Political Report, Part 1:
War and Economic Crisis

April 4, 2026

World events are speeding up. With the U.S.-Israeli war on Iran that began on February 28, we are no longer in a period leading up to World War III. We are now in World War III’s opening stages.

This war, as we say in the Domestic Report, is different than the two previous world wars. Those two wars were fought between imperialist powers. Out of those wars, the U.S. emerged as by far the dominant power. Now, the U.S. is going to war again on a world scale as the unquestioned, dominant imperial superpower. It is either systematically attacking any regime or peoples that are at all independent or defiant, or else the U.S. is fomenting wars by proxy.

Just look at all the wars. To the west of the war in Iran, Israel, the U.S.’s chief client state and enforcer in the Middle East, has been carrying out a series of wars against the Palestinians in the Gaza Strip and the West Bank, as well as a similar type of war in southern Lebanon. Israel is fighting these wars, by the way, with strong U.S. support of all kinds.

To the northwest of the war in Iran, there is the war between Russia and Ukraine. This war is always presented as a war of aggression by Russia. And certainly, that is partially true. But the Russians were not alone in their aggression. Ever since the break-up of the Soviet Union in the early 1990s, the U.S. had been pulling the former soviet republics into its own orbit. But for the U.S., the big fish was Ukraine. Both because of its size, as well as its economic importance, the U.S. saw Ukraine as a bullet that it could aim at the heart of Putin’s Russia. The U.S. knew that by swinging it away from the Russian sphere of influence and bringing it under the U.S. military and economic umbrella, it would provoke a war.

So, first the U.S. engineered a coup in Ukraine that instigated a civil war, and then built up the Ukrainian army to fight Russia. Once Russia invaded, the U.S. did everything it could to keep the war going, costing the lives of hundreds of thousands of Ukrainians and of Russians. In fact, for the U.S., the Ukraine war was always a proxy war aimed at weakening Russia. On top of that, in the Western Hemisphere the U.S. overthrew the Venezuelan government, and has been choking Cuba by almost completely cutting off its fuel supply. Meanwhile, in Asia the U.S. and its allies have been surrounding China with military forces. Wars feed on each other. With the decision to go into Iran, they bleed together into one giant conflict, just like the other two world wars.

These wars follow their own logic. Trump tried to end the war in Ukraine. The U.S. had gotten control over much of Ukraine’s vast resources and wealth. Trump even got a cut. And the U.S. had sufficiently weakened Russia. But the war continues, outside of anyone’s control.

One focus of the U.S. war against Iran has been a relatively small body of water 30 miles wide and 100 miles long, called the Strait of Hormuz, which is located right in the middle of the Middle East. The Strait of Hormuz connects the Persian Gulf with oceans and continents around the world. Out of the Strait of Hormuz flows a major part of the production of the oil and gas that powers the world economy, along with some of the raw materials that are vital for agricultural and industrial production in the global economy. All this shipping through the Strait of Hormuz illustrates just how much the world economy and the fate of all humanity are tied together.

War Benefits Only the Capitalists

Under a different kind of society, a society run in the interests of humanity, the fact that the world economy is so interconnected would be a benefit, a sign of advancement and progress.

But we live in a capitalist society, based on the exploitation of the working class by the capitalist class for its own profit, including an ongoing war that the capitalist class carries out over who controls every piece of that economy. So, we have a highly developed economy, or at least the makings of a highly developed economy, on one side—and chaos, death and destruction on the other side. All because a tiny, tiny minority, the capitalist class, is in charge.

