Pyrrhic victory for Western financial markets that breaks the US world power order

The Iran deal shows something bigger than a war

The so-called peace agreement between the US and Iran is a largely finished peace agreement, even if Netanyahu challenges it a bit by continuing to bomb Lebanon. But Israel will probably have to give in to Trump and the US will no longer be able to bear the political and economic cost of a continued closure of the Strait of Hormuz and a total collapse of the world economy.

But something bigger is already visible.

The US no longer seems to be able to dictate terms in the same way. Israel worries about isolation. The EU, once again, plays hardly any constructive role at all. And the global South is given more avenues than before. This is what Ha-Joon Chang captures in Jacobin when he says that the old unipolar world power order has collapsed.

Chang is right about the important things. But he doesn't dwell long enough on the question of what should come afterwards.

Because the problem is not just that the wrong countries have dominated world trade. The problem is also that we have made world trade an end in itself.

War as victory without victory

The West does not always have to win its wars to gain something from them.

Military targets can fail. Regimes can survive. Rebellions can continue. New power blocs can emerge. Yet in the meantime, the war can benefit parts of the Western economy. Capital seeks security . States order weapons. Bond markets get new buyers. The defense industry fills its order books. Banks, consultants, energy companies, logistics companies and reconstruction actors find new markets. In the spring of 2026 , the US stock markets reached new records.

This does not mean that every war follows a secret plan. But war and destabilization can give the West time, capital flows, credit power, and industrial advantages even when the military strategy fails.

The Cold Engine of War Keynesianism

War gives the state a brutal excuse to do things it otherwise often refuses to do. It can order, borrow, invest and mobilize while social investment can continue to fall.

As governments buy weapons, ammunition, logistics, electronics, transportation, satellite services, cybersecurity, and repairs, demand rises rapidly. Companies hire. Subcontractors get contracts. Export credits, guarantees, and military support programs create new business.

It is similar to Keynesianism, but without the social ambition. The state stimulates the economy, but it does so through destruction, threats and armaments. The same money could build railways, housing, healthcare, climate change and schools. Instead, it ends up in arms flows and security apparatuses.

Here is the moral core of the war economy. It creates GDP. It also creates dead, injured, destroyed cities, trauma, medical needs, funerals and lifelong costs. The economic activity is there. But it grows out of human catastrophe.

When destruction becomes growth

War is often counted as activity in the economy. Weapons production increases GDP. Military logistics increases GDP. Medical care after bombings increases GDP. Rehabilitation, security, reconstruction and debt management also increase GDP.

It says more about the current limitations of the GDP measure than about the benefits of war. An ambulance after a bombing creates market value. An uninjured child on his way to school does not. A rebuilt bridge counts. The destruction of the original bridge is not as visible as human loss in the national accounts.

The war economy can therefore look strong while societies are falling apart. It can boost certain sectors while real household wages fall. It can benefit shareholders in defense companies while workers pay through inflation, taxes, cuts and reduced security.

That makes war Keynesianism politically useful. It stimulates without challenging property power. It fills order books without increasing the purchasing power of the poor. It can give the state an active role without the state building equality.

Panic seeks dollars

In times of global turmoil, capital often seeks safety . This benefits core currencies, large bond markets, and countries with deep financial systems. The United States has long had the strongest position because the dollar serves as the world's central reserve currency.

Wars, energy shocks, and geopolitical fears can therefore send money toward U.S. Treasury securities and other dollar assets. This sometimes slows down dedollarization. It gives the United States cheaper financing than many other states. It also strengthens the global role of U.S. banks, credit institutions, and financial markets.

But the connection does not work mechanically. If the US itself appears to be the source of uncertainty, capital may seek elsewhere . In some crises, money goes home to its own region. In other situations, the eurozone or other safe markets win. War does not always strengthen US stock markets. On the other hand, unrest can often benefit core markets, government securities and the defense industry.

This makes the West's form of victory selective. Financial markets can win where societies lose. The dollar can strengthen while diplomacy weakens.

Then, the past year shows that Trump's friends have received insider tips about when changes in the Iran war will occur so that they can sell or buy shares in advance to make billions of dollars.

Arms orders as industrial policy

The defense industry is close to the state. It lives off public decisions, security policy threats, and long-term contracts. War gives it three advantages at once: acute demand, political legitimacy, and technical standardization.

