The Longer the War, the Weaker America

The bizarre war imposed by the United States and Israel on Iran on February 28 has continued for nearly six months, with no decisive outcome in sight. Pakistan-brokered negotiations have so far failed, largely because the objectives of the two sides appear fundamentally contradictory.

The implicit demand from Washington appears to be nothing short of Iran’s unconditional surrender. Tehran, however, has shown no willingness to capitulate. On the contrary, US efforts to bring Iran to its knees has demonstrated Iranian resilience and have transformed it into an even more formidable regional power.

Iran’s ability to inflict significant losses on US military bases in the Middle East and threaten strategic assets of America’s Arab allies appears to have strengthened with the passage of time. This has potentially altered the regional balance of power.

The Strait of Hormuz has consequently become the most critical pressure point. The US naval blockade and restrictions affecting access to the Red Sea cannot be viewed solely as an attempt to squeeze Iran economically. These also threaten the oil exports of Arab Gulf producers, creating an uncomfortable dilemma for America’s regional partners.

There is another dimension that deserves attention - the survival of US shale-oil producers. A prolonged conflict and the resulting disruption to Middle Eastern oil supplies can keep crude prices elevated. Many high-cost US shale producers could come under severe financial pressure if oil prices fall below around US$65 a barrel. This creates a possible economic incentive for Washington to avoid a rapid de-escalation.

Iran’s latest demands underline the widening gap between the two sides. Tehran has called for an end to the naval blockade, lifting of sanctions, withdrawal of US forces from the region and compensation for war-related losses. At the same time, Washington insists that diplomatic, economic and military pressure will continue until it secures what it considers an acceptable outcome.

But with every passing day, the strategic equation may be shifting: America is exhausting resources while Iran is gaining resilience, experience and leverage.

The greatest loser of this war could ultimately be the superpower itself. Further escalation risks damaging America’s credibility, encouraging Arab partners to reconsider existing security arrangements and intensifying pressure for the withdrawal of US forces from the region.

A superpower does not lose only when it is defeated on the battlefield; it can also lose when the cost of pursuing victory becomes greater than the benefits of achieving it.

PSX benchmark Index closes the week up 3%WoW

Pakistan Stock Exchange (PSX) witnessed positive momentum during this past week. The benchmark Index closed the week up 5,336 points or 3%WoW at 181,430. Market participation remained thin with average daily traded volume falling by 29%WoW to 934 million shares.

This, coupled with Iran-Oman talks aimed at restoring the Strait of Hormuz to its pre-conflict position, drove oil prices below US$80/bbl levels, before settling slightly up at US$82/ bbl on Friday. Moreover, robust financial results from the banking sector bolstered sentiments.

Trade deficit for July 2026 reported at US$3.9 billion remained down 15%MoM led by higher exports. The positive sentiments were partially tempered by uncertainties surrounding the Red Sea passageway, and higher-than-anticipated CPI of 9.2%YoY for the month, although inflation came in single digits after 4 months.

Petroleum offtakes rose 23%YoY for July 2026 to 1.5 million tons as compared to the same period last year due to rains and floods, resulting in a lower base, along with tighter enforcement curbing fuel smuggling from Iran.

Cement sector offtakes grew 6%YoY to 4.5 million tons during the month, supported by improved construction activity.

Other major news flow during the week included: 1) Turkey, Saudi Arabia & Pakistan signed joint defence agreement, 2) OPEC plus raised September oil output by 188,000 bpd, 3) GoP raised PKR882 billion through T-bills auction, 4) GoP also raised PKR474 billion via PIBs sale, and 5) foreign exchange reserves held by State Bank of Pakistan (SBP) rose to US$17.0 billion as of Jul 31, 2026.

Top performing sectors included: Jute, Textile Spinning, and Property, while laggards included: Synthetic & Rayon, Leasing Companies, and Sugar & Allied Industries.

Buying by Mutual Funds amounted to US$13.2 million. Net sellers were Banks with US$11.2 million.

