Oil prices have swung violently as the Iran conflict threatens one of the world’s most important energy chokepoints, while Washington faces a separate strategic challenge in its relationship with China.
The result is a geopolitical landscape in which military power, energy security, technology and trade are increasingly intertwined.
That was the focus of the latest episode of Zero Sum, where Invezz’s Harsh Vardhan spoke with Dr Anita Kellogg, assistant professor at the National Defense University in Washington, DC, about the implications of the Iran conflict, America’s standing as a global superpower, the coming US-China summit and what it all means for investors.
America’s economic power remains formidable
Kellogg pushed back against the idea that the United States is already losing its position as the world’s dominant economic power.
“I think the US is definitely still the most formidable economic force in the globe.”
But she drew a distinction between economic strength and perceptions of military power.
The prolonged conflict with Iran, she argued, could undermine confidence in America’s ability to execute military campaigns when objectives are limited and the war does not progress as quickly as expected.
“The biggest impact is on the perceptions of military power.”
That matters well beyond the Middle East. Any questions over US military effectiveness are closely connected to the more consequential strategic question of how Washington would respond to a potential conflict involving China and Taiwan.
Iran has turned energy infrastructure into a weapon
One of the most striking themes of the discussion was how Iran has been able to use economic pressure alongside military resistance.
Kellogg argued that Tehran has deliberately prepared to use economic statecraft to compensate for its military vulnerabilities, with the Strait of Hormuz providing a particularly powerful lever.
“Iran has wisely been able to incorporate economic statecraft.”
The Strait’s importance extends far beyond the US.
Any sustained disruption threatens energy flows and raises transportation and fuel costs across economies that depend on Middle Eastern crude.
For investors, that makes oil one of the clearest channels through which the conflict can spread into the global economy.
The Iran war may be harder to end than it was to start
The conflict also raises a more fundamental question: what happens when the military objective is unclear, and there is no obvious path to an exit?
Kellogg was skeptical that the war would be resolved quickly, particularly given the uncertainty surrounding Washington’s political aims.
“I think this conflict is going to be very difficult to end, and I’m not sure the US has a plan for that.”
That uncertainty could keep geopolitical risk elevated for investors, particularly in energy markets.
Kellogg expects oil prices to remain volatile and said she was bearish on the prospect of a substantial resolution to the Iran conflict within the next 30 days.
China may be gaining strategically from America’s attention being split
While Washington remains focused on Iran, Beijing has an opportunity to observe the limits of US military capacity and exploit areas where it has economic leverage.
Kellogg said the conflict is “definitely strategically good for China,” particularly because it highlights the difficulty of replacing weapons systems and sustaining prolonged military operations.
China also retains significant leverage through its control over critical minerals.
According to Kellogg, China processes around 90% of the critical minerals used in defence systems, semiconductor production, electrical infrastructure, and other advanced technologies.
That dependence could become particularly important as the US and China compete over artificial intelligence and advanced computing.
Rare earths and semiconductors could decide the next US-China negotiation
The highly anticipated Trump-Xi summit slated for next month could therefore be about much more than tariffs.
Kellogg expects Washington to seek some relaxation of Chinese restrictions on critical minerals, while Beijing is likely to push for relief from US semiconductor export controls.
The strategic tension is clear. The US remains ahead of China in advanced AI, according to Kellogg, but China controls key inputs required for defense and high-technology production.
At the same time, American semiconductor companies have strong commercial incentives to regain access to the Chinese market.
That creates an unusual convergence between corporate interests and geopolitics, with companies such as Nvidia potentially having a significant stake in the outcome of diplomatic negotiations.
Investors may have to price geopolitics into everything
The conversation ultimately returned to a problem increasingly familiar to investors: traditional market signals can be overwhelmed by geopolitical shocks.
Kellogg cautioned that oil prices could remain volatile and urged investors to be careful around semiconductor companies given mixed results and lingering concerns over an AI bubble.
Her own market outlook was cautiously constructive on the possibility of reduced Chinese restrictions on rare earths, bearish on the prospect of a quick resolution to the Iran conflict, and focused on defense companies as a wildcard as governments seek to replenish weapons stocks.
For investors, the bigger lesson may be that geopolitics is no longer a separate risk sitting outside the portfolio.
Energy chokepoints, critical minerals, semiconductor supply chains and military spending are increasingly becoming part of the same investment equation.
Watch the full episode of Zero Sum for the complete discussion and subscribe for more conversations on markets, money and geopolitics.
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