Iran is losing the war it was built to fight. It may yet win the war Washington cannot afford to prolong

Oct 26, 2026

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Insight that our clients received last week, on 19th October.

Note: We provide reporting like this on a routine basis to existing clients, and have reported on geographies like Iran, Egypt, Nigeria, Kazakhstan, and Pakistan for nearly a decade, providing insights far ahead of the market. For Iran specifically we have routinely accurately predicted forthcoming events; Iran-Israel rapprochement post-Israeli airstrikes on the Damascus consulate, US’ 2025 attacks on Iranian nuclear facilities, the US-Israeli attacks on Iran in 2026 (the exact weekend they occurred). If you want this kind of unique, ahead-of-the-rest insight, and you want to beat the market, get in touch with us at research@tactirm.com

Seven months of American and Israeli strikes have devastated Iran’s conventional military capabilities. Its oil exports have been strangled, its currency is collapsing and its economy is buckling under the pressure. Yet Tehran has found another battlefield – America’s political calendar. With the 3^rd November midterms approaching, every threatened tanker, disrupted oil terminal and additional dollar spent defending the Gulf becomes another problem for Trump. The strategy is brutally simple. Iran does not need to defeat the United States. It needs to make the cost of victory increasingly difficult to justify. From Hormuz to Yemen, Tehran is exploiting cheap weapons, vulnerable infrastructure and Washington’s diminishing political patience. But this is a dangerous gamble. Iran’s economic clock is ticking faster than America’s electoral one, while Gulf States are adapting and regional opposition is hardening. The question is no longer whether Washington can defeat Iran militarily. It is whether Tehran can survive long enough to make that victory politically meaningless.

Political

The American clock. As we outlined way back on 26^th March in our piece Operation Epic F*ck Up, Iran may have found a weapon Washington cannot bomb – the US electoral calendar. With the 3^rd November midterms approaching, Tehran appears increasingly determined to make the war as politically expensive for Trump as it has been militarily expensive for Iran. The objective is not necessarily to defeat American forces. It is to keep the conflict alive, oil prices elevated and the prospect of a decisive US victory permanently just over the horizon.
This is no longer simply an interesting theory. On 14^th October, two senior Iranian officials told Reuters that Tehran had changed its maritime tactics partly to influence the US elections. Attacks on commercial shipping have intensified beyond Hormuz, while small boats reportedly help the IRGC identify targets and conserve scarce military assets. Iran is compensating for its conventional military losses with cheaper ways to sustain the threat.

Every disrupted tanker threatens another rise in energy prices. Every additional deployment consumes money and munitions. US inflation reached 3.7% in September, with petrol prices rising 9.1% in a single month. Iran did not create America’s inflation problem, but it is helping make it more uncomfortable. Tehran cannot determine the midterm result. It is betting that continued disruption will narrow Washington’s options.

Washington may be allowing the same electoral calendar to constrain its response. Axios reported on 16^th October that US forces had largely suspended strikes against Iranian missile and drone launchers around Hormuz, reportedly to avoid further escalation before the midterms. If accurate, Tehran is exploiting a political vulnerability that Washington may itself be reinforcing.

Invisible power, increasingly visible strategy. Mojtaba Khamenei remains an elusive figure, but the more important question is no longer simply where Iran’s Supreme Leader is. It is who is making the decisions in his name. September raised concerns that Iran’s fragmented security apparatus might be operating beyond the control of its formal leadership. October suggests a more complicated picture.

Pezeshkian remains the public face of government and a channel for diplomacy. That should not be mistaken for control over the security state. The real decisions about escalation increasingly appear to rest with the Supreme Leader’s circle, the IRGC and the Supreme National Security Council. Mohsen Rezaei’s appointment as SNSC secretary now looks particularly consequential. He has emerged as a central voice in negotiations with Washington while simultaneously warning that further escalation could extend to regional infrastructure. The presidency speaks. The security establishment decides how much weight those words carry.

Diplomacy with a loaded gun on the table. Negotiations continue, but neither side is prepared to surrender its remaining leverage. Iran’s latest proposal offered a route towards reopening Hormuz, but negotiations remain trapped between temporary relief and permanent concessions. Saudi Arabia confirmed on 15^th October that mediation involving Qatar and Pakistan is concentrating on two linked questions – restoring safe passage through Hormuz in exchange for lifting Washington’s blockade of Iranian ports, and establishing a framework for renewed nuclear negotiations. Riyadh accuses Tehran of delaying responses and repeatedly offering temporary arrangements rather than substantive concessions. The Saudi assessment is hardly impartial, but the underlying problem is clear. Washington wants enforceable commitments. Tehran wants breathing space without surrendering its remaining leverage.

