The 1963Macro Iran Series has been tracking the conflict since before the first projectile was released in 1Q26. In the course of this analysis, many criticisms of the United States administration’s approach to the conflict have been rendered — with most of those critiques aging well. It would be easy, based on that commentary, to assess that the United States will fail. Or, at best, that it conducted a seemingly haphazard campaign aimed at “solving a problem” that previous administrations didn’t want to address or prioritize. Viewed that way, the current administration at minimum put forth significant effort toward solving the “problem” that has bounced around the American media landscape for decades — even if victory is billed as elusive or unobtainable based on much of the legacy media’s coverage of the conflict.
It is here that I need to be plain before we pivot ahead of your mainstream news cycle. I am an American. America is an institution, not a person. It is the bastion of many things. I will criticize American leadership without hesitation as my interests lie in the broader wellbeing of that institution - not a single person. Plus, when you do Capital Markets, what matters is “what is” — not what someone says it is or wants it to be. On that basis, this Bayesian Brain followed the data where it led and for much of this conflict it led to a negative outcome for the United States and allied nations. I share this as a frame, context, and also as a takeaway for you as a valued reader: set your ideology aside and follow the data and reality if you are attempting to accurately assess outcomes on a probabilistic basis. Challenge your thesis. Be comfortable with outcomes that aren’t what you want when you can’t do anything about it. See the stage as it is, and not in a vacuum or through the lens of desire.
We’ve done that here and we did it up front. The base case that any deal is null absent it directly occurring with the IRGC has held up for six months — and holds today. There is no credible or OSINT reason to believe that it will change, now. The IRGC is exceptionally resilient, deeply religiously motivated, and will endure significant suffering to ensure their mission is not ended - Iranian people be damned. This is what made President Trump’s optimistic remarks, ongoing social media warfare, and misdirection all symptoms of a failed strategy. The IRGC isn’t going to buckle because of an AI generated image — and they have not. Plus, President Trump has effectively torched his credibility on the topic of Iran for thinking people or close observers. That isn’t good for any politician when analysts have to read way around the bend and discount the “leader of the free world.”
However, remaining disciplined to process, just as we have highlighted perceived operational blunders we have to acknowledge when the landscape has changed.
It has.
The United States, for all of the approaches it has taken, now holds the upper hand on the waterway that has defined this war. No, it does not have a “full open Strait of Hormuz”, insurance is not peacetime. and definitional “freedom of navigation” has not been restored. What it does have is control of throughput under protection: ships are moving, volume is rising, and Iran’s advertised “closure” is no longer the binding constraint. Iranian coercive control of Hormuz has been dramatically eroded. With continued U.S. engagement, that control is dying. That is now the board. And all of that got laid bare this weekend by the Iranians.
Here is what I mean by that, and an assessment of go-forward implications:
On Sunday, it was revealed that the U.S. conducted drone strikes on two IRGC missile launchers. These launchers were reportedly laden with mines that would be launched into Hormuz to reclaim the mine deterrence that the U.S. stated is eliminated. We won’t know what the intel was that led to this strike likely soon if ever, but it is the Iranian response that is the tell.
To begin, Iran has never denied attempting to lay more mines in Hormuz with these projectiles. Nor have they denied laying mines in the first place. The mine threat then is known-to-be-real, so a U.S. strike to thwart further activity of that ilk fits all observable patterns. A one-off U.S. strike to thwart further Hormuz disruption is not only exhibit A in the standard U.S. air-based playbook, but also matches reported threats.
Iran retaliated quickly but also in a more-or-less “equivalent” manner. The drones were allegedly launched from Jordan, so U.S. assets in Jordan were targeted, along with U.S. naval assets near Hormuz. Reportedly, those strikes had minimal impact. But, whether direct hits or duds, the direct Iranian retaliation stopped there. This is a tell.
Alongside that, the U.S. is now stating that nearly 7 million barrels per day of crude has been flowing out of Hormuz as a recent average — Strait volumes only, no workaround. That figure is consistent with the trader and official band of the last several weeks, and the direction of travel is up - all brought to you by U.S. air cover and defensive measures. In part, this is substantiated by what reads as nearly 24-hour USAF airborne refueling missions over the Gulf of Oman or the Persian Gulf over the course of the last month, paired with occasional sightings of an E-3 Sentry, drones, and what has been “normal” airlift activity for the conflict. The U.S. has been escorting ships out, and not a small number. This is why over a week ago, this publication noted you can stop counting Hormuz traffic for the moment. Traffic is flowing.
