The Alliance Dividend: Why Transactional Geopolitics Can’t Replace Democratic Partnerships

The United States and Israel launched coordinated strikes against Iran on February 28, killing Supreme Leader Ali Khamenei and triggering a regional crisis that has exposed both the value and fragility of alliance structures built over seven decades.

Around 2,000 strikes targeting Iran’s leadership and nuclear programme have unfolded against a backdrop of profound shifts in U.S. alliance policy. While France authorized American armed forces to use French bases and European allies coordinated Intelligence sharing, the crisis arrived as the Trump administration’s ‘Shield of the Americas’ summit gathered right-wing leaders in Miami – conspicuously excluding the region’s two dominant powers, Brazil and Mexico, as well as Colombia.

The simultaneous crises illuminate a central tension in contemporary U.S. Foreign Policy: the gap between what transactional bilateral deals can deliver and what multilateral democratic alliances provide. As Germany plans to lift defence spending to almost 3.5% of GDP by 2029 and Europe embarks on its largest rearmament since the Cold War, the strategic architecture undergirding U.S. power faces a stress test. The question is not whether America needs allies – but whether it understands what alliance structures actually deliver.

The Intelligence Dividend

When Iranian missiles struck Israel and Gulf states in early March, the response revealed alliance infrastructure most policymakers take for granted. The United Arab Emirates intercepted 109 drones and nine ballistic missiles on March 6 alone. British Ambassador to Bahrain announced the United Kingdom would fly Royal Air Force fighter jets over Bahrain to defend what he called ‘one of our closest allies.’

These weren’t ad hoc arrangements negotiated in crisis. They reflected intelligence sharing as a cornerstone of U.S. efforts to ensure its own security and that of key allies, enhancing strategic coordination and enabling timely responses to threats. The Five Eyes alliance – the United States, United Kingdom, Canada, Australia, and New Zealand – operates as what one former UK intelligence chief called ‘a team sport’, pooling resources and establishing shared threat perceptions that make cooperation and planning easier.

Yet as Lawfare research demonstrates, even this deep integration faces barriers. Existing policies and processes are inadequate, engender a highly risk averse attitude, and are often unable to address time-sensitive or dynamic issues. The default NOFORN classification limits information flow precisely when rapid coordination matters most.

The Iran strikes demonstrated both the strength and limits of intelligence cooperation. European officials contributed targeting data and early warning, but allies and partners may be slow to realize dangers posed by revisionist powers, and advanced planning based on varied intelligence assessments can hinder cooperation in a crisis. When seconds matter, institutional depth determines whether allied forces can operate as a unified network or a collection of national contingents.

The Semiconductor Strategic Layer

The technologies enabling modern warfare – from AI-enabled targeting to missile defence – rest on supply chains threaded through allied networks. Semiconductor manufacturing relies on a global network of specialized materials, equipment, and expertise, and policies that are aligned internationally help strengthen supply chain resilience and protect shared security interests.

According to Deloitte, sub-5 nm and sub-3 nm production ramps would continue to accelerate in the United States, Taiwan, and South Korea through 2026 and beyond. But this distributed manufacturing depends on coordinated export controls and technology sharing agreements. December 2024 U.S. export controls broadened to include software and tools supporting advanced computing nodes, with implications for the broader EDA ecosystem and foundry partners in 2026.

The U.S.-India semiconductor partnership illustrates the ‘strategic redundancy’ model that multilateral coordination enables. Micron’s $2.75 billion facility in Gujarat began partial operations in early 2025, Bharat Semi compound semiconductor fabrication is scheduled for 2027, and Intel’s glass substrate facility in Odisha will commence operations in 2026. These investments represent $5-6 billion and are expected to employ 8,000-10,000 workers.

Bilateral deals cannot replicate this architecture. Strategic redundancy offers a more pragmatic framework than wholesale reshoring, allowing democratic allies to build complementary production nodes that collectively reduce single-point failure risks while maintaining economic efficiency. China has deployed $150 billion in subsidies for semiconductor self-sufficiency but has struggled to overcome technological barriers imposed by U.S. export controls and allied coordination.

The Hemispheric Divergence

As allied coordination operated in the Middle East, the Trump administration’s hemispheric strategy exposed what transactionalism costs. The ‘Shield of the Americas’ summit convened leaders from Argentina, Bolivia, Chile, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guyana, Honduras, Panama, Paraguay, and Trinidad and Tobago. The three largest hemispheric democracies – Brazil, Mexico, and Colombia, representing about half the population in the hemisphere – stayed home.

According to Democracy Now, the administration has shown with the bombing of Caracas and the abduction of Maduro that they will go to extreme lengths to punish you if you do not get in line. Colombia, Brazil, and Mexico are countries that have either been threatened or punished through astronomical tariff increases for clearly political disagreements.

The summit reflected what Richard Feinberg, who planned the first Summit of the Americas in 1994, called a stark contrast. The first Summit projected inclusion, consensus and optimism with 34 nations and a comprehensive agenda, while the hastily convened Shield of the Americas mini-summit conjures a crouched defensiveness with only a dozen attendees huddled around a single dominant figure.

As NPR reported, Trump has been slashing foreign assistance to the region while rewarding countries lined up behind his crackdown on immigration, while China is offering trade and investment. Boston University’s Kevin Gallagher observed: ‘The U.S. is offering the region tariffs, deportations and militarization whereas China is offering trade and investment’.