Meanwhile, Rezaei has threatened regional data centres, communications cables and other infrastructure if major fighting resumes. The significance is not merely the threat itself. Iran is signalling that the next round could impose costs on the Gulf’s digital economy as well as its energy infrastructure. The battlefield is becoming less geographical and more economic.

Two elections. The diplomatic clock is running alongside two political ones. Israel faces an election on 27^th October, followed by the American midterms on 3^rd November. Reports that Trump and Netanyahu discussed another major operation against Iran raised the stakes, although Netanyahu subsequently rejected the prospect of a pre-emptive strike before Israel’s election. He left open what might follow.

For Tehran, time may be an asset. For Washington, it is increasingly a political liability. But Iran is gambling too. Another attack could trigger precisely the larger American response its leadership is trying to avoid. Three governments are watching their political calendars. None can entirely control what happens on the battlefield.

China, Russia and the limits of isolation. Iran has powerful partners, but not necessarily dependable rescuers. Reports of Chinese and Russian assistance involving intelligence, imagery and military components remain difficult to verify. Beijing wants stable energy markets without conceding Gulf security dominance to Washington. Moscow benefits from complicating American strategy but has its own interests to protect. Their interests overlap with Tehran’s. They are not identical.

The nuclear problem. Months of military operations have damaged Iran’s nuclear infrastructure without resolving the underlying question of what remains. Restricted inspection access, uncertainty over enriched uranium stocks and disagreement over future enrichment rights continue to obstruct any comprehensive settlement.

Washington is keeping the military option conspicuously alive. In an interview on 15^th October, Trump raised the possibility of striking Pickaxe Mountain, a heavily fortified site associated with Iran’s nuclear programme. He ruled out nuclear weapons and ground troops, but did not rule out further conventional strikes. Tehran is being asked to negotiate renewed inspections while Washington openly discusses another attack on its nuclear infrastructure. That is hardly an encouraging foundation for rebuilding trust.

Pezeshkian has publicly indicated a willingness to discuss renewed international inspections. Hard-line voices, however, have raised the possibility of abandoning the Nuclear Non-Proliferation Treaty if external pressure intensifies. Rezaei has stopped short of announcing such a move while refusing to rule it out. Bombing facilities is one thing. Reconstructing an inspection regime that both sides believe will survive the next political crisis is quite another.

The political picture. Iran’s strategy is becoming clearer, even if the chain of command behind it remains opaque. Tehran is attempting to convert military weakness into economic and political pressure, using maritime disruption and the American electoral timetable to compensate for lost conventional strength. But there is a danger in mistaking the ability to prolong a conflict for the ability to determine its outcome. Iran may be playing for time. It is not the only country watching the clock.

Economic

The blockade bites. Washington has achieved something four decades of sanctions never quite managed. It has effectively stopped Iran exporting fresh crude by sea. Iranian seaborne crude exports remained at zero in early October, while other Gulf producers recovered to more than 80% of their pre-war export volumes. Iran’s neighbours are finding ways to sell their oil again. Tehran is watching its principal source of foreign currency disappear.

The blockade is devastating, but not watertight. Previously exported crude held in floating storage still generates revenue, while overland routes provide limited relief. A Reuters investigation on 16^th October identified eight Iranian LPG tankers and a jet-fuel shipment reaching foreign destinations despite US restrictions. Washington disputes whether the shipments breached the blockade. Iran’s sanctions-evasion networks remain active, but they cannot replace conventional maritime exports.

Washington is also pursuing the financial channels that keep those networks functioning. On 15^th October, the US imposed sanctions on another 16 individuals and 10 entities linked to Iran, targeting offshore banks, currency dealers and financial networks extending into Iraq, Hong Kong and the Gulf. The inclusion of an Iraqi bank is particularly significant. Tehran’s problem is no longer simply selling oil. It is finding ways to move the money afterwards.

The survival economy starts eating itself. The economic damage is no longer theoretical. Official figures show GDP contracted 10.1% year-on-year in the March-June quarter, with oil and gas activity down 26.4% and industry and mining shrinking 14.7%. Those figures predate the full impact of the renewed blockade. They describe an economy already in serious trouble before Washington tightened the screws further.

The rial has lost nearly 35% of its value against the dollar since July. September’s annual inflation reached 73.6%, while point-to-point inflation approached 90%. The Central Bank has announced plans to inject up to USD 2 billion through state banks to support the currency. But defending the rial becomes considerably harder when the country is struggling to earn the dollars needed to defend it.