When the East-West line to Yanbu, Fujairah, and the SUMED path are included, collective Gulf crude reaching the market is closer to three-quarters of pre-war flows. Coupled with SPR draws and supply growth elsewhere, NATO-aligned nations are more-less serviceable on crude at the moment. Distillates are another matter, and that is not entirely a Hormuz story in its current state. The energy picture isn’t “all clear!”, but it is very far from “the U.S. failed and we are out of oil”.
Those claims were further backed today by the acknowledgement that a USAF F-35 that was actively providing air cover to ships transiting the Strait in the last 24 hours was fired on by an Iranian SAM. That both the U.S. and Iran acknowledged this point is another tell. It means that the U.S. has been providing air cover, and that Iran is shooting at that air cover — now. However, Iran had not been shooting at aircraft for some time, which suggests a capability problem — not a desire problem. The last round of U.S. strikes plowed the field to allow for U.S.-escorted transit of Hormuz by materially degrading the denial network such that Iran couldn’t strike ships or U.S. assets as effectively. Iran still put a few projectiles on ships during daylight hours or the few ships it could identify, but nowhere near hitting all of them. This combination of air cover and degraded Iranian missile or targeting capability likely led to a relatively quiet military operation providing escort and cover for crude-laden vessels — and it worked.
That is not an open strait. It is U.S. control of shipping under protection, at a volume that makes Iran’s claim of ownership demonstrably false. The Strait of Hormuz is no longer under full Iranian coercive missile control, and if present pressure holds it likely never will be again.
On the nuclear file, the United States retains optionality to drop extremely powerful weapons of its choosing on Iranian nuclear sites — just as it has already done multiple times. This does not mean the U.S. is preparing to use tactical nuclear weapons — a claim that is entirely fabricated by the media and not supported by any operational fact or observance. While this may make some people recoil, planning requires the understanding of all options on the table. That doesn’t mean you use all options, it means you have them. President Trump in this case, then, is right: we’ll address the nukes one way or another. For the moment, that file is largely entombed under a significant amount of rubble and constant sentinel coverage from Space Force, but “entombed” is not removed. The residual 60 percent stock and whatever centrifuge sets were moved before the winter campaign are the asterisk, but likely are not a sprint underway. If reconstitution were imminent, it would be struck or Israel would be saying so in public. It is not. The nuclear file is not closed but instead set aside as Hormuz and regime pressure become the primary focuses of U.S. and allied action.
Negotiation, then, yielded precisely the outcome that we have tracked for months: nothing. It was never going to. We won’t rehash what has been sliced many ways and lived to tell the tale, but instead simply note that President Trump has eschewed further negotiation, Iranian President Pezeshkian has effectively been silenced in his ability to speak of the hardships that should push the regime towards the negotiating table, and in a move that had the effect of chilling the civilian leadership diplomacy talk further, the IRGC abandoned surrender by attempting to re-mine Hormuz as outlined above. Pezeshkian still can’t make a deal unilaterally, and the IRGC still sees any deal as removing its power and coercive control. The IRGC is correct in their assessment of what a deal means. Thus, we do not have one, despite economic challenges.
Those economic challenges are now being exploited via Treasury Secretary Bessent and “Operation Economic Fury.” Secondary sanctions enacted, extreme threats levied globally, and a call to entirely cut off any economic activity with Iran or IRGC-related entities or people. Said plainly, complete denial of access to the dollar system. This pressure comes as Iran experiences high double-digit inflation, shortages, and meaningful isolation. The blockade adds the layer of primary income shuttering, further compounding the regime’s economic and internal woes. For Iran, it also means that any destruction absorbed becomes harder to rebuild, forces prioritization of the IRGC over the people, deepens the infrastructure hole that will now take decades to dig out of, and removes the benefit of FDI to help improve their energy production or broader economy.
