Structural realists emphasize the anarchic international system, which forces states to determine how much power they need to remain secure. Structural realism contains two main branches: offensive and defensive realism. Offensive realists argue that states should maximize their relative power because the future intentions of other states cannot be known. Accumulating power is therefore considered the best protection. Defensive realists also accept anarchy and recognize the importance of power, but place greater emphasis on the counterbalancing and strategic blowback that excessive expansion may provoke.
A further difference concerns how states exercise the power they possess. Offensive realism expects states to exploit favourable opportunities to improve their relative position, whereas defensive realism places greater emphasis on restraint. A defensively oriented state may deliberately limit its exercise of power, signal that it does not seek expansion and behave predictably to reduce threat perceptions and develop strategic trust. Such restraint is not necessarily idealistic; it can be a calculated means of avoiding counterbalancing and improving long-term security.
The current brutal, unprovoked war of aggression against Iran illustrates this distinction. The U.S. and Israel have operated within an offensive framework, whereas Iran has shown restraint and continually signalled its willingness to de-escalate. The U.S. and Israel began the current phase of their decades-long war against Iran on 1 March 2026 with assassination strikes against Iran’s leadership and other targets, including a double strike on the Minab school that resulted in the deaths of 176 children, teachers and other civilians. If one strips away Western propaganda and seriously considers how a Western state would perceive such an attack, regardless of intent, it would be framed as barbarism of the highest magnitude. Viewed through this lens, Iran has demonstrated strength but restraint, despite its forceful retaliation and apparent current upper hand on the escalatory ladder.
That restraint is supported by a military strategy designed not to match the United States system for system, but to maximise Iran’s asymmetric capabilities. These include relatively inexpensive drone swarms and ballistic missiles—including advanced manoeuvrable variants—capable of penetrating targets protected by even the most advanced air-defence systems, such as THAAD, Aegis, PAC-3 and Arrow. Older systems are deployed alongside them to overwhelm defences and dominate the economics of exchange. This strategy is reinforced by Iran’s vast mountainous geography and hardened strategic underground bases.
The significance of this strategy extends well beyond Iran. Australian Liberal politician Peter Dutton once argued for continued reliance on the security provided by the United States, maintaining that it would be impossible for Australia to compete independently with a country such as China. This argument, however, misses a key reality highlighted by the current conflicts in the Middle East: the security imperative for a middle power such as Australia is not necessarily to compete directly with a great power like China.
Can Iran—or Ansarullah, for that matter—compete with the great power of the United States? Of course not. What the Iran war demonstrated is that effective deterrence requires forcing potential opponents to confront the real cost-benefit calculation of attacking another state. In other words, a smaller state does not need to match a great power’s overall capabilities; it needs to ensure that the anticipated costs of an attack outweigh the expected benefits. This is the strategic basis on which a middle power can pursue greater independence without pretending it can equal a great power.
Ironically, Ray Dalio—one of the world’s great hedge-fund managers—recently argued that, amid the emerging great-power security competition, small and medium-sized states would essentially have to pick a side. Apparently, hedging is reserved for only a select few. If “gaslighting” was the word of the year in 2020, “security hedging” is surely the phrase of 2026.
Australia’s recent relationship with China shows both the political limits on such hedging and the opportunities that remain. In October 2018, Victorian Labor Premier Daniel Andrews signed a non-binding memorandum of understanding with China’s National Development and Reform Commission, making Victoria the first and only Australian state to formally associate with the Belt and Road Initiative (BRI). The federal Liberal–National Coalition government, led by Scott Morrison, opposed the agreement, maintaining that foreign policy was a Commonwealth responsibility.
In December 2020, the Coalition established the Foreign Arrangements Scheme, allowing the foreign minister to review and cancel agreements between state or local institutions and foreign governments. On 21 April 2021, Foreign Minister Marise Payne cancelled Victoria’s 2018 and 2019 BRI agreements, finding them inconsistent with Australian foreign policy or adverse to Australia’s foreign relations.
The federal Labor government led by Anthony Albanese has neither reversed the cancellation nor sought to join the BRI, and the Foreign Arrangements Scheme remains in force. Formal policy has therefore changed little: neither major federal party supports joining the initiative, although the broader diplomatic atmosphere surrounding China has become less confrontational. That less confrontational atmosphere matters because Australia’s security choices can no longer be separated from its growing energy vulnerability.
