Strategic Miscalculation and Diplomatic Retreat: Consequences of the 2026 US-Iran Conflict

On 28 February 2026, the United States and Israel took a consequential decision to attack the Islamic Republic of Iran under ‘Operation Epic Fury’. This marked the first attack ever carried out by the US against the Iranians in 47 years since the beginning of their enduring rivalry. The main targets were Iran’s nuclear facilities and the objective was also to execute regime change due to the conviction that the forcible removal of the clerical leadership in Tehran would lead to civil revolt. Three and a half months later, when “Islamabad Memorandum of Understanding between the Islamic Republic of Iran and the United States of America” spelt out the terms of a ceasefire, it is pertinent to offer a tentative but critical assessment of the situation. The war was unsuccessful in its strategic objectives, and the ceasefire agreement that has brought an end to it fundamentally leaves Iran in similar position as before. As Max Boot, a noted foreign policy analyst, rightly observes that while “Trump is a master of political messaging, but it will be hard for him to spin this conflict as anything other than a grievous defeat.”

History remains a crucial source to understand the US-Iran conflict and the strategic miscalculations leading to the most recent conflict. Ever since the 1979 Islamic Revolution and the hostage crisis, Washington’s approach towards Tehran has been swinging between containment and confrontation – successive US administrations failed to secure a stable deterrence. However, under the Trump 2.0 the escalation was qualitatively distinct from the previous administrations but marked a distinctive shift, yet it reaped the same corner-cutting mistake by underestimating the resilience of Iran’s political and security apparatus, while overestimating the potency of military action to alter Tehran’s strategic decision-making.

Misguided assumptions

Operation Epic Fury rested on three underlying assumptions, and all have proved to be factually incorrect. The first idea was that the elimination of Iran’s Supreme Leader Ali Khamenei, will paralyse the regime, triggering a series of civil protests. This strategy ignored the long academic tradition which emphasised that regimes with well-established institutional structure are more likely to withstand decapitation than personalised autocracies. In Iran, this resilience proved more successful as close to 50 years the regime has designed a complex institutional framework in order to ensure its stability.

Second, it was assumed that the visible popular dissatisfaction among Iranians in January 2026 would translate into cooperation with external military action. It turned out to be a complete miscalculation about the fundamental difference between political opposition within a country and popular attitudes towards national sovereignty. Comparative historical evidence suggests, whether during NATO bombing of Serbia or the Iraq war in 2003, that external military intervention can strengthen national cohesion and resistance. Even if temporarily, people get united in the face of perceived external threats despite high degree of dissatisfaction with their own government.

Third, and most importantly, American strategic planners underestimated Iran’s asymmetric economic leverage. A closing of the Strait of Hormuz through which approximately 20per cent of the world’s oil passes was a measure of coercion of extraordinary force. Clearly, American planners totally misread Iranian strategy. Wars without clear political goals inevitably produce unintended and destabilising consequences.

The Strait of Hormuz as a coercive instrument

Under the theory of coercive diplomacy, the closure of the Strait of Hormuz by Iran constitutes a classical case of what Thomas Schelling referred to as the “threat that leaves something to chance”: a threat of unacceptable costs that is credible and therefore shifts the burden of escalation from Iran to another party. As Nick Childs of IISS reminds us that even after the deployment of US naval forces and “Project Freedom” for reopening navigational access, Iran’s ability to sustain a “sporadic nuisance” campaign with asymmetric warfare assets such as missiles, drones, sea mines and fast boats remained a major threat to international shipping.

American losses are supported by economic data. As per Moody’s Analytics, the war cost American taxpayers around USD 132 billion. The gasoline prices hit a record USD 4.56 per gallon and fertiliser prices increased by nearly 47 percent. The World Bank cut its growth projections for the world’s economy to 2.5 percent, the lowest since the COVID-19 pandemic. These statistics shed light on why this war’s goals were never truly realised, as President Donald Trump himself has admitted he was afraid of creating economic conditions similar to the Great Depression.

The strategic implication of this is important with regard to future policy. Iran has been very effective in showing that the Strait of Hormuz is less expensive and more effective weapon of coercion than what they have invested their efforts in over several decades developing their proxy network or even a nuclear program. This insight will shape Iranian strategic thinking for years to come and is definitely a significant change in the regional security environment that will need to be factored into American deterrence thinking.

What the MoU contains

The MOU between the US and Iran can be interpreted as a ceasefire agreement, not a comprehensive settlement. The immediate steps it has taken include the removal of American naval blockade of Iranian ports; the granting of waivers to permit Iranian oil exports; the start of a process to unfreeze Iranian assets held abroad; mutual recognition of sovereignty and non-interference in internal affairs; and a 60-day window for negotiations on a final nuclear agreement during which the Strait of Hormuz will remain open under toll-free terms.

A pledge to cooperate with regional partners to establish a reconstruction fund of USD 300 billion is also part of the plan. But how that will be executed is not yet clear. Most important, the MOU does not address the two issues that were the core justification for the war. The stockpile of highly enriched uranium and the arsenal of ballistic missiles have always been the bone of contention. The deal does not include any mechanism for verification, any inspection standards similar to those in the 2015 Joint Comprehensive Plan of Action for the IAEA, and no binding restrictions on Iran’s enrichment capacity. Sixty days is generally considered too short a period to resolve problems of this technical and political nature by the non-proliferation experts.

The Israeli dimension

The agreement has significantly hurt the strategic relationship between the US and Israel, which has been the foundation of America’s Middle East policy. Israel’s strategic worries regarding the agreement are real. Under the terms of the contract, Iran will keep hold of an estimated 11 tons of enriched uranium, retain its ballistic missile capabilities and have assets unfrozen that could help fund the rebuilding of its military-industrial complex. This will be done under the supervision of Iran’s new supreme leader, Mojtaba Khamenei, who is considered to be more ideologically extreme than his assassinated predecessor.

