US-Iran Deal Could Put Freedom Of Navigation At Risk Worldwide – Analysis

July 5, 2026 

 SIPRI
By Dr. Pierre Thévenin

Key Takeaways

US-Iran Deal May Undermine Freedom of Navigation — The Islamabad Memorandum’s wording (especially Paragraph 5) could allow Iran to impose tolls or restrictions on shipping through the Strait of Hormuz after the 60-day period, violating the non-suspendable innocent passage regime under international law.

Broader Global Implications — A US concession on Hormuz could weaken America’s long-standing commitment to freedom of navigation worldwide and embolden other states (e.g., China in the South China Sea or Russia in the Arctic) to impose similar restrictions, threatening global trade and supply chains.

Europe’s Potential Role — With possible US retrenchment, the EU should step up as a stronger defender of freedom of navigation through diplomatic protests, legal documentation, and expanded naval operations (building on models like ASPIDES and ATALANTA).

Analysis

On 17 June Iran and the United States signed a memorandum of understanding that is intended to pave the way for ending the war between them that started on 28 February this year with a wave of US and Israeli strikes on targets across Iran. Although the agreement now looks very fragile, the wording of one critical paragraph of the so-called Islamabad Memorandum suggests the USA might allow Iran to restrict freedom of navigation in the Strait of Hormuz permanently as part of a final peace treaty. If it does, this could have economic, political and legal repercussions far beyond the Gulf region.
The Strait of Hormuz under international law

The Strait of Hormuz connects the Gulf (often referred to as the Persian Gulf or Arabian Gulf) to the Gulf of Oman. As a consequence, all marine traffic between the Gulf—which includes the entire coastlines of Bahrain, Iraq, Kuwait and Qatar, as well as many ports of Iran, Saudi Arabia and the United Arab Emirates—and the rest of the world must pass through it.

The strait is around 21 nautical miles wide at its narrowest point and lies between Iran to the north and the Omani exclave of Musandam to the south. Because the strait is used for international navigation, the legal regime of ‘non-suspendable innocent passage’ applies within it. This means that neither Iran nor Oman can hamper the passage of any ship passing through the strait on its way to or from any other Gulf state’s port, as long as this passage is peaceful, continuous and expeditious. In contrast to the similar right of innocent passage that applies in the territorial seas of any coastal state, it cannot be suspended for any reason, according to international law.

The non-suspendable innocent passage regime in the Strait of Hormuz derives from international customary law, as first recognized by the International Court of Justice in the 1949 Corfu Channel Case. This is because Iran is not a party to the 1982 United Nations Convention on the Law of the Sea (UNCLOS).

As coastal states, Iran and Oman have the right to, among other things, establish laws regarding the safety of navigation and the regulation of maritime traffic, as well as the protection of the marine environment in the Strait of Hormuz. However, these laws should not have the practical effect of preventing or interrupting innocent passage through the strait.

Potential changes under the Islamabad Memorandum

The Islamabad Memorandum contains specific provisions regarding navigation through the Strait of Hormuz. Paragraph 5 states:

Upon the signing of this MOU, the Islamic Republic of Iran will make arrangements using its best efforts for the safe passage of commercial vessels with no charge, for 60 days only, from the Persian Gulf to the Sea of Oman and vice versa …

This somewhat ambigous language arguably allows Iran to impose a toll on ships passing through the strait after 60 days (by which time a final deal should have been negotiated, according to paragraph 3). The imposition of such a toll would have the practical effect of rendering innocent passage conditional, and would thus contravene the non-suspendable innocent passage regime in the strait.

Paragraph 5 goes on to state that Iran and Oman will conduct dialogue

to define the future administration and maritime services in the Strait of Hormuz in discussion with other Persian Gulf littoral states in line with the applicable international law and the sovereign rights of coastal states …

Despite the affirmation that the administration of the strait will be conducted ‘in line with the applicable international law’, there is reason to be cautious. For example, according to both Oman’s declaration on its 1989 ratification of UNCLOS and Iran’s domestic law, prior authorization is required for warships to sail through their territorial seas. If Iran and Oman decide to administer the strait in the light of their understanding of international law, they could substantially curtail the right of innocent passage for warships. As the USA has pointed out several times, there is no basis for limiting the right of innocent passage in this way under current international law.

A shift in US foreign legal policy?

The US signature of the memorandum is as significant as the content of the document itself because it potentially signals a shift in US foreign policy. The USA has long been one of the most ardent champions of the freedom of navigation, despite not being a party to UNCLOS. In the Strait of Hormuz alone, the USA made diplomatic protests and operational assertions against Iranian attempts to restrict freedom of navigation 12 times between 1983 and 2011.

The USA entered World War I partly to safeguard the rights of US shipping on the high seas. Since the end of World War II, it has consistently carried out missions designed to assert freedom of navigation and the right of innocent passage for its ships against the claims of various states, from the Arctic in 1960s to the South China Sea in more recent times.

During the negotiations for UNCLOS, the USA collaborated closely with France, Japan, the Soviet Union and the United Kingdom to ensure that the final text safeguarded freedom of navigation, whether on the high seas or through territorial seas or straits used for international navigation.

Since 1979 the USA has implemented a Freedom of Navigation programme, dedicated to safeguarding freedom of navigation throughout the world. This programme challenges ‘excessive maritime claims’ asserted by other states (including US allies), both through consultations and diplomatic representations and ‘operational assertions by US military forces’. The US Department of State includes all challenges relating to freedom of navigation in its Digest of the United States Practice of International Law.

