Let me get this strait: the Iran-war escalation risk

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0:52Gregg Carlstrom:The Economist

0:59Gregg Carlstrom:Hello and welcome to The Intelligence from The Economist. I'm Jason Palmer. And I'm Rosie Bloor. Every weekday, we provide a fresh perspective on the events shaping your world.

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1:50Gregg Carlstrom:First up, though.

1:59Gregg Carlstrom:Donald Trump needs a hand. As America and Israel continue bombing hundreds of Iranian targets, Iran is firing back at Israel and at Gulf states, targets military and civilian. But the real focus isn't what's on land. It's on the water of a narrow strait, through which about 15 % of the world's oil is shipped. Or was, until Iran's threats caused a de facto closure. Mr. Trump wants badly to open it back up. He says he's in talks with several unnamed governments about help with naval escorts through the strait. Those who are saying anything, like Australia and Japan, are saying, nope, not us. In one of his signature pronouncements, both vague and sinister, Mr.

2:45Gregg Carlstrom:Trump most recently said it would be very bad for the future of NATO if the alliance didn't help out. This impasse over the impassable could make for a far wider conflict.

2:58Jason Palmer:In many ways, this feels like a war over the Strait of Hormuz at this point.

3:05Gregg Carlstrom:Greg Karlstrom is a Middle East correspondent for The Economist.

3:08Jason Palmer:The Trump administration, by all indications, did not expect that the strait was going to shut the way it did. It's scrambling to come up with a response, but it doesn't have any easy options to reopen the strait. And so this dilemma, this standoff over the waterway may lead the president to consider some very risky escalation elsewhere in the Gulf.

3:32Gregg Carlstrom:But do you have any sense as to why the Trump administration did not expect that to happen in Hormuz? It's a strategic vulnerability, not unlike the Red Sea Strait, attacked by the Houthis for years now with similar kinds of market conniptions.

3:45Jason Palmer:It's a very clear vulnerability, and it's one that planners at the Pentagon have been thinking about for decades. But I think the Trump administration just didn't take the possibility seriously. They thought this war was going to end quicker than it did. They were imagining perhaps a Venezuela-like scenario or perhaps a situation where the regime simply collapsed. We saw mass protests and popular unrest. And none of that happened. And so I think it's just the case of the political folks in the administration not giving credence to the warnings that they received from the Pentagon, from military planners who did expect this as a possible scenario.

4:24Gregg Carlstrom:So talk me through the options here, both for America trying to change what is now the status quo and Iran's options.

4:32Jason Palmer:So when we talk about the strait being closed, we're not talking about Iranian naval ships imposing a physical blockade, cutting off the waterway. What's happened is Iran has threatened vessels, warned them not to transit the strait, and it's carried out a number of attacks on ships both in the strait and elsewhere in the Persian Gulf using missiles, drones. It hasn't carried out a huge number of those attacks, but just the threat of being attacked is enough to scare off shippers and insurers. And that's one problem for America when it tries to wrench open the strait, is that it just doesn't take much.

5:12Jason Palmer:If Iran can continue carrying out an attack every week or something, that is probably enough to maintain a de facto closure of the strait. That's one problem for America. The other is just simply the geography of it. The strait is only 54 kilometers wide at its narrowest point. It's very mountainous terrain on the Iranian side. So when you're sending ships through, if Trump manages to stand up these naval escorts that he's been talking about and pressuring other countries to join, if Iran were to try and strike at those convoys, you only have a few seconds to respond.

5:47Gregg Carlstrom:And you hinted darkly at escalation elsewhere. What do you mean by that?

5:52Jason Palmer:For some reason, Donald Trump has had a fixation for almost half a century with Harg Island, which is a very small wedge of land off Iran's coast in the Persian Gulf that is home to Iran's main oil export terminal. Something like 90 % of its oil exports are processed on Harg Island. One thing we know about Trump is that the things he was obsessed with in the 1980s tend to still be fixations of his today. And sure enough, over the weekend, he ordered American strikes on Iranian military positions on Khark Island. The oil terminal was not touched, which Trump said was done for reasons of decency.