Top performing scrips were: GADT, POWER, CNERGY, NPL, and BOP, while laggards included: MEHT, IBFL, PGLC, KTML, and SHFA.

AKD Securities, expects market to improve on strengthening economic indicators amid easing geopolitical tensions, along with favorable financial results for the quarter ended June26.

Additionally, a po­tential US-Iran deal could moderate international oil prices towards pre-conflict levels, further supporting sentiment. Market continues to trade at attractive valuations.

According to the brokerage house, the benchmark Index is likely to reach 263,800 by end December 2026.

Top picks of the brokerage house include OGDC, PPL, UBL, MEBL, HBL, FFC, ENGROH, PSO, LUCK, FCCL, INDU, ILP and SYS.

What the US has lost in the War with Iran?

Wars are not won solely on the battlefield. They are also judged by whether they achieve their political objectives, strengthen deterrence and reinforce international credibility. By these measures, the United States appears to have emerged from its confrontation with Iran having paid a price that extends well beyond military expenditure.

The first casualty has been credibility. Washington's messaging shifted repeatedly—from demands for Iran's unconditional surrender to calls for de-escalation and negotiations. Such abrupt changes inevitably raise questions among allies and adversaries alike about the consistency of American strategy. A superpower derives much of its influence from predictability; when its objectives appear to change with circumstances, its deterrent value is diminished.

The second loss is strategic. Modern warfare has demonstrated that overwhelming military superiority does not automatically translate into decisive political success. The US has consumed vast quantities of sophisticated and expensive munitions while confronting an adversary capable of sustaining prolonged resistance through indigenous capabilities and asymmetric tactics. Wars of attrition are rarely favourable to even the strongest military powers if political objectives remain elusive.

Perhaps the most significant consequence has been Iran's enhanced regional standing. Despite facing coordinated military pressure and unprecedented economic sanctions, Tehran has demonstrated resilience that has strengthened its image among supporters and compelled regional actors to reassess its military and political influence. Whether one agrees with Iran's policies or not, its ability to withstand sustained pressure has altered regional perceptions.

The conflict has also exposed shortcomings in the strategic calculations of both Washington and Tel Aviv. Military power can destroy infrastructure, but it cannot easily compel political capitulation. Calls for unconditional surrender proved unrealistic against a state that had prepared for prolonged confrontation. Instead of projecting overwhelming dominance, the campaign underscored the limits of military coercion against a determined regional power.

History offers a consistent lesson: every great power eventually reaches a point where reassessing objectives becomes wiser than escalating a costly conflict. Strategic withdrawal is not necessarily a sign of weakness; it can be an act of prudence when the costs of continuing outweigh the prospects of success. Persisting with a flawed strategy merely compounds political, military and economic losses.

The US still possesses unmatched global military and economic capabilities. However, the Iran conflict serves as a reminder that power alone does not guarantee victory. Credibility, coherent strategy and realistic political objectives remain indispensable. When these are absent, even the world's strongest nation risks emerging from war with diminished influence rather than enhanced authority.

PSX benchmark index up 3.0%WoW

Pakistan Stock Exchange (PSX) witnessed bullish sentiments on Monday and the benchmark index gained 7,241 points, led by a pause in US-Iran strikes, which raised hopes of a diplomatic solution and caused oil prices to fall below US$85/bbl. However, with no lasting resolution during the week, the market remained under pressure over the next three trading sessions, before rebounding on Friday to close the week up 5,073 points or 3.0%WoW at 176,094 points.

Sentiments were further supported by positive June 2026 financial results announced by major companies. Meanwhile, SBP’s status quo in its first FY27 meeting on Monday had little impact on the market, as the decision was largely in line with expectations. Additionally, market participation strengthened, with average daily trading rising by 48.5%WoW to 1.3 billion shares.

On the macroeconomic front, foreign exchange reserves held by SBP decreased to US$17.0 billion as of July 24, 2026. Saudi Arabia also rolled over its US$5 billion deposits for another 3 years, reducing external debt repayments to US$21.5 billion for FY27.

