The Law of Diminishing Returns: Why Iran Can't Close the Strait

For months now, one assumption dominated much of the commentary on the war with Iran. The Strait of Hormuz was Iran's ultimate card, a narrow waterway through which roughly one-fifth of the world's oil and a substantial share of its liquefied natural gas, LNG, has historically passed. A choke point that Tehran can, in theory and in practice, close or severely disrupt at will. But is it really that simple? Welcome to Global Risk Profile, where we break down the headlines that matter, and the ones that should. The question is whether that card was ever as permanent as it looked. The logic is straightforward and widely accepted. Iran does not need to destroy every tanker that passes through. It only needs to hit a small percentage of them, with drones, cruise missiles, speed boats, or mines, and the secondary effects would do the rest. Insurance rates would spike, shipping companies and crews would refuse the risk, and the strait would effectively be shut down without Iran having to maintain continuous physical control of every mile of water. This idea was also not invented in 2026. It had been a standing feature of Iranian strategic messaging for years. The regime has treated Hormuz as both a military instrument and a political myth, proof that even under pressure, Tehran retained a decisive lever over the global energy system. Parts of the Western media and a number of independent analysts amplified the same narrative, relying heavily on open-source shipping data that is incomplete, especially once vessels began sailing dark. Many concluded that the Americans had been caught unprepared and lacked a realistic path to reopen the waterway. They thought that Hormuz was effectively closed or closeable at Iran's discretion, and the economic consequences would force rapid political concessions. That framing is powerful. It is also, as later events show, incomplete. The Iranian threat is real. Their tools are real. The geography favors disruption. But the idea that this leverage is permanent, unbreakable, and immune to methodical counteraction was a myth itself, one that both the regime and some of its observers had incentives to believe. The myth of an unbreakable Hormuz rested on a specific assumption, that Iran's detection and targeting system could not be dismantled without a dramatic high-visibility campaign that would risk wider escalation. That assumption has been proven wrong. What actually unfolded was quieter and more methodical. Under CENTCOM, and with significant involvement from the Fifth Fleet and Air Force components, the United States ran a sustained effort to degrade the very sensors Iran needed to find and hit ships in the first place. Iran's systems relied on five main tools, radars, especially mobile ones mounted on trucks, drones, cruise missiles, IRGC speedboats, and naval mines. To strike a moving tanker, you first have to locate it in real time. In the open ocean, that's difficult. Inside a narrow strait, ships are forced into relatively predictable lanes. Iran exploited that by combining active radars with passive, and thus not detectable, electro-optical and infrared cameras placed on elevated terrain and islands such as Qeshm, Larak, and Abu Mus. The mobile radars were particularly clever. A truck would drive into position, radiate for a short period to build a picture of nearby shipping, then shut down and move before anti-radiation missiles armed could arrive. Once a ship's approximate location was known, drones or cruise missiles could be sent to search for it. The problem for Iran was that every time those radars turned on, even briefly, their emissions could be detected. American aircraft began responding systematically with anti-radiation missiles. At the same time, visual intelligence and surveillance worked to locate the passive cameras and sensors that do not emit signals. This was the core of what some involved described as draining the swamp. Iran had impressive redundancy, but the number of sensors was still finite. Hundreds of precision strikes, many of them looking from the outside, like secondary or even random attacks on coastal positions, gradually reduced Iran's ability to see what was moving through the strait. As the detection layer thinned, the effectiveness of the strike systems declined with it. Parallel efforts targeted the other threats. Unmanned naval vessels searched for and neutralized mines. The southern shipping lane closer to the Omani coast was eventually declared largely free of them. Convoys of tankers and commercial vessels began moving under escort, often at night, and with AIS transponders switched off. The backbone of those escorts were the Arleigh Burke-class destroyers equipped with Aegis radars and standard missile family interceptors capable of engaging drones, cruise missiles, and ballistic threats. Overhead drones and Apache helicopters armed with laser-guided 70-millimeter rockets provided additional coverage against smaller aerial threats. In several cases, American ships also engaged IRGC speedboats that attempted to close on the convoys. On the commercial side, the United States moved to address the insurance barrier directly. Already in early March, President Trump directed the U.S. International