So, during this present war, under this present irrational society, this little body of water, the Strait of Hormuz, has been made a chokepoint in a fight to the death. And this involves not just the U.S and Israel against Iran. All of the greater and lesser powers in Europe and Asia are also implicated in this fight. As for the two big rivals of the U.S., Russia and China, they have been quietly aiding the Iranian regime to one degree or to another. It is certainly in their interest to keep the U.S. superpower tied down and occupied by this war. For Putin, as U.S. commentators never stop reminding us, this war has been a bonanza, since Trump lifted the embargo on Russian oil and gas in a desperate move to slightly relieve the oil shortage. So, all the powers are there. It’s a world war in miniature. And tied to this power struggle is the fate of hundreds of millions and even billions of people, who face the prospect of a widening war, as well as deteriorating economic and social conditions.

Certainly, as we’ve said, this new world war looks a lot different than World Wars I and II, especially for the role played by the United States. The U.S. entered those earlier wars—at least formally—only after they had been raging for many years. During those other two wars, the U.S. leaders even gave the appearance of being on the defensive. Before they got into those wars, the U.S. rulers tried to reassure the public that this country was above the fray. Today, the U.S. leaders are acting the exact opposite. It is the U.S. that is the unabashed aggressor in every case, directly or indirectly.

Special Conditions of Development in U.S.

The U.S. is a relatively recent world imperialist power. It only began its imperialist outreach in earnest in the early 20th century, that is, after the whole world had already been seized and divided by the earlier imperialist powers. So, the United States entire imperialist development has been at the expense of those earlier imperialist powers. It started against Spain, during the Spanish American War in 1898 when the U.S. seized Cuba. It also secured the Philippines and the province of Panama in the Republic of Colombia and finished digging the Panama Canal. The canal gave the U.S. entry to the Pacific Ocean, China and the continent of Asia, since most of U.S. industry was still concentrated in the east of the country. As Trotsky explained in a speech given in July 1924, “The entire pull of the United States, more correctly its main pull, is in the direction of China with its population of 400 million and the country’s countless, uncharted and limitless resources. Through the Panama Canal, American industry has opened up a waterway for itself from the east to the west, shortening the distances by several thousand miles.”

The U.S. capitalist class has had its eye on China for a very long time.

The U.S.’s special conditions of development, especially its geography, gave the U.S. big advantages over its imperialist rivals. In many ways, the U.S. is like a gigantic island in relation to the Old World groupings on the planet, protected by the Atlantic and Pacific Oceans on both coasts. As Trotsky explained, “This is an island, which at the same time, possesses all the advantages of Russia—her vast spaces. Thanks to its colossal distances, the U.S., even without a fleet, would be almost invulnerable to Europe or Japan.”

These geographical advantages served as a protection against invasion. It allowed the U.S. government to get away with maintaining a small army and navy up until it entered World War I. And after that war, the government shrank the army again, until the military buildup preceding U.S. entry into World War II. It also allowed the U.S. to enter both wars at a time of its choosing, that is, only after the wars had raged for several years.

These wars were essentially imperialist wars to redivide the world between imperialist powers. In the case of World War I, the U.S. waited three years before intervening. In the case of World War II, the U.S. waited more than two years from its official starting date. By staying out of the wars for several years, the U.S. allowed both sides of competitors to U.S. imperialism to greatly destroy each other.

Of course, even as the U.S. held itself out of the bloody fighting, it avariciously fed those wars with its industry and avariciously intervened in order to help crush its most likely and dangerous competitors—even as it pretended to be morally superior to its competitors. As Trotsky commented in 1924, “This is one of the most interesting paradoxes, one of the most curious jokes of history—jokes from which we did not and do not derive much merriment. American imperialism is in essence ruthlessly rude, predatory, in the full sense of the word, and criminal.”

Sounds a lot like Trump, doesn’t it?

Out of those two wars, the U.S. emerged as the preeminent imperialist power. That didn’t usher in a period of peace, a Pax Americana or the American century, as most commentators say. On the contrary, in the decades that followed World War II, there were more wars, often instigated by the U.S. imposing its rule.