The Sanctions Enforcement Problem

Coordinated Sanctions demonstrate what multilateral frameworks deliver that bilateral arrangements cannot. The Iran crisis has tested sanctions infrastructure built over decades. The EU adopted sweeping sanctions packages explicitly targeting Russian crypto providers and a ruble-backed stablecoin A7A5 that facilitated $93.3 billion in transactions in just 10 months, underscoring an increasingly multilateral sanctions regime.

Yet enforcement depends on allied coordination. Atlantic Council analysis warns that higher oil prices from the Iran conflict could help Moscow continue funding its war against Ukraine despite heavy sanctions, and policymakers should double down on enforcing sanctions against Russia to prevent Moscow from benefiting.

The challenge extends beyond state actors. Russian and Iranian sanctioned trade relies on carefully built networks of insurers, flag registries, port access, ship managers, financiers, and traders, and targeting these enablers through secondary sanctions and coordinated allied action would likely prove more effective than targeting ships.

Without allied coordination, sanctions erode. Washington persuaded allies and third countries to curtail Iranian oil purchases and tightened enforcement through the UN Security Council during previous crises. But sanctioned crude makes up an estimated 18% of global tanker capacity, increased pressure has constrained Russian flows and temporarily removed Venezuela from the market, yet Iranian exports remain largely untouched.

The Burden-Sharing Paradox

The Trump administration’s emphasis on defence burden-sharing intensifies even as European allies deliver. In 2024, defence investments grew at an exceptional rate, increasing by 42% compared to 2023 and reaching a record high of €106 billion, with projections to reach nearly €130 billion in 2025. Denmark and the United Kingdom stated they will increase defence budgets to 2.5% and 3% of GDP respectively by 2026, while Latvia and Lithuania will seek at least 5% of GDP.

Yet as Atlantic Council analysis argues, focusing the burden-sharing debate around a mathematical equation is reductive, fixes attention on inputs and not requirements, and does not translate into understanding what real military capabilities of allies are.

The 2026 National Defense Strategy emphasizes burden-sharing while requiring partners to take the major role in regional security deficits. Pentagon policy chief Elbridge Colby defended this as ‘a return to the Cold War mentality, when these were expected to be real military alliances with burden-sharing’.

But capabilities matter more than spending percentages. Allies must strengthen conventional forces including multinational deployments on NATO’s eastern flank, show proactive readiness to fill gaps in strategic enablers the United States currently supplies, and build out airlift capabilities, air-to-air refueling, and intelligence, surveillance, and reconnaissance platforms.

The Transactional Trap

Transactional diplomacy delivers short-term agreements but erodes the institutional depth that crises expose as valuable. Transactional diplomacy prioritises concrete exchanges such as economic incentives and security guarantees over abstract principles or long-term alliances, focusing on immediate gains and tangible benefits.

As Foreign Affairs analysis examines, this approach carries historical risks. The 1648 Peace of Westphalia emphasized stability, sovereignty, and great-power alliances above other aims, with Enlightenment values coming second if considered at all, and European powers’ quest to achieve a balance of power led them to openly exploit communities in Africa, the Americas, and Asia.

The costs compound over time. Trump’s efforts to make transatlantic relations transactional only work so long as the United States continues to provide the service of defending Europe; otherwise, the client will inevitably fire the provider. Europe is responding by pursuing strategic autonomy, investing in defence and reorienting foreign, domestic, and economic policies to reduce exposure to outside powers.

Europe’s €800 billion ReArm Europe plan explicitly prioritizes European suppliers. The plan pushes for 55% of all military purchases to come from European factories by 2030, and American defense contractors will largely be shut out of the biggest spending surge since the Cold War. Germany’s military procurement plan shows 154 major defense purchases through 2026, with only 8% going to U.S. suppliers.

What to Watch

The Iran conflict will test whether allied coordination can sustain extended operations when domestic political pressures mount. The war has killed more than 1,320 people according to Lebanese and Iranian state media, and the Trump administration warns it will soon escalate. NATO allies are reluctantly getting pulled into the conflict, while Iran warns European countries they will be considered legitimate targets if they join on the side of the U.S. and Israel.

European defence investment timelines extend years into the future. Defence production has unusually long delivery cycles, with order books covering four to five years of output, meaning the impact on actual production and GDP is gradual rather than immediate. Whether Europe develops genuine strategic autonomy or remains dependent on U.S. capabilities for critical functions depends on execution over the next decade.

In the Western Hemisphere, the absence of Brazil, Mexico, and Colombia from U.S. strategic frameworks creates space for Chinese influence. For many countries, China’s trade-focused diplomacy fills a critical financial void in a region with major development challenges. Whether major hemispheric democracies drift toward Beijing or Washington hinges on whether U.S. policy offers partnership or coercion.

The semiconductor supply chain remains the most visible test of allied coordination versus national self-sufficiency. The CHIPS and Science Act has driven monumental investments with preliminary agreements exceeding $30 billion in direct incentives and $25 billion in loans to support 15 semiconductor projects, signaling a nearshoring trend that seeks to insulate critical technology supply from geopolitical shocks. Whether this produces genuine resilience or expensive duplication depends on whether the United States maintains coordination with allied production nodes in Taiwan, South Korea, Japan, and emerging hubs in India and Southeast Asia.

The question facing U.S. policymakers is not whether to maintain alliances – the Iran crisis demonstrates their operational value. The question is whether to invest in alliance infrastructure that delivers capabilities bilateral deals cannot, or to pursue transactional arrangements that deliver short-term concessions while eroding the institutional depth future crises will expose as irreplaceable.