The language of paragraph 5 of the Islamabad Memorandum already suggests a significant weakening of this US commitment to freedom of navigation. If the USA ratifies a final peace treaty that allows Iran and possibly Oman to restrict freedom of navigation through the Strait of Hormuz—for example by imposing a toll—it would effectively be conceding that the right of innocent passage through straits used for international shipping, and by extension other international legal norms guaranteeing freedom of navigation, can be modified by coastal states resorting to violence.
Broader implications for freedom of navigation and maritime trade

Such a concession would not bode well for freedom of navigation. The USA has been the most powerful supporter of freedom of navigation in recent decades, with both the means and the political will to stand up for it when it has appeared to be under threat. The wording of the Islamabad Memorandum already dents its credibility in this regard.

If the final deal allows Iran to limit the right of innocent passage in the Strait of Hormuz, it could embolden others states that wish to limit freedom of navigation through maritime expanses they consider theirs, such as China regarding the South China Sea or Russia regarding the Arctic Straits along the Northern Sea Route. It would send a message that international legal norms can potentially be modified through military means and that the current US administration will allow it to happen in order to save face.


All this has major practical and political implications as freedom of navigation is the bedrock of the global economic system. More than 80 per cent of internationally traded goods are transported by sea. The impact on global oil prices of Iran’s effective closure of the Strait of Hormuz in recent months has starkly illustrated the potential consequences of limiting freedom of navigation.

Similar challenges to freedom of navigation, especially in another strait used for international navigation such as the Strait of Malacca (the main shipping channel between the Indian and Pacific oceans), could further strain supply chains, drive up the price of imported commodities, including critical materials, and thus contribute to instability and economic volatility.

A new role for Europe?

If US support for freedom of navigation is weakening, that leaves the European Union (EU) and its member states as its strongest guardians. Even in their sometimes dramatic actions to curb the Russian ‘shadow fleet’ and ensure safety of navigation in European waters, the EU and individual member states have always acted in accordance with international law. They should now be ready to expand their role in protecting freedom of navigation.

As part of this, the EU and individual member states could, for example, be more vocal and more systematic in denouncing excessive maritime claims that erode freedom of navigation. This will be crucial to avoid the formation of an alternative customary legal regime through tacit acceptance of state practice.

The EU should consider creating a European Digest of International Law Practice, modelled after the US one—perhaps through the European External Action Service’s maritime security division. This could collate and publish contributions and positions from member states in one volume. The EU could use this as a tool to promote respect for international law and increase Europe’s influence, which would make it better able to defend the liberal international legal order at sea.

In addition, EU member states could consider developing new and expanding the scope of existing EU naval operations to further strengthen the protection of freedom of navigation in maritime regions of critical importance for the EU in the Middle East, and perhaps elsewhere. The EU could follow the model of its European Naval Force (EUNAVFOR) operation ASPIDES—which is designed to safeguard freedom of navigation in the Red Sea, the Gulf of Aden and maritime regions adjacent to the Strait of Hormuz—to expand the mandate of operation ATALANTA, which is designed to fight illegal activities and promote deconfliction in the western Indian Ocean and the Gulf of Aden, and develop similar operations as required.

By taking these steps, the EU would demonstrate that it is committed to freedom of navigation and has the political will to safeguard it in practice, at least in some parts of the world.

About the author: Dr Pierre Thévenin is a Researcher with SIPRI’s European Security Programme and an international technical expert for Expertise France.

Source: This article was published by SIPRI


About SIPRI
SIPRI is an independent international institute dedicated to research into conflict, armaments, arms control and disarmament. Established in 1966, SIPRI provides data, analysis and recommendations, based on open sources, to policymakers, researchers, media and the interested public. Based in Stockholm, SIPRI also has a presence in Beijing, and is regularly ranked among the most respected think tanks worldwide.
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The Chancellor, the Asset Manager, and the Missiles

by Thomas S. Karat | Jun 30, 2026 | 

There is a particular kind of arrangement that no law forbids and no scandal quite captures, because nothing in it is hidden. It sits in plain view, in regulatory filings and procurement requests, and it works precisely because everyone involved can say, truthfully, that they broke no rule. Friedrich Merz’s Germany is building one of these in real time.

Start with the weapons. In July 2025, Defense Minister Boris Pistorius told Washington that Germany wanted to buy the American Typhon launch system and Tomahawk cruise missiles — the system’s first foreign sale, the decision left entirely to the United States. Trade outlets, citing Politico, put the order at three launchers and some 400 Tomahawk Block Vb missiles, north of €1 billion. Nearly a year later, Washington has not answered. The request stalled after Merz criticized the American war on Iran and Trump pulled 5,000 troops out of Germany and canceled a planned long-range-fires deployment. Europe’s would-be military leader, it turns out, cannot get deep-strike capability without American factories and a president’s goodwill. So much for sovereignty.

Now follow the money, because that is where the story actually lives. The Tomahawk is built by RTX, formerly Raytheon, where BlackRock sits among the largest institutional holders. The Typhon launcher is Lockheed Martin’s, where BlackRock has disclosed beneficial ownership above 5 percent in a Schedule 13G filed with the SEC. And BlackRock is where Merz spent four years before climbing back into politics: from 2016 to 2020 he chaired the supervisory board of its German arm. The man asking Washington to sell Germany missiles was, until lately, the public face of a firm that profits when the missiles are sold.