After World War II, the U.S. did not demobilize as it did after past wars. The U.S. went from World War II straight into the Cold War, against the Soviet Union, the one big power that had emerged from World War II that was able, at least to a certain extent, to resist U.S. imperial domination. With the formation of NATO, the U.S. brought the lesser imperial powers under its wing. While a hot war never broke out between the U.S. and the Soviet Union, as the main enforcer of imperialist domination, the U.S. carried out a series of bloody wars and invasions, to name a few of the biggest: the Korean War, the Viet Nam War, the Dominican Republic, Lebanon, Grenada, Panama, the Persian Gulf War, Afghanistan, the Iraq War. These wars are well-known. Also well-known are all the coups and military dictatorships the U.S. imposed in Latin America, Africa and Asia.

But what is perhaps not as well known is that the process of redivision of the world that was carried out during the two world wars continued after World War II. That is, the U.S. continued to gain domination over the lesser imperial powers, against its supposed allies, the British, French, German and Japanese, both economically and militarily.

The U.S. Is a Colonial Power

First of all, the U.S. grabbed more of their former colonial empires and spheres of influence, in Asia, the Middle East, South America and Africa, which the smaller imperial powers were unable to maintain. Look at the Middle East. Before World War II, it had been dominated by the British and French. After the war, it was the U.S. that gradually took it over. Iran, for example, had been very valuable to the British Empire, especially because of its oil. But British imperialism was too weak to confront the crisis in Iran in 1953, when the Iranian government led by Mohammad Mossadegh tried to nationalize the oil industry. So, the British called on the U.S. CIA, which joined British intelligence, MI6, to foment a coup d’état. After that, for the British, there was no going back. The British were forced to cede a big chunk of Iranian oil and gas to U.S. oil companies. The U.S. also put in place the new dictatorship of the Shah in Iran and tried to use it to impose U.S. control over the rest of the Middle East, along with Israel, which also had previously been under British rule.

One can say the same thing about Southeast Asia, including Viet Nam, Cambodia and Laos—which had been a former colony of France. After the French lost the war in Viet Nam in 1954, it was the U.S. which took over the war and its responsibilities. And even though the U.S. was eventually driven out of Viet Nam in 1973, and its puppet government collapsed in 1975, the U.S. eventually was able to return to Viet Nam through investment and trade.

U.S. imperialism also came to dominate the economies of the lesser imperial powers to a much greater degree. And U.S. imperialism used its domination to make the lesser imperialisms pay a much bigger price for the economic crises that began to hit with ever greater force starting in the early 1970s. The U.S. used the manipulation of the U.S. currency, the dollar, in order to gain advantage over its competitors. The U.S. is able to do this because as the dominant imperial power, the U.S. dollar is the reserve currency, that is, the dollar is the accepted form of currency when companies in different countries trade between themselves. That means that big companies the world over, along with their governments and central banks, have to stock up on dollars to make sure that they are able to meet their obligations. But the dollar is not under their control. It is under the control of the U.S. imperial power. As U.S. Treasury Secretary under Nixon, John Connally, famously said to the Europeans and Asians during one such manipulation, “It’s our dollar and your problem,” meaning that if other imperial powers don’t like what the U.S. is doing with the U.S. currency manipulation, they can jump in a lake.

Another example of the U.S. domination over the lesser imperial powers is the famous energy crises of 1973 and 1979, in which the price of oil zoomed up. The news media and politicians blamed these crises on the oil exporting countries, especially the Arab exporting countries in often blatantly racist campaigns. But behind the scenes, it was U.S. imperialism that was pulling the strings. For the supposed energy crisis was a way to make the European and Asian competitors of the U.S. pay much higher prices for energy that they imported. Meanwhile, the U.S., a major producer of oil and gas in its own right, saw the value of the U.S. oil companies’ holdings in the U.S. increase greatly—thus, giving U.S. imperialism a big advantage over its European and Asian competitors.