Development Finance Corporation to provide political risk insurance and financial guarantees for maritime trade through the Gulf. The DFC, working with the Treasury Department and in coordination with CENTCOM, stood up a revolving reinsurance facility of roughly $20 billion, later expanded with private partners, including CHUBB, as lead underwriter. It was focused on hull, machinery, and cargo cover. Early response from the shipping companies was wary and limited, but as Iranian success rates declined and protected movements became more viable, more vessels began to join. The results are measurable, even if incomplete. CENTCOM has reported assisting well over a thousand commercial vessels and moving hundreds of millions of barrels through the strait since the spring. Independent trackers often show lower visible numbers, partly because so much of the traffic has been sailing dark. Pre-war throughput was around 20 to 21 million barrels a day. Current flows through Hormuz itself remain below that, but when combined with the Saudi pipeline to Lianbu in the Red Sea and other bag passes, total volumes leaving the region have recovered enough to keep oil prices in a range of roughly $85 to $95 a barrel, elevated but far from the catastrophic levels many had predicted. There is both a technical reason and a psychological one for why the public picture lagged. Ships that switched off their AIS for the high-risk transit through the strait normally turn it back on before entering the Gulf or after exiting into the Gulf of Oman. In theory, analysts should still have been able to match vessels that disappeared on one side with those that reappeared on the other. But open source tracking has structural limits, so in practice the matching was imperfect. Large numbers of ships would go dark in overlapping windows, often at night, and in staggered movements. Satellite AIS reception is also incomplete. Some vessels transmitted only intermittently or remain dark longer than the narrowest stretch of the strait. Ship-to-ship transfers just outside the waterway added further ambiguity. Commercial tracking firms already attempt to correct for these gaps using satellite imagery, terminal loadings, draft changes, and later arrivals, yet they still apply confidence thresholds. The result was a persistent undercount relative to what U.S. forces coordinating the escorts could see. That gap in public data helped the earlier narrative that the strait remains effectively closed or only marginally usable survive longer than the operational picture justified. The Iranian ability to locate and reliably hit ships was not eliminated overnight. It was attrited. The myth of permanent cost-free control began to crack under a campaign that prioritized censors over spectacle. But there was another, less technical reason the gap persisted. The story of Iranian success and American failure fit a narrative that many already expected or preferred, not just the Iranian regime. Once that frame took hold, contradictory evidence produced cognitive dissonance, the discomfort that arises when new facts challenge a valued belief. Rather than update, the common response was to protect the original story, applying higher skepticism to inconvenient details and focusing on data that still fit, thus treating the quieter operational progress as temporary or incomplete. As a result of this, fewer people had strong incentives to dig into the systematic work against censors, the southern corridor, the scale of the dark sailing, or the difference between what the public trackers could confidently count and what the forces on water could see. In a contested information environment, narratives that confirm prior expectations often travel farther and last longer than those that require revising them. What happened in the Strait of Hormuz points to a broader pattern. Leverage is often most powerful while it remains a threat. The threat itself shapes behavior. The target hedges, accommodates, or simply hopes the card will never be played. But once leverage is actually used at scale, the incentives change. The target now faces real ongoing costs, and the value of investing heavily to neutralize or circumvent the threat rises sharply. What was previously too expensive, too politically difficult, or too uncertain, suddenly becomes worth doing. The result is adaptation. In this case, censors hunted, escorts organized, alternative routes and pipelines accelerated, commercial workarounds found. So over time, the original leverage delivers diminishing returns. Each subsequent use becomes less effective, and the coercer often ends up in a weaker position than before the card was played. This is a structural feature of how power works when exercised rather than merely used as a threat. So geography, resources, and asymmetric tools can confer real advantages, but once those advantages are put into continuous action, they tend to provoke the very countermeasures that erode them. This pattern is not unique to Hormuz. It has appeared repeatedly when coercive levers were taken from the realm of threat into actual use. In 1973, Arab oil producers cut exports and raised prices against countries that supported Israel. The short-term shock was severe. Prices quadrupled, economies contracted, and political