His time there was not quiet. In November 2018, while Merz chaired its supervisory board, prosecutors raided the Munich offices of BlackRock Asset Management Deutschland over cum-ex trades — the dividend-stripping fraud that drained the German treasury of tens of billions of euros. The conduct under investigation predated his arrival, prosecutors named him no suspect, and he called the practice “completely immoral” and ordered the firm to cooperate. Note the pattern all the same: this is a man who has spent his career adjacent to the machinery, never holding the smoking gun, always in the room.

Then came the policy. The fiscal lock came off before Merz was even sworn in. As leader of the election-winning CDU and chancellor-in-waiting, he drove through the outgoing Bundestag — on March 18, 2025, weeks before he took office, and deliberately before the newly elected parliament could convene — the amendment exempting defense spending above 1 percent of GDP from the constitutional “debt brake.” The borrowing limit Germans had treated as sacred since 2009 was gone, replaced by an open tap. German military spending rose 24 percent in 2025 to $114 billion, the largest in NATO Europe. Merz has pledged more than €750 billion for the armed forces.

And BlackRock holds the contractors cashing in. It disclosed a 6.91 percent stake in Rheinmetall, the tank-maker whose shares have soared since 2022, with the ownership chain running through the very German subsidiary Merz once chaired. It crossed the 5 percent threshold in the sensor firm Hensoldt. These are not idle positions. They are the firm collecting on a rearmament its former chairman set loose.

Merz, naturally, denies the whole framing. “I never accepted a lobbying mandate,” he told Die Zeit. The transparency group LobbyControl notes that BlackRock’s own description of his job included cultivating contacts with governments and regulators — which is what lobbying is, whatever euphemism rides on the business card.

This is how the war economy actually feeds itself. Not through bribery or secret cabals, but through a revolving door wide enough to drive a tank through, lubricated by the language of deterrence. The threat is real enough to justify the spending; the spending enriches the contractors; the contractors’ largest shareholders sit on both sides of the ocean; and the men who open the spending taps are drawn from, and return to, the same financial firms. Eisenhower warned about the acquisition of unwarranted influence by the military-industrial complex. He did not quite foresee that the complex would one day supply the chancellor.

And the spending does not even buy what it promises. Economists at the Berlin School of Economics argue that NATO’s headline targets are “a poor substitute for strategic prioritisation,” that pouring money in risks “increasing inputs while failing to strengthen security.” Spending is an input; deterrence is an outcome; and the gap between them is precisely where the contractors and their shareholders make their living.

Worse, the buildup manufactures the danger it claims to answer. SIPRI’s data show Russian military spending grew just 5.9 percent in 2025 — slower than Europe’s 14 percent surge. An arms race justified by the Russian threat is also an engine of it: every European budget hardens Moscow’s conviction that it is being encircled, which justifies its next budget, which justifies the next NATO target, around and around, while the men who profit count their dividends and call it security.

Merz broke no law. He simply spent four years learning, from the inside, how the largest pool of capital on earth profits from the policies he would later set in motion — and then went and set them in motion. The scandal isn’t any single transaction. It’s that the whole thing is legal.

Thomas Karat writes investigative work published at karat.substack.com and the Libertarian Institute, drawing on a corporate career and academic training as a behavior analyst to examine how institutions manufacture consent and influence.

The Hidden Cost of the U.S. Military: The Real Budget is Far Larger Than Reported

Gisela Cernadas, David Vine, and John Bellamy Foster

 June 23, 2026

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Columbia Class Ballistic Missile Submarine. Image: U.S. Naval Systems Command.

U.S. President Donald Trump has proposed a $1.5 trillion military budget for the fiscal year 2027, which would increase by 44 percent the acknowledged budget for 2026. While a roughly $500 billion increase would be unprecedented in modern U.S. history, the idea that the military budget only recently hit $1 trillion is incorrect. U.S. military spending has exceeded $1 trillion for many years. Adding $500 billion (and potentially $200 billionmore to fund war in Iran), as the president has proposed, would take the total military budget up to $2 trillion to $3 trillion.

A new report from the Project On Government Oversight (POGO), written by David Vine, John Bellamy Foster and Gisela Cernadas, argues that this widely reported number dramatically understates the true cost of maintaining the U.S. military. Using five different methodologies, the report estimates that total military spending in 2025 was between $1.5 trillion and $1.8 trillion and could be as high as $2.3 trillion when interest payments associated with military-related debt are included. The report concludes that the United States has been spending well above $1 trillion on military activities for many years, contrary to the common perception that this threshold was only recently crossed.

According to the analysis conducted by the POGO, the Hartung/Smithberger methodology produces the highest base estimate at $1,766,172,000,000, followed by the Wheeler approach at $1,727,634,000,000 and the figure reported by USAspending.gov at $1,717,989,509,643. The Cernadas/Foster and National Priorities Project methodologies yield comparatively lower base estimates of $1,494,236,125,000 and $1,477,081,000,000, respectively. When interest is incorporated, the totals increase substantially, ranging from $1,713,283,160,060 under the National Priorities Project methodology to $2,284,383,842,468 under the Cernadas/Foster approach. It should be noted that the National Priorities Project figure focuses on discretionary spending and excludes mandatory forms of spending; were the latter included, this estimate would align far more closely with the others.