When Ukraine needs air defenses, artillery, ammunition, and drone systems, Western order books fill up. When Israel receives American military support, weapons systems, and sales, its warfare is tied more closely to the US industrial and strategic system. As European countries arm themselves, the market for NATO-compatible technology grows.

It's not just about weapons. It's about standards, spare parts, training, software, upgrades and future dependencies. A country that builds its security around Western weapons systems simultaneously ties its logistics, its doctrine and its budget to the West.

That is why arms flows function as industrial policy. They retain technological expertise. They create export revenues. They make allies dependent . They prolong Western power even as the West's broader industrial base has lost its weight.

Now the US and Iran are going to invest hundreds of billions of dollars in Iran's reconstruction. These will provide artificial profits for many American companies as well.

Ukraine and the soft iron fist of credit power

Ukraine shows how military aid, loans, reconstruction and institutional power flow together.

The West has helped Ukraine survive Russia's attack. That support has real significance. At the same time, the support creates future dependencies. The EU's support consists largely of grants and in-kind support, but also of very favorable loans. The loans, reconstruction, EU alignment and modernization programs give the West influence over Ukraine's economy long after the war.

It is not simple colonization. Ukraine has its own will, its own struggle and its own security interests. But it is not pure altruism either. The lender gains power. Whoever finances reconstruction often gets to influence laws, reforms, ownership, procurement and markets.

So the West can lose parts of the military initiative and still gain influence over the future state. The war creates a debt and reconstruction field into which capital, consultants, banks and political institutions move in.

Gaza, Lebanon and the Economy of Western Complicity

In Gaza, Israel and Lebanon, a harsher pattern is emerging. The US and other Western powers often talk about rules, security and international order. At the same time, military support and arms sales continue as civil societies crumble.

The International Court of Justice in 2024 required Israel to take measures to prevent acts under the Genocide Convention and to enable humanitarian assistance. The Court also required Israel to stop the offensive in Rafah. At the same time, UN bodies have pointed to serious violations of international humanitarian law in Lebanon, where both Israeli attacks and Hezbollah rocket attacks on civilians raise legal questions.

Despite this, the military relationship continues. Israel receives large annual American aid packages. New sales and deliveries simultaneously strengthen the US defense industry . The war thus becomes not only a question of geopolitics. It also becomes a question of material participation.

The West is not immune to the consequences. The West sells, finances, protects, legitimizes and sometimes blocks responsibility. That is where the deeper scandal arises: a system that claims to defend rules can at the same time make exceptions profitable.

Iran and the diplomacy that is being pushed aside

Iran shows how dangerous logic becomes when the war machine starts moving faster than diplomacy.

Now there has been an agreement with Iran where Donald Trump has had to give way on most points. But Tehran had already repeatedly signaled a willingness to negotiate and settle the peace , but on terms that the US and Israel have not accepted. The US and Israel's terms have not necessarily been reasonable. That does not make Iran an actor without domestic problems. The country's conditions, regional alliances and military actions require their own analysis. At the same time, the West has not played an immodest role behind the rise of the ayatollahs' oppression.

When diplomacy gives way, the risk of a regional conflagration increases. Not only are Iran, Israel and the Gulf states threatened. Energy flows, shipping, insurance markets, food prices and poor importing countries are quickly affected.

For the core countries, the unrest can still have financial effects that resemble security. Capital seeks protection. Arms companies rise. States arm themselves. But for the global South, the same crisis often results in more expensive imports, a weaker currency, higher interest rates and less room for development.

Prices, wages and disrupted production

War disrupts production. Ships change routes. Energy becomes more expensive. Insurance rises. Inputs get stuck. Companies blame uncertainty and raise prices.

Sometimes there are real costs behind the price increases. Sometimes the crisis also creates room for larger margins . When everyone expects higher prices, companies can raise more than costs require. Wages often follow more slowly. Then real wages fall.

This is where war economics and class politics meet. Workers pay through more expensive food, energy and housing. Capital owners in the right sectors can gain through higher prices, larger orders and rising stocks. Central banks often respond with higher interest rates, which squeezes households and indebted states even harder.

War then functions as a distribution machine. It shifts risk downwards and profits upwards. This rarely happens through a single decision. It happens through prices, interest rates, currencies, insurance, debt and market power.

Globalization that backfired

The West's globalization first created a comfortable order for capital. Companies moved production to low-wage countries. Consumers in the West received cheaper goods. Inflationary pressures fell. Profits rose. Union power weakened.