This is economic strangulation when taken together with the blockade. Bessent does not appear to have fired his larger projectiles toward China aside from Hong Kong to date. That is less of a hole than it looks as a large share of the China money was oil exports and payment. Those loadings have largely been cut off by the blockade, so aggressively targeting Beijing does less work than it used to when the physical flow is stemmed at the gate. The United States has already signaled it knows where the remaining dollars live. That is unused optionality and creates deterrence if Tehran believes Washington will use it - a question that has not yet been answered.
Regionally, the tone and alliances have tilted against Iran. The Mecca Defense Alliance raised the cost of a direct IRGC strike on Saudi energy or territory. The MDA creates a scenario where Iran would theoretically have to address not only the Saudis and the U.S., but also Turkey — which has the second-largest military in Europe — and Pakistan. That pact is a threat today, not a completed tripwire. It has not priced the proxy channel to zero and Iranian strikes remain a significant threat that the IRGC may be wise not to test via state-on-state action. Do not forget the second motive: Erdogan would prefer the IRGC sequestered to Iranian territory as he seeks to spread Turkish influence in rebuilding Syria - a desire likely shared by the U.S. administration and to some degree, GCC countries. The net impact is that the largest oil producer just put a price on its energy apparatus that is expensive for the IRGC to buy if they are thinking practically. That weakens the largest piece of leverage the IRGC has left — using their missile and drone magazine to spread economic pain via aggressive attacks on GCC energy infrastructure. The boomerang now comes back around with increased mass.
Lastly, Iran’s internal temperature is warm if not hot. The majority of the Iranian population is facing material economic problems. These problems sow unrest as a not-inconsequential portion of their population are not religiously motivated — these are people who are trying to hold a job, feed a family, and keep a roof over their head - goals that are universally understandable by a huge swath of the humanity. None of that says endure extreme hardship so that the IRGC regime who has you in this position can keep you there. Iran has responded by executing “dissidents,” effectively forbidden dissent, and the Supreme Leader’s statement covered in a separate 1963Macro piece codifies unity around IRGC and the Supreme Leader’s priorities as clear and non-negotiable. Clamping down harder is the sign of a regime under stress or incapable leadership, not one who is in control and has earned genuine, broad-based support of its people. Genuine support is hard to penetrate, contrived obedience, less so.
On leadership, the United States and Israel did take the top of the chart. Go two layers down in any corporation, tell a junior VP they are now CEO, and you have problems. Seats got filled, sure, but that does not mean the machine functions as it did. That isn’t about Iran. It’s how organizations work. A degraded command can still fight. It typically cannot fight as the original org chart fought, at least for a period of time.
Taken collectively, the United States has wrecked Iran’s economy, degraded its conventional military, stripped two layers of leadership, broken cheap coercive control of Hormuz, put a regional defense pact on the table, created material internal problems, and left the negotiating table after it became clear negotiation simply was not going to bear the desired fruit — and it never was, as we have discussed.
So what’s the proof for all of that? Iran’s response.
Iran fired a relatively small salvo of missiles in response to the U.S. strike on the mine-laying missile launchers over the weekend. That is a major tell. Iran did not broaden strikes against the UAE, Qatar, or any other GCC member beyond Jordan. Earlier in the conflict, Iran would regularly fire missiles at any country it deemed “out of compliance” or “aiding The Great Satan.” No more. Iran’s economy is destroyed and it will factually take decades for them to rebuild in current state — if ever, absent material changes. Their ability to project power beyond missiles and drones is now effectively eliminated or sequestered when thinking regionally. The strategy of holding the GCC nations hostage now bears a very significant escalation cost. The U.S. owns Hormuz under the surface with submarines and UUVs. Space Force tracks everything in extreme amounts of detail (which is more true than most appreciate). Iran is simply not in a position to escalate when thinking all-in if their goal is to retain a functioning society. The United States, for as messy as the media and negotiation process was, now has Iran cornered and is winning this engagement in a notably decisive manner. Higher gasoline prices with mildly elevated inflation is the price Americans pay, but that price is absurdly low relative to the costs borne by the Iranian regime.
So why isn’t this conflict over then? The answer is simple: The IRGC is almost certainly not going to surrender. Period.
And that is seriously dangerous.
