In 1956, Britain was forced to abandon the Suez Canal and withdraw from Egypt after a humiliating political and financial defeat. The crisis did not end the British Empire overnight, but it exposed the decline of a power that had dominated much of the world for more than two centuries, in an empire on which the sun famously never set. Britain could still fight wars, but it could no longer act as an independent global power without facing the economic and political limits of its strength. Now, nearly seventy years later, the question is whether the war with Iran and the crisis around the Strait of Hormuz could become America’s Suez.

When war becomes too expensive

After Egyptian President Gamal Abdel Nasser nationalised the Suez Canal in July 1956, Britain, France and Israel launched a military campaign to regain control of the canal and weaken Nasser’s government. Their forces made rapid progress, but the operation soon became a financial and political crisis for London.

The British pound came under heavy pressure, and the Bank of England had to use its dollar reserves to defend the currency. The United States opposed the invasion and refused to provide the financial support Britain needed unless it agreed to stop the operation. On 6th November, Britain accepted a ceasefire. It later withdrew its forces from Egypt.

As the International Monetary Fund’s account of the crisis explains, the pressure on sterling was central to Britain’s decision. The crisis showed that the government could not continue the war without putting its financial position at long-term risk.

The war with Iran could create a similar problem for the United States, although the economic conditions are different. The dollar is far stronger internationally than the pound was in 1956, and the American economy has greater resources. But the comparison is about the cost of sustaining a war when its political goals remain out of reach.

If the war continues without a clear result, the United States will have to spend more on military operations, weapons, logistics and the protection of its forces. At the same time, the disruption of energy supplies through the Strait of Hormuz can raise costs across the global economy.........

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