Whether intentionally or otherwise, Congress, presidents, and the Pentagon have hidden the true size of the U.S. military budget for decades. Journalists, think tank analysts, academics, and other experts have, with rare exceptions, perpetuated the problem by reporting only a portion of true military spending; most are unaware of the costs they’re overlooking.

The problem with most conventional reporting is that there are hundreds of billions of dollars in military spending outside the Pentagon’s annual budget appropriated by Congress. Even a generally authoritative source of global military spending data such as the Stockholm International Peace Research Institute (SIPRI) underestimates U.S. spending by overlooking significant sums outside what Trump calls the Department of War and related budgets.

One major example is nuclear weapons spending, which represented around $33.5 billion in net spending for FY 2025. Although nuclear forces are controlled and deployed by the U.S. military, a significant portion of the budget for maintaining and modernizing the nuclear arsenal is allocated through the Department of Energy rather than the Pentagon.

Another large category of hidden spending involves veterans and military retirees. The costs of pensions, health care, disability benefits, survivor assistance, and other long-term obligations are primarily funded through the Department of Veterans Affairs and other federal accounts. These expenditures are direct consequences of maintaining military forces and fighting wars, yet they are typically excluded from military budget calculations.

Beyond veterans’ benefits and nuclear weapons, military-related spending can also be found within the budgets of the Department of Homeland Security, the Department of State, and several other agencies. Programs ranging from military aid to foreign governments to certain homeland security functions contribute to national military capacity but often fall outside official defence budget totals.

A major significant issue is debt financing. Since the wars launched after 11 September 2001, the United States has relied heavily on borrowing rather than taxation to finance military operations. For this reason, some refer to the post-2001 wars as ‘credit card wars’. While analysts disagree on how much of the national debt should be attributed to military activities, including these costs pushes 2025 military expenditures well above $2 trillion under some methodologies.

Despite differences in definitions and data sources used by the authors, all five methodologies arrive at a similar conclusion: the commonly cited military budget substantially underestimates what the United States actually spends on war, military forces, and related activities. This suggests that the issue is not a matter of partisan interpretation but rather the result of longstanding budget practices that disperse military costs across numerous federal agencies.

Understanding the true scale of military spending is essential for democratic accountability. Citizens cannot effectively debate national priorities if they are presented with incomplete information about how public funds are allocated. If major expenses associated with military activities are distributed across multiple departments, the public may struggle to compare military expenditures with spending on other priorities such as education, housing, infrastructure, health care, or climate resilience.

If the United States is already spending between $1.7 trillion and $2.3 trillion annually on military-related activities, proposals for additional increases should be evaluated against that broader fiscal reality rather than against the narrower Pentagon budget alone.

Unfortunately, there remains ambiguity about the full scale of military spending given the poor state of Pentagon accounting practices, including its inability to pass a financial audit. Members of the public and members of Congress need a full accounting of the military budget to analyse, discuss, and debate the proper size of military spending both on its own and in relation to other non-military funding priorities.

To provide accurate spending figures, Congress should reform its budgeting practices and provide a true total military budget that combines all forms of military and war spending in one place and one true total figure. Congress also should stop appropriating, and thus hiding, money for the military in other agencies’ budgets. Until Congress begins reporting accurate numbers, members of the media and other analysts should stop repeating incomplete congressional spending data and tell the public what the country is really spending on the military and war.

This article was produced by Globetrotter and No Cold War.

Gisela Cernadas is an economist at the Centre of Economic Development Studies, National University of San Martin, Argentina, and a Member of the No Cold War collective. 

David Vine is a fellow at the Transition Security Project and former professor of anthropology at American University. 

John Bellamy Foster is an emeritus professor of sociology at the University of Oregon.

LA REVUE GAUCHE - Left Comment: Search results for PERMANENT ARMS ECONOMY

 

LONG READ: The Post-Pax Americana Interregnum has already started

Empires tend to last about 100 years before they fade and fall. The Pax Americana is 80 years old and the signs that it has passed its peak are multiplying. A new interregnum has started and will bring several decades of tension, slower growth and possibily war. / bne IntelliNews

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By Ben Aris in Berlin June 11, 2026

Empires tend to last about a hundred years, and true to form the Pax Americana has passed its peak. What follows is several decades of instability and lower growth as the leading countries of the world vie to fill the void. The Interregnum has started. 

The Chinese, Dutch, Portugese and Briitsh empires all had their days of wealth and glory but they all faded and fell eventually. What usually follows is decades of instability, competition, increasing multipolarism and often major wars. Despite its might, the Iran war has already exposed the US as a paper tiger, albeit a well-armed one. 

How did we get here? It all started with the collapse of the socialist experiment at the end of the 1980s when 3bn communists joined 3bn capitalists to unite the world under a single ideology, maybe for the first time in history.

CapitalismOS 2.0 

The new countries installed a new operating system, CapitalismOS 2.0, and threw themselves into building a new system of peace and prosperity that can be divided into four major phases.

1990s: The collapse of Socialist experiments covered the economies of half the world and about 80% of its population. The first decade was taken up with installing new hardware: high quality, technologically advanced machinery developed in the West. Factories were modernised. Banks installed new IT systems. Fibre-optic cables overlays were put down to transform telecoms and communication. And trade logistics was built to cater to the burgeoning consumer demand. This was a golden era of globalisation and FDI as Global North companies rushed into to exploit vast new markets. But it was a hard time as the old system collapsed entirely, impoverishing anyone over 45 by destroying the socialist “cradle to grave” support system.