Other major news flow during the week included: 1) ECC approves package of export finance incentives, 2) Dar seeks US partnership to double bilateral trade to US$20 billion, 3) PM Shehbaz Sharif approves amendments to Pakistan Oil Refining Policy, 4) Saudi group eyes US$10 billion investment in Pakistan, and 5) Pakistan, Kuwait agree to expand economic ties.

Active sectors were: Jute, Modarabas, and Refinery, while the lagged included: Close-end Mutual Funds, Miscellaneous, and Textile Weaving.

Major buying was recorded by Mutual Funds of US$14.7 million. While sellers were Individuals with US$11.9 million.

Top performing scrips were: AICL, MLCF, PIBTL, KOHC, and IBFL, while laggards included: HGFA, PIOC, PGLC, YOUW, and TPLRF1.

According to AKD Securities, going forward, any positive progress on US-Iran conflict, along with moderating international oil prices towards pre-conflict levels would remain the key focus.

Favorable financial results for the quarter ended June 30, 2026 would support market sentiment in the near term. Market continues to trade at attractive valuations.

Top picks of the brokerage house include: OGDC, PPL, UBL, MEBL, HBL, FFC, ENGROH, PSO, LUCK, FCCL, INDU, ILP and SYS.

Formation of Multinational Maritime Defense Alliance

The founding members of the Multinational Maritime Defense Alliance on Thursday approvedthe establishment of the coalition as a framework for maritime defense cooperation, with Saudi Arabia designated as its founding nation, leader and permanent headquarters.

In a joint statement, the founding states said growing threats to global maritime security require stronger collective cooperation to protect freedom of navigation, international trade routes and global energy supply lines through the Bab al-Mandab Strait, the Red Sea and the Gulf of Aden.

The alliance said it will operate in accordance with international law, United Nations conventions and internationally recognized norms to enhance maritime security, safeguard international shipping and protect shared maritime interests.

The participating countries agreed to establish the alliance's Joint Command, command-and-control centers, Joint Maritime Operations Center and General Secretariat in Saudi Arabia as its principal executive bodies.

The statement reaffirmed the founding members' commitment to the purposes and principles of the UN Charter, international law and globally recognized treaties and norms, describing maritime security as a shared responsibility that requires close coordination to address common and transnational threats.

The participating countries said they will continue completing their domestic legal and constitutional procedures to formally accede to the alliance's charter.

Under the agreement, members will expand cooperation in maritime security, intelligence and information sharing, operational planning, joint exercises, training, capacity building, lessons learned and joint maritime operations in accordance with the alliance's charter.

The statement stressed that the alliance is purely defensive in nature and is not directed against any country, alliance or international organization. It said all activities will be conducted in full compliance with international law, respect for state sovereignty and the protection of freedom of navigation, while participation in alliance activities and operations will remain a sovereign decision for each member state.

The founding members also invited other countries that share the alliance's objectives and principles to join the charter, saying broader participation would strengthen collective maritime security in the Bab al-Mandab Strait, the Red Sea and the Gulf of Aden.

The statement described the alliance as a strategic step toward enhancing maritime security, deepening defense cooperation among its members and supporting regional and global stability, while complementing international efforts to preserve international peace and security.

Earlier on Thursday, Saudi Arabia, Kuwait, Bahrain, Qatar, Pakistan, Türkiye, Egypt, Jordan, Yemen, Bangladesh, Nigeria, Sudan, Djibouti and Somalia endorsed the alliance and welcomed agreement on its founding arrangements, while additional countries expressed support and are completing their national procedures before joining the initiative.

Widening War in the Middle East Could Be a Fatal Mistake for the United States

Five months after the United States and Israel launched military operations against Iran, the conflict has outgrown its original battlefield. What began on February 28 has expanded from Iran and Israel to Iraq, Jordan, Egypt and the Strait of Hormuz, raising the risk of a wider regional war with serious global consequences.