But the same process also moved knowledge, machinery, supply networks, and technical learning. This was especially true of China. The West gained cheap production. China gained industrial strength.

This is the double bottom line of globalization. It gave the West cheaper goods and higher financial profits for decades. At the same time, it built a rival that can produce, export, research, invest, and arm on an enormous scale.

When the West now talks about reindustrialization, it faces a harsh reality. Factories are not just buildings. They are ecosystems of skills, subcontractors, engineers, logistics, education and long experience. This does not grow through stock market rallies.

Whoever has the factories has the future.

Long-term power lies where production is. Finance can buy time. Credit can create dependencies. War can lift defense stocks. But factories, expertise and supply chains determine the future.

Manufacturing drives research, technological learning, and productivity. It creates the machines, materials, and systems that other sectors need. Countries that lose their industrial base lose more than jobs. They lose problem-solving skills.

That’s why US reindustrialization is so difficult. Much of the West’s recent “de-risking” from China does not mean production moving home. It often moves to Mexico , Vietnam, India, or other countries. Moreover, many new production chains continue to use Chinese inputs.

This gives the West shorter distances to some factories, but not necessarily regained dominance. China may lose some final assembly. But the country often retains a heavy role in components, machinery, materials and supply networks.

The Pyrrhic victory of finance

War can therefore give the West a Pyrrhic victory. Financial markets can win when capital seeks safety. The defense industry can win when states arm themselves. Lenders can win when devastated countries need loans. The dollar can win when the world gets scared.

But this form of victory eats away at the future. It does not solve the climate crisis. It does not build functioning welfare. It does not raise the power of workers. It does not automatically rebuild the industrial base that the West itself moved away.

On the contrary, war can deepen the weakness it temporarily hides. More money goes to weapons. Less goes to civilian investments. More politics gets bogged down in security logic. Less politics builds equality, education, energy transition, and productive peace.

The West can thus win wars without winning the future. The financial capitalist core can strengthen its stock prices, its contracts and its currencies in the heat of the crisis. But the long-term power remains in production, in people's know-how and in the ability of societies to build something that does not require destruction to function.

Chang sees the opening – but not the whole trap

Chang has long shown how rich countries became rich through active industrial policies, tariffs, government regulation, public investment, and protected domestic markets. Only then did they preach free trade to others. It was hypocrisy with an academic tie.

He is also right that China's dominance does not automatically close all avenues for development. The United States dominated the world's industry after World War II, but West Germany, France, Italy, Japan and South Korea industrialized anyway. Every time someone says the market is saturated, a new country appears and shows that history does not obey Excel.

But here I want to take it one step further.

We don't just need a new export-oriented industrial policy. We need a new view of trade, money, self-sufficiency and ecological boundaries.

The left should not be content with demanding better export strategies. It should ask why societies should organize their future around maximum exports in the first place.

Exports are not free money

In a fiat currency system, exports are not a magical source of income. The state does not need export revenues to “afford” welfare, healthcare, housing, pensions, or green industry. A monetary sovereign state creates its own currency. The real limitations are labor, energy, technology, raw materials, knowledge, inflation, and ecological space.

Export means that a country sends out goods, natural resources, labor time, and energy. Import means that the country receives actual goods and services in return.

That doesn't mean that exporting is always bad. But it does mean that exporting is not an end in itself. A country doesn't automatically become richer by working hard, digging up its natural resources, and sending the results abroad to get numbers on a financial balance sheet.

It becomes especially absurd when countries with their own currencies chase export surpluses as if they were still living under the gold standard. It's like owning a well, but still carrying water to your neighbor all day to get points in a system someone else built.

Imports can knock out workers and productivity

The free trade ideology said that everyone would benefit from specialization. In practice, many workers in the West saw their jobs disappear. Entire regions lost industrial capacity. Societies lost professional skills, production chains, and social stability.

In the Global South, many workers and countries were allowed to specialize in low-wage production, but those countries that were allowed to combine it with state-subsidized industrialization overtook the West.

Then came right-wing populism.

It was no accident. Neoliberal globalization made it easier for capital to shift production, squeeze wages, and pit workers against each other. When the social costs came, the right blamed immigrants, refugees, climate policy, and “elites.” They rarely said the obvious: capital had shifted power from democratic societies to global ownership structures.

It is more difficult to treat workers as scraps when they are in their own country, visible in their own welfare and voting in the same elections. Globalization therefore became not just a trade model. It became a disciplinary model where jobs and the power it gave Western workers were moved to low-wage countries. .