Noughties: By the second decade these markets began to flourish as machines whirled and cranked out never seen before goods. Investment into the hardware continued but now the emphasis shifted to installing new software to run the rapidly growing companies. Laws were overhauled. Arbitration courts were set up. Tax systems and labour codes were revamped. Market-based regulations were introduced. Capital markets were modernised and deepened. Retail flourished as market research, consumerism and advertising became a thing on the back of an emerging middle class. Local brands were born and raised, competing and then overtaking the multinational early entrants. The local market leaders began to move out of their home markets and expand regionally with an eye on eventually becoming global. IPOs at home and on foreign exchanges proliferated.

2010s: With economic success came the demands of geopolitical rebalancing as new countries wanted representation in global institutions. The new markets were putting on not just economic but military muscle. Russian President Vladimir Putin began a decade-long military modernisation programme in 2012 and China likewise has built up the PLA to the point where it is bigger than the US military. Both have developed hypersonic missiles, a class of weapon that the US has yet to develop. Increasingly they resented the West’s dual policy of trading with the new markets to make money, but lecturing them for illiberal values and punishing the reticent with sanctions. The demands for the multipolar world were born out of that rejection of the neo-colonial model that has ruled the world since the invention of the cannon and the launch of the spice ships. The most prominent example of these rising tensions was Russia’s invasion of Ukraine, when the US refused to accomodate Moscow's security demand of "never-Nato", and the festering trade war between the US and China.

2020s: What is happening this decade is that the Global South countries have moved beyond installing the Western software and are increasingly writing their own code. Traditionally, FDI brings technology transfer and skills. The idea is to bring emerging markets “up to the Western standard” but stop there. Today, the leading markets have already adopted the best in practice methods and are now moving beyond that to new and better systems. The rollout of China’s high speed rail network is a stunning example of this new operating system that surpasses anything in the "old world". Beijing's global leadership in green-tech and EV is another pragmatic example of leapfrogging existing technology. Solar panels were invented in Germany, but the last company, Meyer Burger, closed in 2024, crushed by superior Chinese technology. As these countries grew stronger, they started pushing back at the “unipolar” world order run by the US and tension rose. In Russia it came to a head with Russian Foreign Minister Sergei Lavrov’s “new rules of the game” speech in February 2021, where the Kremlin threatened to break off diplomatic and trade relations with the EU if it continued to interfere in Russia’s domestic politics with its dual policy of growing trade (like gas imports) and sanctions (over issues like LGBT rights).

East-West relations have broken down. As in any interregnum, supply chains have been disrupted. The EU believed it could sanction Russia with impunity, but discovered to its cost that Russia’s inputs – especially energy – were far more deeply integrated into the global economy than anyone calculated. The boomerang effect of sanctions on Europe are now doing more damage to European economies than they are to Russia. US President Donald Trump has only catalysed a process that has seen the old value system being abandoned and the long standing post-WWII transatlantic special relationship go up in smoke. That has led to an economic decline in the Global North that cannot be easily undone.

Empires

Period	Dominant Power / Order	Rough Dates
Pax Romana	Roman Empire	27 BC – AD 180
Interregnum	Fragmentation after Rome; competing European, Byzantine and Islamic powers	AD 180 – c.1450
Pax Mongolica	Mongol Empire secures Eurasian trade routes	c.1250 – 1350
Interregnum	Post-Mongol fragmentation; rise of maritime powers	c.1350 – 1494
Pax Portugana	Portuguese maritime dominance	c.1494 – 1580
Interregnum	Iberian Union and increasing Dutch challenge	1580 – 1609
Pax Neerlandica	Dutch commercial and naval dominance	c.1609 – 1713
Interregnum	Anglo-French rivalry; no clear hegemon	1713 – 1815
Pax Britannica	British naval and financial dominance	1815 – 1914
Interregnum	World Wars and unstable multipolar system	1914 – 1945
Pax Americana	US global dominance	1945 – present (arguably weakening since c.2008)
Possible Current Interregnum	Emerging multipolar system (US, China, India, EU, others)	c.2008/2020s – ?
source: IntelliNews

Past Paxes

Looking back over the last five centuries, the great pax periods of history — Pax Romana, Pax Mongolica, Pax Britannica and Pax Americana — were all associated with the dominance of a single hegemonic power.

And there is a clear pattern: the major maritime and commercial hegemonies each lasted roughly 80-100 years. Once they fade and fall, there is an unstable interregnum that can last decades, or even as long as a century, before a new dominant power emerges.

During the pax ("peace") the hegemon provides security and stability, allowing trade networks to flourish and financial systems that underpin the international order to grow. The currency of the ruling hegemon also tends to become the currency of choice for international trade and a change of hegemon is accompanied by a change in the dominant currency.

The first and longest of these was the Pax Romana, which lasted about 207 years from 27 BC to AD 180. After more than a millennium without a comparable Eurasian hegemon came the Pax Mongolica (c.1250-1350), which connected Asia to Europe for the first time along the legendary Silk Road for a century.

