Elizabeth Potts is an independent writer
On an early July morning, a neighbour in Dorset sat at his kitchen table, checking weather forecasts, grain futures and fertiliser prices across several market apps. This was not geopolitical cosplay but the reality of today’s farm management. If tankers stop moving through the Gulf, fertiliser prices rise, farmers plant differently and next year’s harvest begins to change. A threat issued thousands of miles away can reach a farm account before it reaches the evening news.
The farmer is taking part in an ancient story. Places where geography narrows and power gains a tollbooth have often shaped human history. Mountain passes, bridges, canals and straits funnel movement into spaces that can be taxed or closed. The cargo may vary, but the temptation to control it remains constant. Constantinople received grain through the Bosphorus. The Dardanelles controlled entry to the Black Sea. Suez shortened Europe’s route to Asia. Singapore prospered where the Indian Ocean meets the South China Sea. In AD 67, Nero broke ground at Corinth for the same reason. When a canal finally opened there in 1893, it was already too small for the ships of its age. Geography remained constant but technology had moved on.
Choke points concentrate the power to interrupt and they offer those who control them a choice. Custodians prosper by protecting passage, maintaining infrastructure and persuading merchants that goods will move safely. Reliability compounds; its worth rises with each merchant who maintains faith in the route. Gatekeepers sell uncertainty, as they need not close the road; merchants need only believe that they might. One who fears interruption has already paid in insurance, delays, convoy costs, stockpiling or political concessions. Procopius accused Justinian’s customs officials at the imperial straits of demanding payments with the appetites of pirates. The distinction has not improved with age. A custodian charges for a service. A gatekeeper seeks payment for eliminating a threat that he helped to create.
Repeated games teach a simple lesson: today’s decisions change tomorrow’s incentives. Where the same players meet repeatedly, reputation matters. Cheating once may sacrifice years of future rewards and strategic choke points are repeated games made geographical. Singapore became indispensable by making passage predictable. Merchants preferred routes protected by the Royal Navy, because cargo tended to arrive. Despite the republic’s efforts to squeeze monopolies wherever possible, Venice prospered because merchants could rely on the honour of contracts and the timely delivery of cargoes. By contrast, gatekeeping pays when today’s coercive advantage outweighs tomorrow’s reputational cost, when the costs can be outsourced to outsiders or when rulers value something more highly than future commerce. Pirates, corsairs and predatory states have always known that delay may be more profitable than destruction. The cargo need not sink. It merely has to wait. Today, the dilemma is more apparent at Hormuz than anywhere else.
Iran and Oman share the strait, but their strategies could not be more different. By mediating between governments unwilling to speak directly, Oman has amassed influence. Its diplomacy is no act of charity, but custodianship pursued as statecraft. In June, Muscat collaborated with the International Maritime Organisation on a temporary corridor, reiterating “freedom of navigation through the Strait without imposing transit fees”. Meanwhile, Iran increasingly treated vulnerability as an asset. Threats to shipping, selective attacks, proxy pressure and the prospect of controlled passage turned geography into bargaining power. Iran sought leverage because safe passage could no longer be assumed. The June memorandum briefly appeared to suspend this tendency. The White House dubbed it a “historic breakthrough” that “reopens the Strait of Hormuz to unfettered navigation”. Tehran viewed the same paper differently. Iran’s envoy to the United Nations reiterated that responsibility for reopening, de-mining and supervising navigation “rests completely with Iran”.
Both governments had signed the same memorandum but they believed they had agreed to different bargains. Washington saw unrestricted navigation restored. Tehran saw Iranian authority acknowledged. Oman kept an international channel open without tolls. The immediate risk premium fell, but the market still distrusted the arrangement. The disagreement was no trivial matter. It concerned the identity of the gatekeeper and when attacks resumed, the United States reinstated its embargo, and traffic fell again. On 16th July, only three vessels passed through Hormuz; no large crude carriers or liquefied natural gas tankers crossed for a second day. The bargain had not merely collapsed. The parties had never agreed on what it meant.
According to Thomas Schelling, “the power to hurt is bargaining power”. Iran does not need to close Hormuz permanently or to defeat the US Navy. Governments and insurers will only alter their conduct if Iran can make the threat of disruption credible enough. A mine, drone, or missile could damage a single vessel. Every successful attack reprices every vessel that follows. Western governments often treat these types of conflicts as purely commercial, exerting pressure and making concessions, but markets make their own calculation: when one route becomes too expensive, capital looks for another. Meanwhile, pipelines are being extended beyond the gatekeeper’s control.
Washington wants navigation restored. Insurers want risk priced. Oman wants reliable passage. Markets want predictability. Iran’s revolutionary regime may value resistance itself more highly than the commercial gains of stability, but economic hardship does not inevitably overwhelm ideological purpose; it competes with it. Iran’s top brass has repeatedly shown that it regards control over Hormuz as valuable leverage worth considerable sacrifice. Iran’s theocracy is not just seeking a larger share of the benefits, but also arguing against the rules, disputing with the referee and even challenging the other players’ existence.