Australia, like many Asian countries, now faces a potential energy crisis. Over the past decade, it closed most of its refineries and came to rely on imports for around four-fifths of refined fuels, including diesel and jet fuel. The rationale was that refined-product supply chains were no more vulnerable than crude-oil supplies: any disruption affecting one would also affect the other. The recent crisis has exposed the weakness in this argument. Major refining countries with continued access to crude oil have restricted fuel exports, leaving import-dependent countries exposed to shortages. In a crisis, demand for immediately usable refined fuels is far greater than demand for crude oil.
This is where defensive realism becomes relevant to the practical administration of economic as well as military power. If offensive realism is associated with the unrestrained exercise of power, defensive realism can be associated with its strategic administration. This may involve building trust with otherwise hesitant nations that fear displeasing their existing security partners.
Australia’s current federal government is led by the Labor Party. Although security hedging may be more difficult under a Liberal–National Coalition government, the present political landscape may be more receptive to subtle opportunities for hedging. This creates an avenue for Australia and China to build greater trust within the security sphere. It also gives that trust an immediate economic purpose: the Labor government is particularly sensitive to an energy-related spike in inflation. Like many other progressive parties in the West, Labor has relied heavily on immigration to sustain GDP growth and prevent risky-asset devaluation.
The dramatic fall in the yen on 23 July—when it reached its lowest level since 1986—was a cautionary event that forced major intervention by the Bank of Japan. To finance its yen purchases, the Bank sold U.S. Treasuries, prompting the U.S. Treasury to intervene. To prevent further Treasury sell-offs, it reportedly agreed to purchase yen by selling European bonds. This market turmoil displayed indicators similar to those surrounding interventions in debt and currency markets in 2007.
Countries such as Australia, which already rely heavily on immigration to mitigate asset and currency deflation, are particularly vulnerable to additional energy-related inflation. Imposing further energy costs on already overstretched families could have dire consequences for ordinary Australians—and for the Labor Party at the next election. The Liberal Party is already campaigning on an anti-immigration platform, which has merit on economic and inflationary grounds, but is also partly a disguise for cultural-identity politics associated with opposition to Israel’s genocide of Palestinians and the subsequent anti-war protests.
China is therefore unlikely to agree to alter its refined-petroleum export policies solely for Australia’s benefit, as this would represent too great a departure from structural realist logic. However, it may be more inclined to adopt—and encourage other relevant states to consider—a more defensive form of classical realism. This could build trust while preserving opportunities for further security hedging and economic integration. The question is whether Australia has enough freedom within its existing alliance architecture to pursue that course.
This leads to the question: how realistic is it for Australia to deviate from its current security arrangements? The first consideration is what a modern security architecture between a middle power and a great power typically entails within the broader environment of great-power competition.
Such an arrangement is essentially a subscription. Much like subscribing to Netflix, Disney+ or Prime, Australia subscribes to the U.S. military-industrial and security complex and, in return, gains access to American weapons systems and security guarantees. Türkiye’s experience with the F-35 program illustrates this model. After participating in the program, Türkiye purchased Russia’s S-400 air-defence system—effectively subscribing to a competing defence-industrial ecosystem—and was subsequently excluded from the F-35 program.
Countries such as the United States significantly offset the cost of their military programs through arms exports and therefore depend on an ecosystem of reliable customers and allies. In return for their participation and strategic alignment, the United States provides these countries with varying degrees of security protection. This is the security-subscription model. Its value to Australia must therefore be judged not merely by the sophistication of the systems supplied, but by whether those systems meet Australia’s actual defensive requirements.
The principal weapons systems Australia has purchased from the United States include the F-35, Aegis-equipped destroyers, P-8 Poseidon maritime-patrol aircraft, M1 Abrams tanks and the proposed nuclear-powered submarines—if they ever arrive.
Australia’s older Abrams tanks were effectively given to Ukraine, while the war there has demonstrated the vulnerability of armour to inexpensive FPV drones. There is now a credible argument that, under current battlefield conditions, conventional tank warfare has become increasingly redundant.