The modern era saw a succession of maritime and commercial hegemonies. Portugal dominated global sea routes for roughly 86 years (1494-1580), followed by the Dutch Republic, or the Pax Neerlandica, for about 104 years (1609-1713), which turned Amsterdam into the world's first modern financial centre. After a century-long period of Anglo-French rivalry, Britain emerged victorious from the Napoleonic Wars and established the Pax Britannica, which lasted 99 years from 1815 until the outbreak of the First World War in 1914 and coloured three quarters of the globe pink.

Following a 31-year interregnum marked by two world wars and the Great Depression, the United States established the Pax Americana in 1945. That order has now lasted more than 80 years – as long as the Portuguese, Dutch and British eras – but has now reached its zenith and is starting to fade.

Post Pax Americana

The interregna carry several identifiable characteristics. They are typically marked by increasing competition among major powers, weakening international institutions, regional conflicts, trade fragmentation and uncertainty over the rules of the international system.

Economically, interregnums tend to be less efficient than hegemonic eras. Trade becomes more politicised, supply chains fragment, capital flows become less predictable and states increasingly prioritise strategic industries and national security over pure economic efficiency. Inequality grows in the interregnum as those with access to power ring fence their access to wealth and entrepreneurship becomes more difficult. Politically and militarily, interregna are often periods of experimentation and contestation. Rising powers seek greater influence while established powers resist decline. 

All of these signs are already present.

Trade: thanks to the East-West rivalry, we are increasingly living in a fractured world. The liberal free trade regimes of globalisation have given way to the transactional world view, championed by the Trump administration. At the same time, even before Trump’s Liberation Day, tariffs have been weaponised amongst allies and sanctions play the same role for enemies as major markets become more protectionist.

Supply chains: the pandemic broke supply chains and then accelerated the process of “friendshoring” as politics increasingly interfered with what were purely commercial decisions.

Capital flows: the dollar has also been weaponised by sanctions on Russia, causing a shock to the system and accelerating the de-dollarisation of trade and its share of reserves basket holdings, especially amongst the global emerging markets. Large geographical patches of dollar-free trade have emerged between countries like Russia and China that now conduct all their trade in national currencies and this is spreading throughout Asia where the yuan is rivalling the greenback. Alternatives to the SWIFT messaging service are emerging such as China’s Cross-Border Interbank Payment System (CIPS) and Russia’s Financial Communications System (SPFS).

Strategic industries: industrial policy has also been politicised. The introduction of the US CHIPS legislation was an attempt to monopolise the highest echelon of technology, but backfired badly. China has invested heavily in green-tech and EV automotive production, using state subsidies to undercut Western rivals that has caused trade imbalances to blow out alarmingly in recent years – especially between China and Europe.

Export controls: these have also been weaponised, most notably in China’s decision to throttle exports of rare earth metals (REMs) to the US after Trump threatened to impose 125% tariffs on Chinese goods. Russia banned the import of European agricultural goods in 2014 in tit-for-tat sanctions following the annexation of Crimea. More recently the Kremlin also restricted the imports of Armenian agricultural goods after the country decided to move closer to the EU, abandoning its long-standing ties with Moscow.

Weakening international institutions: Amongst the clearest indicators that the post Pax Americana interregnum has started has been Trump’s active dismantling of international institutions. He has pulled the US out of 66 international institutions, half of them leading UN institutions at the heart of international rules based order – and he hasn’t paid the US’ International Monetary Fund (IMF) fees of $4.5bn, plunging it into a budget crisis. He also pulled out of the Paris Agreements for a second time, gutting the global efforts to reverse the effects of the Climate Crisis. He has set up the Board of Peace, a multinational body, with Trump as chairman, clearly designed to undermine the authority of the UN. And a slew of other international organisation have been undermined. The World Trade Organization (WTO) that was supposed to regulate global trade is now dysfunctional. The World Health Organization (WHO) has also been scuppered by the US withdrawal. And the White House threatened to sanctions the judges of the International Criminal Court (ICC) after it issued an arrest warrant for Israeli Prime Minister Benjamin Netanyahu on war crimes charges. At the same time the Global South has been frenetically setting up a raft of new rival international organs designed to challenge the Western-founded bodies: the New Development Bank (NDB, formerly known as the BRICS Bank), BRICS+, G20 (which now includes all 54 African Union states), MECOSUR, ASEAN, the Eurasian Economic Union (EUU) and a raft of smaller Global Emerging Markets Institutions (GEMIs) to coordinate trade and security relations amongst countries of the Global South.

Corruption: A study by Scottish philosopher Sir Alexander Fraser Tytler found that all democracies are doomed to die after about 200 years as the descendents of the founding fathers use their access to wealth and power to form a self-serving and self-perpetuating elite. In the US this decay is well advanced with multiple money-making corruption scandals linked to the Trump family and accusations of routine insider trading that is earing those with proximity to power hundreds of millions of dollars on every announcement the president makes. Insider trading for members of the administration is illegal in the US, but not a single politician or high official has ever been prosecuted. The American dream is dying as the famed social mobility fades away and the rich act with impunity. Society has been split by the growing income inequality. Capital has taken over from labour as the main beneficiary of economic growth and profits to create the 1%, while the middle class is being hollowed out after real incomes have stagnated since the 1970s. 

War: the US has been at war for most of its existance, but those conflicts have become bigger and more frequent in the last three decades, stepping up to a new level under Trump. Not only has he used force in Venezuela, Cuba and Iran, but he routinely threatens military action against countries that were once close allies like Canada and Greenland. The US has been already fighting a proxy war with Russia in Ukraine and threatens China over Taiwan.  