Repeated games encourage restraint only when players value future cooperation and broadly agree on what counts as a reward. Calculations suited to a merchant republic cannot reliably deter a regime prepared to exchange income for ideological endurance. Trade moderates conflict only when both sides value future trade. It cannot reconcile actors who regard the destruction of the existing order as a political objective. For a state that prizes future commerce, custodianship is rational. A regime able to displace hardship onto its citizens, or present suffering as proof of revolutionary resolve, may find gatekeeping equally rational. Western policy too often mistakes ideological purpose for bargaining obstinacy, assuming that greater economic pressure must eventually produce compromise. It may instead reinforce the story the regime tells about itself.
There will be repercussions on these shores and others. The Gulf states handle about half of the world’s urea exports and a third of its ammonia exports. Typically, as much as 30 per cent of all traded fertilisers traverse the Strait of Hormuz. Natural gas plays an important role in the manufacture of ammonia. A maritime crisis drives up the prices of petroleum and nitrogen, two essential inputs for contemporary farming. Oil from the Gulf is exported in two forms: first, in tankers, and second, as fertiliser. Before the full impact on food prices was felt, the Food and Agriculture Organisation issued a warning that decisions would have to be made because of the protracted interruption. Farmers would have to choose “whether they plant the same or if they plant less”, as Máximo Torero, its top economist, put it bluntly. The sequence is brutally mundane. Deliveries slow, fertiliser prices rise, growers reduce inputs or switch crops, production falls and food prices climb. The missile vanishes from the front page long before its effects leave the supermarket.
Every gatekeeper eventually encounters the same irony. With each effective threat, the desire to flee grows. Saudi Arabia is considering expanding its pipeline capacity to reach the Red Sea, while the UAE is expediting exports through Fujairah. Governments reassess reserves, businesses search for new suppliers, and investors finance alternative routes. The gatekeeper wins today’s round while consuming the asset that made victory possible, that is, everyone else’s dependence. Every successful gatekeeper destroys a little of his own gate. Capital turns coercion into a commercial argument for escape. To make deterrence work, one must combine punishment and denial. Naval power, sanctions and credible reprisals raise the cost of coercion. Alternative routes, diverse supplies, strategic reserves, and redundant infrastructure reduce the reward. Punishment says: you will pay for closing the gate. Denial adds: you will gain less than you expect.
Adam Smith understood the hierarchy: “Defence, however, is of much more importance than opulence.” The invisible hand does not patrol sea lanes or clear naval mines. Advocates of free trade should abandon the myth that commerce protects itself. Governments must keep routes open, punish coercion, and reduce dangerous dependencies. The aim is to make custodianship more rewarding than gatekeeping, and gatekeeping more expensive than restraint. That requires something sterner than hoping that greater prosperity will bring every regime around to our way of thinking. For some states, trade is a bridge. For others, it is a vulnerability or a form of dependence to be resisted. Trade reinforces peace when governments prefer exchange to destruction. It cannot manufacture that preference.
The Dorset farmer cannot clear a minefield or escort a tanker. He can only decide whether to plant less wheat, buy fertiliser before prices rise again or gamble next year’s margin on this year’s diplomacy. The missile disappears from the headlines long before it disappears from the farm accounts. The threat is issued at sea, but the tribute is collected from the field.
What we’re reading
A salary-utory lesson. Over at CapX, our own Len Shackleton has argued that the Government’s proposed requirement for employers to publish salary information in job advertisements is likely to reduce labour market flexibility rather than improve it. Mandatory pay disclosure would make it harder for employers to tailor offers to individual candidates, increase wage pressures from existing staff, discourage recruitment, and lead to reduced productivity and job creation.
What Bertie Wooster did next. Stephen Webb has taken to his Substack to suggest that downward social mobility is often more historically significant than upward mobility. Declining status can generate powerful political and cultural consequences. Frustrated elites and economically pressured groups have long fuelled revolutionary and populist movements, from the Jacobins to twentieth-century dictatorships. Fans of Agatha Christie and Evelyn Waugh will enjoy.
Musk matters. Economic Affairs readers should look at Elon Musk’s interview with The Economist. The article focuses on the world’s richest man’s views on artificial intelligence, arguing that these predictions both reveal the extraordinary potential of AI and the world’s lack of preparedness for its consequences, making humans powerless but promising limitless abundance. Is humanity racing ahead in developing AI capabilities without knowing how to manage it properly?
General disaster. Sticking with AI, Edward Stringer writes over at Engelsberg Ideas that the age of the “genius general” – those exceptional military commanders whose personal brilliance could change the course of wars – is coming to an end. In the age of AI, precision weapons, cyber warfare, logistics networks, and large-scale industrial weapons, success relies on institutions and technology not the exceptional talents of a Napoleon or Alexander the Great.
Decade dilemma. For The Telegraph, David Frost, often of this parish, has made the case that Andy Burnham’s promise of a 10-year plan for Britain risks repeating the mistakes of traditional long-term government planning. He presents his own, based on markets, incentives, and institutional reform. Rather than embrace Burnham’s vision of an interventionist state, Britain needs a free-market approach that prioritises creating the conditions for economic growth.