The F-35 is undoubtedly among the world’s most advanced fighter aircraft. Yet the war against Iran has exposed significant limitations in its use for long-range force projection. Its limited combat radius creates dependence on aerial-refuelling aircraft, which are vulnerable both in the air and on the ground. If the United States has struggled to employ the F-35 effectively against Iran, the idea that Australia could use it effectively against China as part of a U.S.-led alliance appears increasingly far-fetched.
The F-35 could contribute effectively to regional defensive deterrence, as could Australia’s Aegis-equipped destroyers. The broader point, however, is that if these systems have limited effectiveness against Iran, they are unlikely to provide Australia with decisive leverage against a much more powerful state such as China. This also ignores the fact that China is Australia’s largest trading partner.
These realities weaken the argument—advanced by figures such as Ray Dalio, John Mearsheimer and many liberal politicians—that Australia must simply pick a side. They strengthen the case for security hedging based on sovereign capabilities, including domestically produced cheaper FPV drones, anti-ship weapons and air-defence systems. Such a posture could provide credible deterrence while signalling defensive intent, reducing the risk of conflict and opening the door to more pragmatic trade and economic opportunities.
That opening is particularly important because military alliances are no longer the only instruments dividing the emerging great-power blocs. One of the principal consequences of recent conflicts has been the increased use of trade sanctions. The most notable example is the Ukraine-related sanctions imposed on Russia’s energy industry and exports, which have come at considerable cost to the competitiveness of European manufacturing.
The effectiveness and durability of these sanctions are now being tested by disruptions to oil trade resulting from the war with Iran. India’s imports of Russian oil will be an important indicator. The United States has suspended targeted tariffs against India over its purchases of Russian oil amid the energy crisis, while India is currently importing record volumes from Russia. Russia is also invested in India’s refining industry and remains one of its largest defence partners. The two countries jointly developed the BrahMos anti-ship missile, while Russia supplies India with systems including the S-400 air-defence system and advanced combat aircraft. India therefore provides a concrete example of security hedging across energy, finance and defence rather than simply picking one side.
A key indicator of future geoeconomic conditions will be both the volume of Russian oil imported by India and the discount applied to it. This discount has recently narrowed to approximately $2–3 per barrel—an insignificant amount compared with the rise in spot prices. These spot prices are not adequately reflected in the considerably lower crude-oil futures prices commonly quoted by the commercial media and widely mistaken for the price actually paid by customers.
The war with Iran has demonstrated a significant disconnect between quoted futures prices and the much higher physical prices being paid by some buyers. This discrepancy is likely influenced by U.S. financial strategies intended to mitigate price shocks, alongside propaganda efforts aimed at reducing public fear and apprehension over Trump and Netanyahu’s war against Iran.
Against this background, a recent U.S. sanctions bill advanced by the Senate in late July 2026 would authorize President Trump to impose tariffs of up to 100% on imports from major purchasers of Russian oil and gas or countries deemed to be facilitating sanctions evasion. The principal targets would likely be China and India, although the bill’s broad wording could potentially encompass other European and Asian trading partners.
Threats of this kind increasingly resemble a dynamic described by Thomas Schelling: repeated threats that are not followed by action gradually lose their coercive power as adversaries cease to expect the threatened consequences to materialize. China has already demonstrated that it is unlikely to be coerced by tariff threats, while the U.S. Congress appears to lack the political will to impose measures that could significantly increase domestic inflation. Furthermore, Trump has recently emphasized that he does not want to be remembered as the next Herbert Hoover—the president in office when the Great Depression began in 1929. The United States is therefore left threatening measures that could undermine its own economic position while searching for new military options that face similar strategic limits.
Trump has also reportedly asked the Department of Defense, out of supposed frustration, to devise a more creative way of attacking Iran. Mearsheimer rightly characterises this as further “flailing around.” Yet there is a creative solution available to Trump that his strategists may not have considered. To understand it, we must return to the late-1990s Project for the New American Century (PNAC).
Most political scientists now frame the wars that followed this policy as among the greatest failures in U.S. foreign-policy history. To be clear, I personally believe that the United States and the neoconservatives were likely responsible for 9/11—a war crime against their own people—and that the wars that followed were also war crimes that killed millions. If the United States was responsible, the ends do not justify the means. The countless lives lost were a tragedy, and the resulting conflicts endure to this day, particularly in Palestine and Iran.