Here is another example of how U.S. imperialism lords over the lesser imperial power. Back in the late 1970s and 1980s, Japanese imports were blamed for the mounting U.S. trade deficit, the decline of U.S. auto and steel production. Once again, the media and the politicians, accompanied by the usual experts, churned out their racist propaganda. Rising Sun, a blockbuster novel by Michael Crichton, warned forebodingly of the Japanese takeover of America. But just as the blockbuster movie based on the book, starring Wesley Snipes and Sean Connery, was coming out, the U.S. imposed treaties on Japan that contributed to a massive financial crisis and recession in that country, crises that the Japanese economy has never fully recovered from.

And finally, more recently, right after the U.S. instigated the Russia-Ukraine War, the U.S. imposed an embargo on Russian oil and gas. By cutting off the supply of cheap Russian oil and gas to the big European economies, it forced them to depend upon much more expensive energy from the Middle East, as well as the U.S. This hit the German economy especially hard, pushing it into a steep recession, while the U.S. oil companies laughed all the way to the bank. The Nord Stream pipeline which brought Russian natural gas to Western Europe was even blown up. What a mystery, replied the Biden administration innocently. They asked who would ever do such a thing? Well, nobody bothered to investigate because everyone knew that the U.S. was behind it.

Trump’s Policies

It’s exactly one year since Liberation Day, the day when the Trump administration announced a whole series of enormous tariffs on friends and foes alike. The news media treated Liberation Day as an outrageous break with U.S. policy. “Who would ever think that an American president would treat U.S. allies so badly?” it was said. But it isn’t a break with what previous presidents have done. On the contrary, the U.S. hasn’t stopped taking advantage of its dominant economic position. It hasn’t stopped redividing the world in order to grab more of the profits from its competitors. It has never stopped its economic war. As Henry Kissinger famously said, “it may be dangerous to be America’s enemy, but to be America’s friend is fatal.”

For the U.S. capitalist class, it is just at the beginning of transforming the economy into a war economy. This is not because of lack of spending. The U.S. military budget has doubled since 2000. In 2026, it is running at slightly over a trillion dollars. As was noted in the domestic report, this is more than what the next nine countries spend on their militaries, combined. But that doesn’t mean that the U.S. military is at all ready for war, or that the major weapons makers that swallow much of that budget, like Lockheed Martin, RTX, Northrup Grumman and Boeing, are ready to massively invest in weapons production. In 2023, for example, Lockheed Martin and RTX spent a combined total of $19 billion on stock buybacks, compared with just $4.1 billion on capital expenditures, according to data compiled by Bloomberg.

As people noted in the discussions, the U.S., Israel and other U.S. allies in the region were not ready for the Iranian response, as the relatively cheap Iranian drones and missiles time after time overwhelmed the very expensive U.S. interceptors. This was hardly a surprise since the Russians had been using Iranian drones for years in the war against Ukraine, and the Ukrainians came up with their own drone program, which they have relied upon heavily. In our document, “On the March to War,” there are plenty of examples of how the French capitalists refused to invest in their own wars and how there was a lack of response by the French state apparatus to this, just like in the U.S. As the document says, “In this area, as in others, the bourgeois government gives free rein to shareholders and capitalist bargaining, and is truly incapable of truly anticipating and planning.” These are the same kinds of institutions that are sending the working class to the slaughter the world over.

The U.S. war against Iran is already exacerbating the impact of economic crisis on the working class even in this country in countless ways. And this is only the beginning. As the war goes on, the costs will continue to skyrocket. Working people are suffering and sacrificing, people not able to afford both fuel and food, people having to go deeper in debt just to pay their bills. It’s gotten so bad, even the news media has been forced to cover it. And for what? This war, which is costing something like two billion dollars per day, represents an enormous transfer of wealth from the working class to the capitalist class. And not just for the military contractors. We have seen in recent years how companies take advantage of inflation to boost their own prices and profit margins to sky-high levels. It became known as greedflation. Today, oil and chemical companies are doing the same thing. They are immediately boosting prices on older stocks of fuels, chemicals and fertilizers that they had, long before the war broke out.