The IRGC is likely now in full-blown regime survival mode. If you’re the IRGC, gas lines, losing a couple of missile launchers, shooting some dissenters — these are annoyances when all of your remaining resources are going to fight the severely losing battle against the United States and allies. If Iran increases costs on the U.S. or allies, those costs will come back to them multiple fold — the framework to ensure that’s the case is active right now and immovable from Tehran’s perspective. Turning to history, regimes that have faced this position have two options: fold entirely, or fight to the point that defeat is undeniable. It is likely they choose the path of aggression, because it’s their only hope.
Strategically, Iran can attempt to turn the tide now by making the cost of the conflict too expensive, politically radioactive or problematic, or too stagnant to amass material support for continued Western pressure. This means attacking GCC energy, U.S. ships and bases, activating proxies against GCC members, unleashing cyber attacks, and activating cells or attempting to “globalize the Jihad” in an effort to push the United States out of theatre, allowing Iran to rebuild with (likely) Chinese and Russian backing in the absence of a U.S. Gulf presence. These levers remain intact or partially so. However, their coffers are nearing tank-bottom, their oil exports are running dry, and their ability to compensate combatants and fund kit is facing headwinds. War is expensive and breaking the bank mid-conflict is a problem. They are simply not in a position to finance a lasting offensive without creating other, significant problems despite their religious motivations to do so for any cost at the leadership level.
That’s the Western mind talking. In practice, the IRGC has shown it cares zero about any of the aforementioned headwinds. This is regime survival. In this scenario, being broke, broken, or having your disarmed population hate you remain annoyances, not reasons to stop fighting. Said another way, being broke can be temporary, being destroyed can be rebuilt, but being removed from power is lasting. The IRGC mission of safeguarding and pushing “pure” Shia Islam globally into perpetuity outweighs pain when “short term problems” could mean decades — which is meaningless when thinking on the scale of hundreds or thousands of years.
So, despite the U.S. being clearly ahead in this conflict and still retaining kinetic, economic, and diplomatic optionality to squeeze Iran harder if it so chooses, the IRGC likely remains defiant and more conflict is ahead, absent material changes in their calculus regarding what their role would be in the world and inside Islam going forward should they accept a deal - a deal that is likely beneficial for the Iranian people, but deeply damaging to IRGC ideological goals.
Perhaps this leaves us with a mixed message. On the one hand, it is objectively fair to say that the United States has conducted a successful operation using a varied toolkit to put Iran in this position. On the other, “victory” does not exist while the IRGC still holds the decision to keep fighting. In practice, the IRGC can hold this position for some time absent further U.S. escalation — or they can see the squeeze coming and act. That action may come sooner and more aggressively than most appreciate.
From here, the next steps will be decided by Iran. The United States seems to be chiefly concerned with Hormuz traffic, so we will likely continue to see U.S. presence near and around the Strait for the duration of this conflict if not for years to come. However, if Iran is as serious about Hormuz leverage or expelling the United States as it has stated it is, it will have no choice but to fight more, take more risks, escalate beyond its borders or the region, and accept that their attempts at increasing cost will almost certainly boomerang — but all of that is not nearly as big of a deal as when might think when the alternative is the elimination of your regime.
The United States has unused levers it could pull much harder and, as of this writing, has not. That is not absence of control, but is unused capacity. Iran faces regime collapse pressure and will likely eschew that pain for survival. That does not mean the U.S. isn’t winning. It means Iran is desperate. Desperate times call for desperate measures, which is potentially dangerous in a scenario such as this conflict.
Next time you see a headline that says the United States is not in control, has mismanaged this conflict, or doesn’t have options — you can solidly discount that as partisan uninformed noise. When Iran says it controls the Strait, that is also now demonstrably false. The U.S. can move ships at decent volume under protection. That is the upper hand, and it is gaining ground.
On the flip side, just because the U.S. is in that position does not mean this is over, nor does it mean the IRGC is unwilling to use the tools it has left to continue the fight for its — not Iran’s — existence.
Taken together, we should expect some form of escalation that likely starts somewhat small, and then we will find out if the IRGC is willing to fight existentially.
If that aggression expands, all sides may end up realizing that negotiations, deals, and normalization was the better path all along.
Disclaimer: This note is provided for informational purposes only and does not constitute investment, financial, or legal advice. The information contained herein is based on current market observations and analysis, which are subject to change without notice. All investments involve risk, including the loss of principal. We do not provide personalized recommendations, and readers should conduct their own due diligence or consult with a qualified professional before making any investment decisions.