Multipolar world

As the old order starts to crumble, rather than one dominant centre, the unipolar order is giving way to an increasingly multipolar world - another classic sign of an interregnum. 

The idea of a multipolar world is at the core of both Putin and Chinese President Xi Jinping's thinking, as they made clear in a jointly authored 8,000 word essay last year. And in this goal they have already been largely successful as the emerging BRICS bloc becomes increasingly powerful and coordinated. Trade is the glue that holds this new world order together. This is not the emergence of a new hegemon, but a new style of asymmetric diplomacy that is built for a world run on the principle of national self-interest ahead of shared values in an increasingly patchwork world.

It is manifest in the plethora of Global Emerging Markets Institutions being set up to run these relationships, almost all of which exclude the former hegemons. for the Global North, which is becoming increasingly fissiparous as the old order breaks down.

The rise of the rest is driving the change, as the combined GDP of the Global South has already overtaken that of the Global North in PPP (purchasing power parity) terms and will overtake in absolute terms too sometime in the next two decades. China and Russia have become global manufacturing powerhouses, after the Global North exported most of its manufacturing to the new markets – something Trump’s Liberation Day tariffs is belatedly trying to reverse. The old neo-colonialist model – politely rebranded “globalisation” – of capitalising on the wage differential between the North and South is breaking down as the income delta between North and South shrinks.

The great catch up

The United States imports $3 trillion in manufactured goods annually after it exported much of its production overseas as a result of the globalisation boom in the 1990s. That was profitable then. It’s a problem now as the geopolitical and technological landscapes shift. The problem has been made more acute as the US middle class is being hollowed out. Real incomes have stagnated since the 1970s as capital takes over from labour as the main beneficiary of economic growth and rising profits.

The Chinese in particular have embraced new technology and are pouring money into R&D: China is the largest contributor to global patent applications; Chinese patent applications surpassed US applications already in 2010. Sanctions have also forced Russia to innovate and it is catching up with the West in a number of strategic sectors. Conversely, the Draghi report highlighted Europe’s chronic underinvestment into innovation and recommended the EU invest €800bn a year for the next four years just to keep pace with China and the US. That is not happening as all the EU's spare money is going into arming Ukraine. 

For the past five centuries, Western economic dominance rested on a simple structural fact: the rest of the world was poor. Low wages in the Global South meant the Global North could export the Global South’s human capital wealth home and enrich its citizens: iPhones assembled in Shenzhen and H&M jeans stitched in Bangladesh are a lot cheaper than those made in factories in Amsterdam or Detroit.

That gap has now closed faster than anyone expected. Speaking at the St Petersburg International Economic Forum in June, Putin said: "The BRICS share of purchasing power parity in global GDP is about 40%. The share of the G7 is less than 29%."

The numbers tell a story that is simultaneously about China's extraordinary rise and about the structural limits of Western growth. The US economy has grown 2.8 times in PPP terms since 2000. China has grown ten times. India has grown ten times. The BRIC bloc as a whole has expanded roughly nine times, starting from a low base — but the base is no longer low.

The BRICS countries accounted for half of annual global GDP growth in 2021-2025, against the G7's 18%. Within that growth total, BRICS contributed 2 percentage points annually against the G7's 0.8 points. And Putin is not making those numbers up. He is citing the IMF.

The combined GDP of the BRICS Plus countries in purchasing power parity terms already overtook of the G7 in 2015 — a crossover that went largely unremarked at the time but which in retrospect marks the structural turning point of the 21st century.

The picture looks very different in nominal dollar terms. The Global North is still well ahead of the South, but given the South’s faster pace of growth, it will take about two more decades for the emerging markets to overtake the developed world in nominal terms too.  

Measured at market exchange rates rather than purchasing power parity, the US still towers over every other economy with a nominal GDP of approximately $30.6 trillion in 2025. China, despite its PPP dominance, registers $18.5 trillion in nominal terms — a gap of $12 trillion that reflects the fact that Chinese wages, services and assets are still priced far below their Western equivalents. The EU's aggregate nominal GDP of approximately $19 trillion places it broadly level with China in market-rate terms. India, the world's third-largest PPP economy, has a nominal GDP of around $4.3 trillion — barely a seventh of the US at current exchange rates. 

There are still several decades left ahead before the Global South can claim to fully take over the role of hegemon from the Global North. 

While it's tempting to assume the next hegemon will be a new Pax Sinica, it is too early to say as there are several contenders and their relations remain fluid. Just amongst the BRICS, China and India are rivals and have been in a low watt war for decades and Russia and China are not natural allies. Yet the essence of the new asymmetrical diplomacy is to put these tensions aside and cooperate on an issue-by-issue basis to promote national interests and cooperate where those overlap with the other members of the Global South in overlapping spheres of influence and shifting alliances.

Changing the money

One of the strongest indicators of a hegemonic era is that the dominant power's currency becomes the preferred medium for international trade, finance, reserves and debt issuance. Interestingly, while military dominance often lasts around a century, reserve currency dominance can persist much longer.

The accelerating de-dollarisation that has already started is one of the clearest indicators that a new interregnum has begun, but the continuing importance of the dollar also shows that the changeover will be a slow process.