The political repercussions for Israel have been significant at home. The poll, which was carried out before the terms of the deal were announced, revealed that less than a third of Israeli Jews considered the terms of the settlement to be in line with Israel’s security interests, while only 41 percent felt that Trump’s policy had shifted the focus to Israeli security. Prime Minister Netanyahu’s political position has been significantly weakened because Trump, once his strongest ally, negotiated the deal without Israel’s involvement. As Ruth Margalit observes in The New Yorker, for Netanyahu’s staunchest supporters in the media, the ceasefire deal represents a real crisis as they are struggling to choose between Netanyahu and Trump, “a leader they once lavished with near-mystic praise, comparing him to Cyrus the Great.” Quoting one Israeli analyst, Margalit sums up their dilemma as “It’s like when your parents divorce and you have to pick sides.” The lack of regime change in Iran, the continuation of its nuclear and missile programmes and the obvious deterioration of Israel’s ties with the US make it a strategic failure for Israel. In fact, Netanyahu’s “fear of a voter backlash” in forthcoming parliamentary elections scheduled in October could incentivise him to obstruct the wider diplomatic process.

The relationship between Israel and the US has been strained to the point that Vice President Vance made a public announcement to Israeli leaders at the White House press briefing that ‘officials might not want to attack the only powerful ally’ they have. The use of such language by a top American official in public is a sign of a change in the relationship rather than just a tactical disagreement.

Domestic political consequences

The manner in which the Trump administration handled the war with Iran has huge domestic implications. Robert Tait, writing in the Guardian, argues that there is a possibility of Trump getting trapped by the Iranian factor in almost the same manner as Jimmy Carter did. Trump has vehemently criticised Carter of weakness and stressed the need for stronger action. Carter’s inability to end the situation had led to his defeat in the 1980 presidential elections. Trump may have ended up in a similar position. Rather than weakening Tehran, Trump was left with no option but to agree to a diplomatic deal which is seen as a setback by his supporters. Furthermore, the widespread impression that Iran and Israel, rather than Washington, dictated the direction of this futile war would only reinforce Trump’s powerlessness.

The MoU has also exposed fault lines of the existing Republican coalition. Traditional Republican Iran hawks see the deal as a capitulation that will give Tehran the economic means to rebuild its military power and that validates Iranian brinksmanship. Managing the political consequences of the deal has been further complicated by the dynamics within the Trump administration itself. Much has been said about the deal’s public face, Vice President Vance, who will share the credit with Trump should the deal succeed, but will be forced to bear the brunt of the blame should it fall short in the end. Secretary of State Rubio’s relative lack of public display in defence of the agreement has contributed to the impression of an administration that is coping with failure, rather than celebrating success. Rubio stands in line for the 2028 presidential elections.

Regional order implications

Beyond the US-Iran dynamics, the implication of the deal will have a direct impact on the security architecture of Middle-East. The Gulf Cooperation Council’s (GCC) efforts in diversifying energy transit routes and minimising strategic vulnerability to a chokepoint now under the control of the adversary will be quickened by Iran’s successful use of the Strait of Hormuz as an economic weapon. It may appear disturbing but we cannot deny the fact that Iran has demonstrated how strategic waterways can be used as economic tools of coercion and power projection, and if such tactics are adopted at other chokepoints, it would be detrimental to global trade, disrupting the norm of freedom of navigation. More generally, the war has confirmed the hypothesis of an asymmetric resistance model, based on proxy force networks, economic choke points and calibrated military escalation, to guide the planning of other revisionist regional powers.

For the non-proliferation regime, the impact is mixed, but generally worrisome as there is breakdown of international monitoring of Iran’s nuclear program. The mid-2025’s strikes had slowed down Iran’s nuclear program, but Iran still has the technical knowledge base and enriched uranium stockpile it needs to resume their program within a relatively short period of time. The sixty-day timeframe for negotiating may result in a framework agreement, but the real issue that has never been met by negotiations under any administration – a permanent verifiable, enforceable limit on Iranian enrichment capability – remains unaddressed. Any new agreement will need to follow the structure of the JCPOA in order to create verification structures at a lesser level compared to what was in place in 2015, since the Trump administration removed the inspections process in 2018.

Conclusion

Operation Epic Fury will be remembered as an example of America’s yet another military overreach, based on several misguided assumptions. The war could not bring about regime change in Iran, but it did reinforce nationalistic feelings. The MoU has put an end to the armed conflict, but has settled few of the grievances that led to the conflict. Iran has retained a large portion of its strategic capabilities, Israel is extremely unhappy about the results, and the Trump administration has lots of hard questions to answer regarding the effectiveness of coercive statecraft in an increasingly multipolar and economically interdependent world.

Multiple analysts have pointed to the 1979-1981 hostage crisis as a precedent that comes into mind when assessing the latest Iran war. In both instances, the US realised that the political consequences associated with the choices available for resolving the crisis were greater than what its political system could afford, and consequently the results depended more on the ability of the adversary rather than on American military or economic strength.

The lessons for the policy are harsh from this episode. The first is that military force, no matter how overwhelmingly it is applied, cannot consistently create political consequences when adversary states are ruled by longstanding authoritarian institutions and nationalist legitimising narratives. The second is that asymmetric economic leverage, if it is correctly recognised and credibly threatened, can have effects that surpass those of conventional military superiority.

Disclaimer: Views expressed are of the author(s) and do not necessarily reflect the views of The Statecraft Institute.