In the future, things are bound to get worse. How much worse? Just look at what’s happening right now in some Asian countries, like Bangladesh and the Philippines, where there are sudden shortages of vital fuel, leaving people stranded, often with nothing to eat, waiting for hours on line to get a few liters of gas, only to be told that the gas station is all out. There have already been stories of gas station attendants being murdered by the enraged public. That can be our future here, as the capitalist class in this country pursues its wartime agenda and drags society down into barbarism.

We Pay the Cost

Finally, these wars are almost certainly going to set off huge financial crises of all sorts. Even before the wars, the entire financial system was close to buckling under mountains of debt, public and private. As the cost of the wars and the military budgets increase by leaps and bounds, military spending will continue to crowd out the little bit of spending still left for the working population and the poor, for health care, education, housing, nutritional programs, not to speak of funding just to keep up the infrastructure. But that won’t be even close to enough to stop the government from accumulating mountainous new levels of debt. As it is, the federal debt is close to 40 trillion dollars.

This rise of this debt has nothing to do with funding the budgets, like Social Security, Medicare, Medicaid, food stamps, or whatever else the news media and politicians complain about. The government takes on this debt in order to fund the priorities of the capitalist class, starting with military spending, which we have seen is an important source of wealth for the capitalists. Even the interest on the debt, which alone costs over a trillion dollars every year, which is just about as big as U.S. military spending, is taxpayer money that goes directly to the capitalist class. For the capitalists, it’s a source of easy and supposedly safe income. But in the event that the value of all that debt craters, because of the rapidly increasing costs of financing the wars, it could set off an enormous financial collapse. Because U.S. government debt also underpins the entire global financial system.

In the world of corporate finance there are all kinds of time bombs, ready to go off. What the news media calls shadow banking, that is, high-interest corporate loans—the equivalent of subprime loans—had been a rising star for quick profits for big financial companies and institutions. In just a few years, the amount of risky, subprime loans to corporations had increased to over three trillion dollars. But over the last year, there have been mounting numbers of bankruptcies. Outright corporate fraud has been one reason. Another important reason is the chaotic shift in the market for computer software because of the rise of AI. The fear is that a lot of software companies, that had taken out these subprime loans, may soon be rendered out of date and driven into bankruptcy. So, no one wants to be holding their debt. And there has been a rush to the exits, in a kind of run on the bank.

This financial crisis had already begun to look like the beginnings of the subprime mortgage crisis, back in 2007 and early 2008, before the Iran war hit. The new financial chaos brought about by the war could very well be the final nail in the coffin. And this financial collapse could cause a much bigger collapse, just like the subprime mortgage crisis of 2008 caused a chain reaction in the entire global financial system.

But that’s not all. Waiting in the wings is Artificial Intelligence, or as it is known—AI. I am not going to go into any details about it. Just to know that, more than anything, the trillions of dollars poured into AI data centers has been a huge source of profits, wealth and power, for a few companies and a handful of billionaires. It’s also been a huge source of debt. But so far, every time a company announces a new, higher, target for borrowing and investing in AI, the stock price has risen on the news, making the billionaires richer—at least on paper. But anyone with any sense can see that all the hype looks suspiciously similar to the hype that accompanied earlier financial bubbles, during the dot-com era of the late 1990s, and the housing bubbles in the decade that followed. The difference is that the AI bubble is 17 times bigger than the dot-com bubble and four times bigger than the housing bubble. These things never turn out well.

This feeds into a vicious cycle. War exacerbates financial and economic crisis. Those crises, in turn, further heighten and exacerbate capitalist competition. And that competition leads to more war, more destruction, more mass murder and more economic chaos.

That’s the future presented to us by a society run by the capitalist class. It’s a future of barbarism. The only way out of this is for the working class to find and build the organization it needs so that the working class can finally end capitalist class rule over society, and build a different kind of society, a society based on the needs of all humanity.