The squeeze may now be reaching Iran’s security establishment. On 16^th October, US Central Command (CENTCOM) Commander Adm. Brad Cooper claimed that Iran-aligned militias were redirecting funds towards the IRGC, while Washington estimated that the blockade had prevented USD25 billion in oil revenues. Neither claim has been independently verified, but the implications are serious. If Tehran’s regional partners are helping finance the organisation that once bankrolled them, the economic war is beginning to threaten Iran’s military strategy itself.

For ordinary Iranians, the consequences are brutal. Food, transport and household essentials consume an increasing share of shrinking incomes. Businesses face the same pressures from another direction. Imported components cost more, raw materials are harder to obtain and unreliable electricity continues to disrupt production. Manufacturers cannot simply pass every additional cost to customers who are already struggling to afford the basics.

Iran’s government is responding with expanded food support, energy conservation measures and attempts to protect industrial electricity supplies. Among the proposals is the introduction of car-free Tuesdays to conserve fuel. Iran possesses some of the world’s largest hydrocarbon reserves. Its government is now encouraging people not to drive on Tuesdays. You really could not make this up.

The limits of economic warfare. Tehran insists the economy is not collapsing. Speaking at the annual meetings of the IMF and the World Bank Group in Bangkok this month, Central Bank Governor Abdolnaser Hemmati dismissed American predictions of imminent failure, while acknowledging the need to protect essential imports. Iran retains domestic production, informal trade networks and considerable experience surviving economic dysfunction. Collapse is not inevitable. But neither is survival painless.

Iran’s maritime campaign is sustaining elevated energy prices, forcing Washington into uncomfortable compromises. Brent exceeded USD109 per barrel on 16^th October, while the IEA accelerated emergency reserve releases. The US is considering allowing sanctioned shadow-fleet tankers to carry legitimate oil cargoes and, also on 16^th October, Trump waived substantial new sanctions targeting Russia and purchasers of Russian energy. Existing restrictions remain in place, as do sanctions against Iranian crude. Washington is tightening the economic noose around Tehran while easing pressure elsewhere to contain the costs. Economic warfare is proving rather less straightforward than the White House might have hoped.

The damage is spreading beyond energy. The IMF now forecasts a 1.3% contraction across the Middle East, North Africa and Pakistan in 2026, while the UN warns that disrupted fertiliser shipments and rising transport costs are already affecting agricultural production. Marine fuel prices remain more than 70% above pre-war levels, forcing shipping companies to reconsider supply contracts and refuelling routes. Hormuz is no longer simply making global commerce more expensive. It is changing how that commerce operates. The next price shock may arrive at the supermarket rather than the petrol pump.

Washington is winning the economic war on almost every measurable indicator. What it has not yet demonstrated is that economic destruction will produce political capitulation. Tehran may be betting that American voters will run out of patience before Iran runs out of options. The problem is that Iran’s own economic clock is ticking considerably faster.

Security

Seven months of American and Israeli strikes have inflicted enormous damage on Iran’s conventional military capabilities. Yet the security problem facing Washington is becoming more complicated, not less. Tehran is adapting its tactics, the Houthis are widening the war in Yemen and Saudi Arabia is discovering that military superiority does not necessarily guarantee protection for critical infrastructure.

Hormuz: the cheap way to fight a superpower. September’s recovery in maritime traffic is rapidly unravelling. Twenty-four vessels were reportedly attacked in the two weeks to 11^th October, the heaviest concentration of incidents since the early stages of the war. Oil flows through Hormuz have fallen sharply from their September peak, while ship owners face increasingly difficult decisions about whether the financial rewards justify the risks.

With much of its radar network destroyed, the IRGC is reportedly using small boats to identify commercial targets. The threat may now extend beyond surveillance. British maritime authorities have reported attacks on tankers northeast of Jubail, including one involving a rocket-propelled grenade fired from a small craft. It remains unclear whether the warnings referred to separate incidents, and responsibility has not been established. But the lesson is obvious. Washington can destroy radar installations. It cannot monitor every fishing boat in the Gulf.

The threat became considerably more tangible on 14^th October when two commercial vessels were reported lost near Hormuz. The GFS Pride sank following a projectile strike, while the Cape Dao, damaged in a 23^rd September attack, succumbed after unsuccessful salvage efforts. Tehran blamed a naval mine for the first sinking, although that explanation remains unverified. Iran does not need to sink an entire merchant fleet to disrupt trade. Two vessels are quite sufficient to remind insurers and ship owners of what is at stake.

