Key Points
— Iran is fighting an economic war of attrition, tracking US Treasury yields, inflation data, presidential approval ratings, and munitions burn rates rather than conventional military metrics
— US public debt now exceeds 100% of GDP — four times the ratio during the 1970s oil crisis — leaving the Federal Reserve trapped between rising inflation above 3% and the risk that rate hikes could destabilize an already fragile economy
— Former MI6 chief Sir Alex Younger stated publicly that the US has lost the initiative to Iran roughly two weeks into the conflict, while Trump’s approval on the economy has fallen to 29% — the lowest of any modern presidency
RioTimes Deep Analysis | Series: The Global Lens
The US and Israel are counting destroyed missile launchers and eliminated commanders. Tehran is watching Treasury yields, inflation data, and approval ratings. They may be fighting different wars — and Iran’s scorecard is looking surprisingly strong.
The Two Scorecards
Nearly a month into the US-Israeli military campaign against Iran — launched on February 28 after the collapse of Omani-mediated negotiations — two very different assessments of progress have emerged.
Washington and Jerusalem measure success in kinetic terms: senior Iranian leaders eliminated, fighter jets destroyed, missile launchers neutralized, naval vessels sunk. By this conventional military accounting, the campaign has been effective. American and Israeli forces have demonstrated overwhelming technological superiority against an adversary fielding equipment that, in some cases, dates to the 1970s.
But Iran was never planning to fight this war in the military domain. The regime’s strategy — developed over more than two decades — has been to survive, buy time, and wage a war of economic attrition against the United States. And by Tehran’s own scorecard, that strategy appears to be working.
Tehran’s Five Metrics
Iran’s leadership, now firmly controlled by IRGC hardliners, is tracking a fundamentally different set of indicators than its adversaries.
US Treasury yields are climbing. Ten-year yields have risen approximately 40 basis points since the conflict began, breaking above 4.4% earlier this week, according to Federal Reserve data. For Tehran, rising borrowing costs for the US government represent economic damage that compounds over time — particularly given that publicly held federal debt now stands at over 100% of GDP, roughly four times the ratio during the 1970s inflation crisis, according to the Congressional Budget Office.
Inflation is accelerating. Both the core Personal Consumption Expenditures index and core Producer Price Index are running above 3% year-over-year and climbing, per the Bureau of Economic Analysis — a trend that was already in place before oil prices spiked. With crude oil up approximately 40% year-over-year, the coming months will bring even higher headline inflation numbers as base effects kick in. The effective closure of the Strait of Hormuz is compounding supply-chain disruptions across the global economy.
Presidential approval is cratering. This may be the metric Tehran watches most closely. According to Reuters/Ipsos polling, only 36% of Americans approve of President Trump’s overall performance — down from 47% in the early days of his second term. On the cost of living, just 25% approve. On the economy, only 29% — the lowest reading recorded during either Trump term or the Biden presidency. A separate YouGov/Economist poll showed Trump’s net approval on inflation has collapsed from +5% at inauguration to -32% today.
American munitions are depleting. According to a report by the Royal United Services Institute (RUSI), the US and Israel expended over 11,000 munitions in just the first sixteen days of the conflict. Iran’s leadership understands that the United States faces a fundamental industrial constraint: it cannot sustain this intensity of operations indefinitely. Rebuilding these stockpiles requires critical minerals — tungsten, copper, steel, propellant materials — many of which are controlled by China.
International support is materializing. Russia and China are providing intelligence support to Tehran at varying levels. Moscow is also supplying drones, medical equipment, and food, according to reporting in the Financial Times. A growing list of countries — including India, Pakistan, and China — have reportedly opened direct channels with Tehran to negotiate safe passage through the Strait of Hormuz in exchange for transit fees, providing the regime with an income stream to fund continued resistance.
The View from Tehran
Taken together, these five factors lead to a conclusion that will be uncomfortable for many Western observers: while Iran is absorbing severe punishment, its strategy of fighting a war of endurance in the economic domain is largely proceeding as planned.
This assessment found unexpected validation from a surprising source this week. Sir Alex Younger, the former head of Britain’s MI6, stated in an interview that the United States had underestimated the task and had, approximately two weeks into the conflict, lost the initiative to Iran. Asked directly who holds the upper hand, his answer was unequivocal: Iran.
President Trump’s partial de-escalation signal on Monday — posted to social media an hour before the Treasury market opened, following a turbulent session in Asian and European markets — is likely viewed in Tehran as further confirmation that economic pressure is beginning to constrain American decision-making.