Rome's gold aureus became the dominant currency throughout the Mediterranean world. More important than the coin itself was the fact that merchants could trade across thousands of kilometres under a common legal and monetary system. Even after the Western Roman Empire collapsed, the Eastern Roman (Byzantine) gold solidus remained one of the most trusted currencies for centuries.

The Dutch created arguably the first modern international reserve currency. Amsterdam became the centre of global finance, and the Dutch guilder became widely accepted throughout Europe and beyond. Merchants preferred it because Dutch institutions were reliable and Dutch public finances were credible. The pound sterling became the world's first truly global reserve currency. During the nineteenth century almost half of world trade was invoiced in sterling.

What comes after the dollar? History suggests that reserve currencies are replaced only when three conditions are met:

The incumbent power weakens.

A rival economy becomes sufficiently large.

The rival provides financial markets that are deeper, safer and more liquid.

Amongst the challengers to the dollar today, only the euro and the yuan are realistic contenders. China satisfies the second condition but only partially the third. The euro satisfies some financial criteria but lacks a unified fiscal and military state behind it. As a result, the most likely feature of a post-Pax Americana interregnum may not be a replacement reserve currency but a multi-currency system.

And that is more than likely going to be a digital currency. The BRICS have already floated the BRICS Pay coin and all of its members are currently rolling out digital versions of their currencies that they intend to use to settle international trade deals. Russia has even launched an experiment with a gold-backed digital coin as another option and its use of stablecoins in international trade to dodge sanctions is growing fast.

Pax Era	Dominant Currency	Role
Pax Romana	Roman aureus, later solidus	Mediterranean trade and taxation
Pax Mongolica	No single currency	Silver, gold and paper money circulated across Eurasia
Pax Portugana	Portuguese cruzado	Maritime trade, but regional rather than truly global
Pax Neerlandica	Dutch guilder	First genuinely international reserve and trade currency
Pax Britannica	Pound sterling	Global reserve currency and unit of trade
Pax Americana	US dollar	Global reserve, trade, commodity and financial currency
source: IntelliNews

War in the Gap

Interregna are dangerous periods as major wars are much more likely to happen due to the clash of interests between the incumbent powers and the rising powers. This warning was drummed home by Xi’s warning to Trump during his state visit to Beijing in May “not to fall into the Thucydides Trap”.

The reference is to the classical historian who argued that when a rising power (Athens) meets the incumbent power (Sparta), a war is likely. Xi used the expression in comments warning the US not to interfere with China’s attempt to reunite with Taiwan. It was an explicit, albeit thinly veiled, threat that China was prepared to go to war with the US if Washington blocked China's reunification with Taiwan.

The wars already started with the US refusal to negotiate with Russia over Ukraine’s Nato status that led to the full scale invasion four years ago. But since Trump took over, he has taken the military option with increasing frequency: the decapitation and abduction of Operation Absolute Resolve on January 3 where the US government removed the sitting president of Venezuela Nicolas Maduro; the unprovoked assault on Iran with Operation Epic Fury on February 28; and the naval embargo on Cuba. That is not to mention the threats to Greenland and Canada amongst other belligerent statements. America has become the most dangerous regime in the world, according to several recent polls including the global Democracy perception index.

The classic example is the transition from Pax Britannica to Pax Americana. Britain remained powerful but could no longer dominate the international system or maintain its empire. Germany was rising rapidly, Russia was modernising, Japan was emerging as a regional power, India led by Gandhi wanted independence, and the United States had not yet assumed global leadership. The result was a 31-year interregnum (1914-1945) that included the two deadliest wars in human history and the Great Depression.

The Dutch-British transition was less catastrophic but still involved roughly a century of conflict, including the Anglo-Dutch Wars, the War of the Spanish Succession, the Seven Years' War, the American War of Independence and the Napoleonic Wars. In effect, Europe spent much of the eighteenth century determining who would dominate the nineteenth.

That said, today's world differs from previous transitions in one crucial respect: nuclear weapons. The Ukraine war has shown very clearly that a great power with nukes will not be attacked by other great powers, making great power direct clashes much less likely. But as IntelliNews has argued, it will also promote nuclear proliferation.

That is already starting to happen. The nine nuclear states are walking away from disarmament commitments amid heightened escalation dangers, the Stockholm International Peace Research Institute (SIPRI) warned in its latest report, after decades of demobilisation efforts.

“The evidence is growing that the nuclear weapon states are sidelining, and even walking away from, their disarmament commitments and are instead flexing their nuclear muscles,” said SIPRI researcher Hans Kristensen.

Russia and the US remain the overwhelming nuclear powers, together possessing an estimated 83% of warheads available for military use and nearly 86% of all nuclear weapons globally. Bizarrely, Trump has refused to counter this growing threat by allowing the last of the Cold War missile treaties to expire in February, greatly increasing the chance of a new arms race.

In place of a new WWIII, what is more likely in this interregnum is more proxy wars, economic warfare, tariffs and sanctions, cyber-attacks, technological competition and regional conflicts. In a modern interregnum, likely hot spots are the South China Sea, Taiwan, Eastern Europe, the Middle East or the Arctic rather than through direct clashes between great powers.

The greatest danger in an interregnum is not simply that a rising power becomes stronger. It is that the rules become unclear, alliances become fluid, and states increasingly misjudge one another's intentions. Most major wars in history have occurred not when one power was clearly dominant, but when several powers believed they had a chance to reshape the international order.