6:32Jason Palmer:But there's a belief that this may have been the U.S. trying to soften up Iranian military positions on the island in advance of potentially trying to seize it. And how would that go if that is in fact America's plan? I think America could certainly take the island. It's moved a marine force that's trained to do exactly this sort of mission from Japan to the Middle East. But what happens next? American troops would have to hold this very tiny piece of land that is within easy range of missiles and drones fired from the Iranian mainland. And then what do you do with it? Maybe you try to hold it in the hope that you can use it as leverage to pressure the regime into making a deal.

7:14Jason Palmer:He cut off its oil exports, he cut off its main source of hard currency. But the regime has proven very, very stubborn, not just during this war, but in years of negotiations with the United States. And I'm skeptical that they would be willing to cut a deal even if the US sees the island. Meanwhile, oil markets are not going to like this. Trump wants to get oil prices down, but by seizing the island, he may end up at least in the short term doing the opposite.

7:41Gregg Carlstrom:And about the short term and what the rest of the region is doing, what other means do countries have to move oil now that the Strait of Hormuz is pinched?

7:48Jason Palmer:Oil markets would be in a much worse position right now if it wasn't for two partial workarounds that exist in Saudi Arabia and the UAE to bypass the Strait. The Saudis have what's known as the East-West Pipeline, which takes oil from where it's produced in the eastern part of the kingdom to its ports on the Red Sea in the West. It can move about 7 million barrels a day, which is two thirds of Saudi oil output. And then there's a similar pipeline in the UAE, which connects to the port of Fujairah on the east coast of the Emirates that's outside the Strait of Hormuz. It can move about half of the UAE's 3.6 million barrels a day of production.

8:28Jason Palmer:So it's not a complete solution, but nonetheless, it's allowing some Gulf oil to flow. And so sure enough, we've seen the Iranians over the past few days already begin to step up their efforts to target both oil facilities in Saudi Arabia and the port in the UAE that is working.

8:47Gregg Carlstrom:So whatever workarounds there are, the wisdom here is that Iran is going to try to disrupt those as well.

8:54Jason Palmer:I think it will. If the strategy here for Iran is inflict economic pain on the region and on the world to compel America to stop fighting and to deter it from attacking in the future, if closing Hormuz isn't enough to achieve that goal, then you need to escalate further. So the past few nights, there have been dozens of drones launched at oil facilities in Saudi Arabia. On Saturday, There was an attempted drone strike on that port of Fujero. Iran could try and hit the pipelines themselves. They're narrow targets, but long ones. And then there's also a concern that they might ask the Houthis in Yemen to resume their attacks on commercial shipping.

9:35Jason Palmer:If you look at a map of shipping traffic right now, there are dozens of big tankers redirecting from the area in the Indian Ocean and the Gulf of Oman. they're heading towards the Red Sea to collect oil from that Saudi port that is operational. If the Houthis were to take, I think, even one shot at one of those vessels, it would probably scare many of them off. It would send oil markets into a panic. The consequences of that would be quite severe.

10:01Gregg Carlstrom:And we get closer to the thing that has been hinted at from the start of this war is that it becomes a regional one rather than a U.S.-Israel-Iran war.

10:10Jason Palmer:All of the Gulf states have been pretty clear, either in public or in private, that they regard serious attacks on their oil infrastructure as a red line. The Saudis have said that publicly, that they would get involved in this war themselves if Iran were really to damage their oil infrastructure. And so I think that's the dilemma on both sides here. The Americans are trying to find a way to open the strait and push down oil prices, but they don't have any easy options to do that. Trump is going to consider escalation on Khark Island or elsewhere. The Iranians have managed to disrupt energy markets, but again, they haven't managed to stop the war.