Yemen: Iran’s second pressure point. Saudi Arabia’s attempt to reverse the Houthi advance along Yemen’s Red Sea coast is proving harder than anticipated. By mid-October, government forces were struggling to recover territory lost in September, while the Houthis continued threatening positions overlooking Bab el-Mandeb. A Wall Street Journal investigation, citing intelligence sources, alleged that IRGC officers had provided targeting information, training and tactical guidance for Houthi attacks on Saudi Arabia. Tehran denies directing those operations, and the intelligence claims remain independently unverified. Nevertheless, the allegations raise serious questions about how closely Iran’s Gulf strategy and the Houthi campaign are connected.

The Houthis demonstrated that reach with their 13^th October strike on Saudi Aramco’s headquarters in Dhahran, damaging executive offices during the World Petroleum Congress in Riyadh. Their campaign against Riyadh’s international airport has caused extensive flight cancellations and disrupted investment events. The EU and Gulf Cooperation Council postponed their planned summit in Riyadh, citing continuing Houthi threats and the airport’s closure. A gathering intended partly to strengthen regional security cooperation has itself become a casualty of regional insecurity.

The threat is also reaching Saudi Arabia’s alternative oil-export routes. On 16^th October, Saudi-led forces reported intercepting a ballistic missile heading towards Yanbu, the Red Sea terminal that allows Saudi crude to bypass Hormuz. No damage was reported and responsibility was not independently established. But the strategic significance is considerable. Disrupting Hormuz is one thing. Threatening the infrastructure designed to circumvent it is quite another.

Yemen’s internal war is also intensifying. On 15^th October, an attack on Aden’s presidential palace complex reportedly killed five people and wounded 16. The following day, missiles struck near Aden airport, forcing the evacuation of passengers from an aircraft preparing to depart. Meanwhile, Houthi forces have reportedly encircled Taiz, cutting its main road to Aden and threatening one of the government’s most important remaining strongholds. Its fall would strengthen the Houthis’ position in southern Yemen and complicate Saudi efforts to secure Bab el-Mandeb.

The Gulf’s expanding target list. Iran’s regional campaign is proving considerably more sophisticated than Gulf governments initially acknowledged. A Reuters investigation identified at least 135 attacks against 84 infrastructure sites across seven Gulf countries. The strikes repeatedly targeted critical equipment, from oil-routing systems at Fujairah to LNG processing facilities in Qatar and pipeline pumping stations in Saudi Arabia. Much of the damage was initially played down as interception debris. The emerging picture is rather different. Tehran is not simply throwing missiles around the Gulf. It is identifying economic pressure points and attacking them with considerable precision.

The Gulf is adapting too. Saudi Aramco has strengthened its ability to repair damaged facilities and restore operations. Iran is learning how to break critical infrastructure more efficiently. Its opponents are learning how to repair it faster. The question is whether Tehran can inflict damage that lasts long enough to change anyone’s calculations.

Saudi Arabia’s response is becoming increasingly international. Riyadh, Ankara and Islamabad are accelerating defence cooperation, while Egypt may now be drawn more directly into the Kingdom’s security. President Sisi has called for emergency parliamentary authorisation to support Saudi Arabia militarily if requested. No Egyptian deployment has been announced, but the implications are considerable. Tehran’s strategy of spreading the costs of war risks encouraging a broader coalition determined to contain it.

The security picture. Iran has lost much of its conventional military infrastructure. What it retains is the ability to make inexpensive attacks impose disproportionately expensive defensive obligations. Washington can destroy launchers, escort tankers and strike military facilities. It cannot guarantee that every ship will arrive safely or every commercial operator will accept the remaining risk. Iran may be losing the conventional war. It is still finding ways to make everyone else pay for it.

Conclusion

Iran is gambling on 3^rd November. The danger is what happens on 4^th November. Tehran’s strategy depends on Washington losing political patience before Iran exhausts its economic and military options. But elections do not end wars. They change the calculations of those fighting them. A weakened Trump could become more cautious or, as we suspect, considerably more dangerous. An emboldened Tehran could mistake American restraint for weakness and push its luck once too often. Meanwhile, the Gulf is learning to defend itself, regional powers are edging towards deeper involvement and Iran’s economy is running out of room to absorb further punishment. None of these pressures disappear when Americans finish voting. The next phase may therefore be more dangerous than the last. Washington could emerge with fewer political constraints, Tehran with fewer economic options and both convinced the other is about to blink. Iran has made victory expensive. It may discover that making defeat unbearable is an entirely different proposition.