The Fiscal Trap
The current environment bears a troubling resemblance to the summer of 2008, when surging oil prices pushed inflation higher even as the economy weakened. At the Federal Reserve’s August 2008 meeting, Dallas Fed President Richard Fisher argued for a rate increase despite acknowledging that the economy was fragile and the financial system brittle. One month later, Lehman Brothers collapsed.
Today’s Fed faces a similar trap, but with far less room to maneuver. The federal government’s fiscal position has deteriorated dramatically since the 1970s:
| 1973 | 1979 | 2008 | 2026 | |
|---|---|---|---|---|
| Public debt (% GDP) | 25.2% | 25.0% | 39.2% | 100.6% |
| Net interest (% GDP) | 1.3% | 1.6% | 1.7% | 3.3% |
| Defense spending (% GDP) | 5.7% | 4.6% | 4.1% | 2.8% |
| Mandatory spending (% GDP) | 7.2% | 9.0% | 10.7% | 14.2% |
Source: Congressional Budget Office
The numbers are stark. Mandatory expenditures have doubled as a share of GDP since the 1973 OPEC embargo. Net interest costs have more than doubled. And defense spending, as a share of GDP, is lower than it was in 2000, when the world was at relative peace.
Fourth-quarter GDP growth was revised down to just 2.0% year-over-year, according to the Bureau of Economic Analysis — near a three-year low. Real per capita disposable income and consumption expenditures have both been trending downward since 2024. Stagflation is now unambiguously present in the data.
The Attrition Equation
Iran is fighting a fundamentally different kind of war than the United States. While Washington is deploying expensive precision-guided munitions, Iran is countering with inexpensive, mass-produced attack drones and short- to medium-range ballistic missiles. The cost asymmetry is staggering: a single American cruise missile can cost over a million dollars; an Iranian Shahed-type drone costs a fraction of that.
RUSI’s assessment is blunt: battlefield dominance matters less than the industrial capacity to replenish critical stockpiles. Iran is calculating that as the intensity of American and Israeli strikes inevitably wanes — whether due to munition shortages, political pressure, or both — the balance of power will begin tilting in its favor.
What to Watch
Treasury yields above 4.5%. A sustained move higher would signal that the bond market is pricing in a more inflationary — and potentially destabilizing — trajectory. The Japanese yen has weakened to 159.5, near the 160 threshold where the Bank of Japan has historically intervened. If Japan, as the largest foreign creditor to the United States, is forced to sell US assets to support its currency, that would add further upward pressure on yields.
Oil prices and pass-through. The full inflationary impact of the Strait of Hormuz disruption has not yet been felt. Oil and gas shipments take two to four weeks to transit from the Gulf to their destinations, meaning the supply shock is only now hitting consumers in earnest.
Munitions burn rate. Watch for any signals — whether from Pentagon briefings, think-tank analyses, or the pace of operations — that the US is moderating its tempo of strikes. A reduction in sortie rates would suggest stockpile constraints are becoming binding.
Ground operation signals. The US has moved substantial ground forces into the region, including Army Airborne troops, special forces, and a Marine Expeditionary Unit — roughly 20,000 troops available for immediate deployment with more en route. A ground operation targeting the Strait of Hormuz or Iran’s Kharg Island export facility would represent a dramatic escalation with unpredictable consequences for energy markets.
Diplomatic channels. Any resumption of back-channel communication, particularly through Oman or other Gulf intermediaries, would signal that one or both sides are looking for an exit ramp — though the question of acceptable terms remains wide open.
The Uncomfortable Truth
The US-Iran conflict reveals something that markets and policymakers have been slow to internalize: military superiority does not automatically translate into strategic victory. Iran cannot match American firepower, and its leadership knows it. But it has constructed a strategy designed to exploit the very vulnerabilities that military planners tend to overlook — fiscal fragility, inflation sensitivity, political cycles, and industrial base limitations.
Whether this strategy ultimately succeeds depends on variables that neither side fully controls. But the fact that a former MI6 chief is publicly stating that Iran holds the upper hand — just 27 days into a conflict with the world’s dominant military power — should prompt serious reflection about the nature of modern warfare and the limits of conventional force.
The markets, at least, seem to be paying attention. And so is Tehran.
This article is part of The Rio Times’ Global Lens series, offering in-depth analysis of the forces shaping global markets, geopolitics, and the world economy. This article does not constitute investment advice.
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