pressure mounted. But the longer-term response was Consuming countries improved energy efficiency, built strategic petroleum reserves, accelerated non-OPEC production in the North Sea and Alaska, for example, and later developed the shale revolution. Another example, Russia's use of natural gas against Europe followed a similar arc. For years, the threat of reduced supply shaped European behavior. Despite repeated admonitions from Trump in his first term, when pipeline flows were sharply cut in 2021 and 2022, the pain was real. But Europe responded by expanding LNG terminals, filling storage, reducing demand, accelerating renewables, and securing alternative suppliers. Russia's share of European gas imports collapsed. The gas weapon lost most of its coercive power against Europe, and Moscow was left selling heavily discounted volumes to China and other markets. Another example, China's rare earth restrictions, already 2010, offer a third case. After a territorial dispute with Japan, Beijing tightened export quotas and effectively restricted supply at a time when it controlled the overwhelming majority of global production. Prices spiked, and Japanese industry faced disruption. The response was predictable for us. Alternative mining projects, recycling, material substitution, and stockpiling. The act of using the lever accelerated efforts to dilute it, and in recent years, that process has intensified globally. Under the United States leadership, there has been a substantial public support into domestic and allied supply chains through the CHIPS Act funding, Department of Defense equity stakes and loans, price floor and offtake arrangements, and the project vault that includes equity stakes in key producers and strategic minerals reserve, while expanding cooperation with partners such as Australia. The goal in this case is more resilient mine-to-magnet chain, less exposed to Chinese leverage. The same pattern also appears in commercial settings. For example, a dominant supplier that repeatedly threatens cutoff or abrupt changes in terms often drives customers to dual source, redesign products, or support alternative providers. What begins as strong leverage can, through overuse, create the very competition that weakens it. In each case, the sequence is the same. The latent threat retains value because the other side prefers not to pay the full cost of adaptation, but once the leverage is exercised at scale, that cost-benefit calculation flips. Investment in alternatives rises. Future uses deliver lower returns, and the coercer frequently emerges with a permanently weaker position than before the card was played. So, if the Hormuz card has already been played and is delivering diminishing returns, what options remain for Iran? The most consequential unused or underused lever is a more systematic campaign against Gulf energy production itself. Not merely the shipping lanes, but the oil fields, gas fields, processing plants, refineries, and downstream industries that turn crude and gas into fuels, petrochemicals, fertilizers, and other products. Iran has already struck these targets at meaningful scale earlier in the conflict. For example, the gas field Ras Lafan in Qatar, facilities in Saudi Arabia and Kuwait, gas plants in the UAE, and others. The damage was real and, in some cases, long-lasting. What has not yet been fully attempted is a sustained multi-country effort aimed at lasting destruction of production capacity rather than intermittent disruption. Other potential levers exist. For example, intensified proxy activity beyond current levels, cyber operations against energy control systems, greater pressure on Bab el-Mandeb in coordination with the Houthis, maybe residual nuclear signaling, or heavier and more persistent strikes on U.S. bases, or critical non-energy infrastructure such as desalination plants, power generation, and ports. Each of these retains some coercive potential, yet the same structural logic that is eroding the Hormuz leverage applies to these as well. Further large-scale use would accelerate the very responses that reduce their effectiveness. Every additional kinetic card used raises the incentive to neutralize it. At the same time, the regime is operating under continuous economic pressure. The U.S. naval blockade on Iranian ports, tight enforcement against oil export, and the broader operation economic outcast just declared by Scott Besant constrain revenue and the ability to replenish stocks or sustain high-intensity operations over time. Escalation while under this economic siege increases the cost and shortens the runway. The open question is how many more cards the Iranian regime is prepared to burn and at what long-term cost to its own position. The battle for the strait is not the entire war. It has, however, illustrated a recurring feature of strategy. Geographic and resource levers look most formidable while they remain latent. Once put into continuous action, the offense set in motion the forces that ultimately reduce their power. That's it for this episode of Global Risk Profile. If you found this useful, thoughtful, or just different, please subscribe, share, and leave a review. Remember, the headlines may change, but the deeper patterns rarely do. Thanks for listening, and stay sharp.