Putting all of that aside, however, and examining the matter from a purely strategic, Machiavellian perspective, I remain agnostic about whether the wars that followed were definitively strategic failures. The current war against Iran will probably provide further insight into this question, but the reason for my uncertainty can be found within the PNAC project itself.
What was PNAC’s core objective? It emerged against the backdrop of the Cold War’s conclusion, when the military-industrial complex and national-security policymakers were predominantly concerned that the disappearance of a major rival would reduce funding for the Department of Defense and obstruct the continued development of military technology.
It must be understood that the military-industrial complex is one of the largest engines of technological development and competition. Organisations such as DARPA develop technologies that are sometimes decades ahead of their commercial equivalents. Indeed, these defence technologies frequently lay the groundwork for eventual commercialisation.
In a very Hobbesian sense, PNAC’s purpose was to keep the Leviathan—the beast—fed and fat, so that when another great-power rivalry eventually emerged, the American monster would remain the fattest, scariest and most feared. Viewed in this way, PNAC was successful, notwithstanding the military failures the United States suffered along the way. Winning every war was arguably a secondary objective; the higher priority was keeping the beast well fed.
So, what is my creative advice for the United States? Do what keeps the Leviathan fed and healthy. And what would keep the beast fed? A nuclear Iran.
A nuclear Iran would pose the greatest threat to the wealthy Gulf states and Israel, which possess significant financial and human-capital resources in the United States. Rather than weakening the American military-industrial and security complex, a nuclear Iran would strengthen demand for its protection.
Politically, this policy might be difficult for Trump, but it could create a mutually beneficial avenue for de-escalation. Trump would tacitly accept a nuclear Iran, while Iran would maintain nuclear ambiguity so as not to embarrass him. This would provide both countries with a viable off-ramp.
Obviously, such an arrangement would be detrimental to the Israel lobby, but it is time for the U.S. government to regain the dominant hand in its relationship with Israel. It would put Israel back in its place and re-establish the United States as Israel’s indispensable security umbrella. If Israel wants security, its Zionist supporters would need to invest more heavily in the U.S. defence industry so that America can continue providing that protection.
The same arrangement could also give Iran a realistic opportunity to re-enter the global financial system, marking a first step towards normalization and the de-escalation of other theatres, including the conflict in Ukraine and the sanctions imposed on Russia. It would connect the article’s two central arguments: defensive restraint can create trust, while carefully designed commercial institutions can turn that trust into practical security and economic cooperation.
One practical starting point would be the implementation of the Enhanced Security Assessment Certificate (ESAC) system. ESAC would allow Iran to preserve its defensive-realist posture while offering Asia-Pacific customers—including Australia, Japan and Taiwan—a legally credible and commercially attractive pathway back into the Gulf petroleum market.
Through independent, voyage-specific security assessments and secure digital authentication, ESAC could verify that each certificate corresponds to the relevant cargo, vessel, ports, transit route and contractual terms. Used alongside existing trade documentation, sanctions screening and financial compliance procedures, it would strengthen legal, trading and financial integrity without falsely suggesting that commercial certification can override national sanctions or regulatory requirements. For buyers, sellers, brokers, insurers and financiers, this would provide greater confidence that security documentation is genuine, unaltered and applicable to the proposed physical cargo transaction.
Marketed as an enhanced assurance mechanism for trade through the Persian Gulf and Red Sea, ESAC could help distinguish legitimate commerce from sanctions evasion, fraud and opaque trading practices. It would also give hesitant Asian customers a practical means of diversifying supply, strategically hedging their exposure and cautiously rebuilding commercial trust with Iran. In this sense, ESAC would be more than a certificate: it would provide a marketable architecture of trust linking defensive security signalling with physical energy trade, legal compliance and financial credibility.
Such an initiative would not resolve every political dispute, but it could create the institutional architecture for wider normalization while helping address the approaching energy-driven inflation crisis and the political instability it may produce. It would offer Australia and other Asia-Pacific states a means of practising security hedging through legitimate commerce, while giving Iran a practical incentive to continue exercising the restraint that defensive realism demands.