Tensions in the Gulf have escalated following Thursday’s downing of a US drone by Iran, with Donald Trump saying Tehran “made a very big mistake” and revealing he was moments away from launching a retaliatory strike. Iran claims the unmanned aircraft had been on a spying mission and was within its airspace, with Foreign Minister Javad Zarif saying he would take the complaint that the US “encroaches on our territory” to the United Nations. Both sides insist they are not looking for military conflict, but are simultaneously talking tough on the damage they could inflict – Mr Trump insisting that the US would “obliterate” Iran, and Iran’s armed forces cautioning that a move against them would ignite a regional “powder keg”. Aside from the risk of sliding into war, the recent events have shown that even limited military actions can have a big effect on global and regional financial markets as well as the price of oil and shipping insurance. They also show how the character of warfare is changing. How we got here On June 13 two oil tankers in the Gulf of Oman were damaged by explosions, thought to come from mines attached to the sides of the hulls. There was some confusion over the method of attack as the captain of the Panama-registered and Japanese-owned Kokuka Sangyo, said he had seen small drones near his vessel just before the attack. A senior Royal Navy officer told the Telegraph that he had regularly been followed by drones – suspected to be from Iran – when transiting the Strait of Hormuz. The attacks came a month after four ships anchored in Fujairah, a port in the UAE, were similarly attacked. The Strait of Hormuz is a critical chokepoint for the global economy as one fifth of the world’s oil flows through the strategic waterway. Iran’s announcement on Monday that it would breach the nuclear deal, signed in 2015, and that its stockpile of enriched uranium will exceed limits established by the deal by next week, has only ratcheted the pressure up. There are real fears that the uncompromising attitudes of US administration officials, such as John Bolton, the national security adviser, and Iranian hardliners, could see a miscalculation in the region lead to an outbreak of military hostilities. Moderates in the Islamic Republic, such as President Hassan Rouhani, are less keen to provoke an American military response, but have no influence over the powerful Revolutionary Guard Corps that reports directly to Supreme Leader Ayatollah Ali Khamenei, and which was responsible for shooting down the US drone. Iran map drone attack What could happen next? “Iran uses the Gulf as a tap to turn on the tension,” according to Professor Michael Clarke of the Royal United Services Institute. Speaking to the Telegraph. he said Tehran likes to “create a sense of danger” in the area. Iran could decide a limited military strike in the Gulf, albeit with the attendant risk of escalation, would be an appropriate next step. In February this year Iran test-fired a Nasr-1 anti-ship missile from a submarine in the Gulf. With a range of about 30km, these missiles can cripple ships up to around 1,500 tonnes, according to John Miller of the International Institute for Strategic Studies. Given the significant Western naval activity in the Gulf, with the US 5th Fleet – now including the Abraham Lincoln Carrier Strike Group – as well as the British Minehunter Force and Royal Navy Type-23 Frigate based in Bahrain, an attack, although unlikely, would be possible. The Iranians may instead decide to increase the use of proxy forces in Iraq and Yemen, or give additional financial or material support to Hezbollah across the Middle East, fuelling a much wider conflict. For its part, the US may decide to go ahead with a limited strike against Iranian radar sites dotted along the coast of the Persian Gulf, as Mr Trump was on the verge of launching this week. Just as the US, along with Britain and France, launched missile strikes into Syria in April 2018 in response to the use of chemical weapons, Mr Trump may want to employ limited force, probably with a warning through diplomatic back channels so as to avoid loss of life, in order to send a proportionate response. What’s holding the US back? The Trump administration’s pursuit of a strategy of “maximum pressure” on Iran over the nuclear deal has impacted the Iranian economy and has made third countries think twice about buying Iranian oil. However, despite tough talk from senior officials like Mike Pompeo and John Bolton, and the deployment of 1,000 additional US troops to the region in the wake of the oil tanker attacks, Mr Trump himself seems much more interested in renegotiating the nuclear deal than in actual conflict with Iran. Tehran’s reach in the Gulf – and particularly in the Strait of Hormuz – poses a significant threat. Though Iran’s military might is outstripped by that of the US in the area, it could still inflict major damage. For instance, it is capable of manipulating shipping in the Gulf through the use of naval mines and, given the Strait of Hormuz is only 24 miles wide at its narrowest point, land-based missiles would have what military professionals call a “target-rich environment”. The Centre for Strategic International Studies says Iran uses missiles as a central tool of power projection, particularly for anti-access and area denial capability. According to the think tank, Iran possesses the largest and most diverse missile arsenal in the Middle East, with thousands of short and medium-range weapons. And it has newly enhanced capabilities. as February’s test firing shows. Mr Miller described Iran’s ability to attack vessels in the Gulf with short-range submarine-launched anti-ship missiles as a potential “game changer”. Iran’s ballistic missile range Are we already at war? This week’s incident has raised questions about how military force is used in an increasingly-automated world and quite where the line is now between peace and war. In a telling comment on Thursday, Donald Trump said of the downing of the RQ-4a surveillance drone: “we didn’t have a man or woman in the drone. It would have made a big difference”. Even twenty years ago, such a hostile action would probably have been seen as an act of war. But as military power is increasingly deployed through autonomous systems, the point at which competition becomes conflict is no longer clear. Speaking earlier this month, Britain’s Chief of the General Staff said that peace and war were “artificial and binary characterisations of a strategic contest that no longer exists today, but which still drives much of our policy. “The rules of warfare are changing and need updating,” he said. If the modern world is in a perpetual state of contest, with the occasional outbreak of actual combat, is the shooting down of a drone seen as an act short of war? And if on a spying mission but located in international airspace, is it a legitimate target? Is the taking of human life now the line beyond which a state of war is understood to exist? If so, what permissions would that bestow on a country seeking to undermine another state through cyber attacks? The immediate crisis in the Gulf poses a clear and present danger to regional stability and the global economy. But it is also asking some significant questions about the future of warfare; questions for which the world, worryingly, has no answers at present.