The new imperialism is also based on wars, even if they are often said to have been fought in the name of democracy . Globalization hid this dependence on wars behind supply chains, debts, intellectual property rights, trade agreements, dollar dominance and the threat of capital flight. But historically, the country that has the production with it wins wars. The West has moved production to other countries and now it is becoming more difficult for the West to win wars.

Trade what we need – not everything that can be sold

A reasonable leftist line should begin in self-sufficiency.

Every country should try to produce as much as possible of the basic things that people need: food, housing, energy, healthcare, medicines, public transport, education, digital infrastructure and green industry. Not for nationalistic reasons, but for democratic, social and ecological reasons.

International trade is still needed. Not all countries have all the natural resources. Not all can produce everything. Resource-poor countries need fair and reciprocal trade relations. Poorer countries need technology, investment and industrial capacity. But trade should solve real needs, not create artificial dependencies.

We should trade in what we cannot reasonably produce ourselves. We should not ship goods halfway across the planet just because wages are lower somewhere else, environmental requirements are weaker, and owners are more mobile than workers.

Ecologically, this is obvious. The climate doesn't care about trade balances. It counts emissions, material flows, energy and destroyed nature.

Paid in imports – not in the money of power

This also requires new monetary thinking.

If a country exports, it should basically be paid in imports, that is, in real goods and services that the country needs. Otherwise, exports easily become a way to accumulate claims, reserves, or currency in a system where someone else's money gains global power.

The petrodollar showed how dangerous this is. When a currency becomes the hub of world trade, that country gains a position of power that others must adapt to. Then financial infrastructure can become geopolitical control.

Keynes saw this problem at Bretton Woods. His idea of ​​bancor was about an international settlement system that would reduce the destructive imbalances of both deficit and surplus countries. That idea should be revived in a modern form.

Perhaps the world needs a new unit of account. Perhaps we need transaction-based currency solutions. Perhaps regional systems need to emerge. But the goal should be clear: no new superpower should be allowed to profit from world trade in the same way that the United States has done through dollar dominance.

Trade should be exchange, not tribute.

Multinational companies must be tied to the location

There is a possible exception to a strict self-sufficiency line. Some multinational companies may be able to play a role if they produce in the country where they sell. Then they can contribute technology, knowledge and industrial capacity without simply using the country as a market or low-wage zone.

But this requires strict conditions.

Production must be local. Profits must be taxed locally. Working conditions must follow the country's rules. Technology transfer must be included. The state must be able to say no. Otherwise, multinational corporations become just another way of shifting power from democracy to ownership.

There is always a risk of power. Capital that can leave the country can also threaten the country.

Green and social MMT as a way out

As the old model of globalization crumbles, we face a choice. The right will offer its usual medicine: lower borders, tougher controls, suspicion of refugees, more police, more nationalism, and continued obedience to capital.

The left should offer something completely different.

Green and social MMT could be an answer. A state with its own fiat currency could use its fiscal policy to mobilize free resources, build housing, employ people, improve healthcare, lower housing costs, create good jobs, build green industry and give people security. Taxes are needed, but not to “find money” in the sense of household accounting. They are needed to control resources, curb inflation, reduce inequality and break private concentration of power.

This requires production. It requires planning. It requires workers, engineers, nurses, teachers, builders, scientists, farmers, technicians, and local knowledge.

It also requires us to stop pretending that cheap imports are always cheap. Someone pays. Often it's workers, the climate, welfare and democracy.

Peace, prosperity and self-sufficiency go hand in hand

The Iran Memorandum shows that the power of US imperialism is not growing. It is declining. But reduced American power does not automatically create justice. An empire can fall and still leave behind hunger, debt, nationalism, the climate crisis and new power blocs.

Therefore, the left must use the opening wisely.

We don't need to nostalgically defend the old globalization. It gave us cheaper stuff, yes. But it also gave us vulnerable supply chains, deindustrialized regions, displaced workers, debt discipline, right-wing populism, and a world where people are forced to flee war, climate crisis, and economic subordination.

If the imperial form of globalization is breaking down, we should not try to glue it back together. We should build something better.

Green self-sufficiency. Social security. Monetary sovereignty. Fair trade. Regional production. International solidarity. Human rights. Refugee protection. Democracy that does not kneel before the bond market.

Chang is right: the old order is opening up.

But the hole in the wall of neoliberalism is not enough. The left must dare to tear down the wall completely.