The latest escalation underscores this danger. US and Saudi forces jointly struck Iran-aligned groups in eastern Iraq, marking Riyadh's first publicly acknowledged military operation alongside Washington. Iran retaliated by firing missiles at a US base in Jordan and targeting ships in the Strait of Hormuz, the world's most important energy corridor.

Saudi Arabia's subsequent diplomacy is equally telling. After the joint strikes, Defence Minister Prince Khalid bin Salman met US Vice President JD Vance in Washington and reportedly urged the Trump administration not to expand the conflict by attacking Yemen's Houthis or launching further strikes against Iran-backed militias in Iraq. When even America's closest regional ally urges restraint, Washington should take notice.

The conflict is already spreading. A drone strike on a US-owned gas storage tanker at Egypt's Mediterranean port of Damietta highlighted the vulnerability of regional energy infrastructure. Meanwhile, repeated Iranian missile and drone attacks expose the growing limits of American deterrence. According to the Center for Strategic and International Studies, the United States has fewer than 1,000 Patriot and fewer than 250 THAAD interceptor missiles, raising concerns about sustaining a prolonged regional conflict.

The economic risks are equally serious. Any disruption in the Strait of Hormuz threatens global oil and LNG supplies, pushing up freight costs, insurance premiums and energy prices, with inflationary consequences far beyond the Middle East.

President Donald Trump now faces a crucial choice. He can widen the conflict in pursuit of short-term military gains, or recognize that every new front increases the likelihood of a broader and costlier war.

History shows that great powers often falter not because they lack military strength, but because they underestimate the costs of prolonged conflicts. The widening war in the Middle East could become a fatal strategic mistake for the United States. Statesmanship will be measured not by the number of battles fought, but by the wisdom to prevent a wider regional war.

Strait of Hormuz: A Case for Regional Stewardship

The Strait of Hormuz is the world's most critical energy corridor, carrying nearly one-fifth of global oil and liquefied natural gas supplies. Any disruption in this narrow waterway sends shockwaves through energy markets, raises shipping and insurance costs, and threatens global economic stability. A disappointing fact is that due to decades of external military involvement, the Strait has remained vulnerable to recurring crises.

Recent diplomatic developments offer an opportunity to rethink its security architecture. Iranian Foreign Minister Abbas Araghchi has called for closer regional cooperation, while Oman has proposed establishing a joint maritime mechanism involving Iran and the Gulf states. Inspired by the Strait of Malacca, the proposal envisages voluntary contributions from users of the waterway to finance navigation safety, environmental protection, search-and-rescue operations, and maritime coordination.

The Malacca model demonstrates that strategic waterways can be managed effectively through cooperation among the littoral states. A similar arrangement in the Gulf could bring together Iran, Oman, Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, Kuwait, and Iraq in a permanent institutional framework dedicated to ensuring safe and uninterrupted navigation.

Such a mechanism would coordinate vessel traffic, strengthen maritime safety, improve emergency response, protect the marine environment, and establish communication channels to prevent misunderstandings from escalating into conflict. More importantly, it would place responsibility in the hands of those with the greatest stake in preserving regional stability.

The economic case is equally compelling. Every Gulf state depends on secure sea lanes for energy exports, trade, and investment. A stable Strait would reduce insurance premiums, lower transportation costs, strengthen investor confidence, and enhance global energy security.

Regional stewardship should not be viewed as excluding the international community. Freedom of navigation is a shared global interest, and countries benefiting from the Strait can continue supporting its operations through voluntary financial contributions, as they do in the Strait of Malacca. Operational responsibility should rest with the littoral states.

The Strait of Hormuz should become a symbol of cooperation rather than confrontation. By establishing a credible regional maritime framework, Gulf nations can safeguard one of the world's most vital trade routes while demonstrating that regional challenges are best addressed through regional leadership, shared responsibility, and sustained diplomatic engagement.