10:49Jason Palmer:And so that might lead them to escalation as well. Both sides, the incentives here are pushing them to widen the conflict. Greg, thanks very much for speaking to us. Thank you, Jason.

11:38We'll be right back. Just saying. Get$50 off your first two orders plus free shipping with code STIR50. Terms and conditions apply. Visit blueapron.com slash terms for more. If your eyes are the windows to your soul and your glasses are the windows to your eyes, then it's pretty important to find your perfect frames. That's why at Warby Parker, we've made shopping for eyewear as easy and fun as can be. Peruse endless styles in our stores or use our app to virtually try on frames and get personalized recommendations. To find your next favorite pair of glasses, sunglasses, or contact lenses, or to locate your nearest Warby Parker store, head over to WarbyParker.com.

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12:25The Spring Festival Gala is an incredibly important event in China. It takes place on the eve of the Chinese New Year. It's a showcase of everything the Chinese government wants people to see.

12:38Gregg Carlstrom:Don Wineland is our China business and finance editor. The centerpiece of this year's event was humanoid robot dancers, and there were several different routines that featured them. There was one where they were brandishing swords and flipping around on stage with actual human dancers alongside them. It was very impressive to watch. The message was very, very clear this year that humanoid robots are the thing to be watching.

13:09Gregg Carlstrom:So what we're to take from this is that the Chinese government wants to point out that humanoid robots are very much a thing in China at the moment. That's right. So in 2025, deliveries of humanoid robots was up by four times over the previous year. There's about 14 ,000, 15 ,000 of them that have been delivered. Recently, I was in a robot rental service company and had the pleasure of chatting with one of these robots. Hello, can you speak English? Yes, I can speak English. How can I assist you today? What do you like to do in your spare time? I enjoy sports like lifting weights and playing with vehicles such as scooters, hoverboards, bicycles, and go-karts.

13:57Gregg Carlstrom:But tell me about the industry, though, Don. Is this just one superstar state-backed company that's making all these things? So last year, during the Spring Festival Gala, there was one Chinese humanoid robot maker that was featured. It's called Unitree. This year, there were four of them that were able to feature their humanoid robots on stage. There are many, many companies that are actually producing humanoid robots. We think that there's about 100, maybe 120 that are selling these human-looking things. And then there's thousands and thousands of companies that are producing the parts of the robot.

14:35So China's supply chain is really humming right now and delivering up all of the components that need to go into these things.

14:42Gregg Carlstrom:So in that sense, it's a broader business story than just about the companies that are making the finished product. Absolutely. And I have the pleasure of living essentially at the center of this supply chain. So I live in Shanghai. Shanghai itself and many of the surrounding cities are probably the world's most robust supply chain for humanoid robotics. If you look at the number of Western companies that are actually selling robots at this point, there's not very many. So Tesla is creating this robot called Optimus, and it's shipped an estimated 150 units. And it's also worth pointing out that Optimist sources many, many of its parts from the cities around where I live.

15:21I took a trip to the city of Changzhou, which is an hour north of Shanghai by high-speed rail, and went to this specific district called Wujing District. And when you're talking with the companies that are supplying the parts for humanoids, they like to talk about how 90 % of what you need to make one of these humanoids can be sourced just from that district alone. One really interesting thing about what's going on here is if you were to go to these same places, these same manufacturing districts 10 years ago, a lot of these companies already existed, but they were making parts for the EV industry.

15:55And what's happened over the past five years is many of these companies have transitioned to creating parts for humanoid robots.

16:03Gregg Carlstrom:So that's a snapshot of the makers of these things. Who are the buyers? It's not clear who has bought these 14 ,000 or 15 ,000 robots that have been sold in China this year. But it seems like, from what people are saying, that local governments are one of the biggest buyers at this point. But to do what? I mean, so far you've only mentioned sort of dancing, chatting, that these things must have presumably an intended industrial use. One would think so, and that is the goal years from now. But at this point, they're really only for entertainment purposes. So perhaps a coffee shop might want to rent one and have it greet customers as they walk in.