the longer the war more the U.S would suffer in geopolitical, diplomatic and economic domain hence allowing others to fill in the ever expanding gap.
