Dalio: A "decisive battle" between the US and Iran in the Strait of Hormuz will change the world

Local time this Monday (16 March), legendary investor and founder of Bridgewater Associates, Ray Dalio, warned in his personal column that the current contest between the US and Iran in the Strait of Hormuz will be an “ultimate showdown”—not only changing oil prices but also transforming the world.

For a long time, Dalio has predicted the end of US hegemony. In an article published on Substack on Monday, he wrote that, despite the common belief that the US will continue to dominate the world order, a series of events since World War II—the Vietnam War, Afghanistan, Iraq, and the current Iran conflict—are threatening the global power structure led by the US.

Some market observers are closely watching oil prices and the global economic outlook, while Dalio believes an “empire” might be nearing its end.

The impact of the contest for the Strait of Hormuz is profound

Long before the outbreak of the Iran conflict, many market experts had already noted the decline of the dollar and its implications for US global power—although since the Iran conflict, the dollar’s rise indicated it remains a safe haven asset, many experts, including Dalio, agree on the importance of the Strait of Hormuz.

In short, Dalio believes the Trump administration must, at all costs, seize control of the Strait of Hormuz from Iran to demonstrate US strength, reaffirm US power, and “boost” external confidence in the US.

Allowing Iran to blockade the world’s most vital strait would have devastating consequences for the US, its regional allies (especially Gulf allies), countries heavily dependent on maritime oil flows, the global economy, and the world order. If Trump and the US fail to win this war—measured simply by whether they can ensure the safe passage through the strait—they will be seen as causing a catastrophic, irreparable situation.

Dalio points out that if the US fails in this way, losing control of the Strait of Hormuz could mirror Britain’s experience during the Suez Crisis in 1956, the Dutch Empire’s failures in the 18th century, and Spain’s in the 17th century. The pattern of empire collapse is almost always the same.

When a global reserve currency issuer overextends financially and simultaneously loses military and financial control, exposing vulnerabilities, it risks losing allies and creditors’ confidence, the reserve currency status, and facing asset sell-offs and currency devaluation—especially relative to gold.

On the other hand, Dalio states that if the Strait falls into Iran’s hands and Iran uses it as a weapon to threaten US allies in the Gulf and the broader global economy, everyone will be subordinate to Iran, and Trump will be seen as provoking conflict and ultimately failing. He will leave US allies in the region with a huge dilemma, and his credibility will be severely damaged.

The fight for control of the strait will be the “worst phase” of the conflict

Dalio further notes that while some talk about ending the war through an agreement, everyone knows that no agreement can resolve this conflict because agreements are worthless. Whatever happens next—whether the Strait remains in Iran’s hands or the US seizes control—could be the worst phase of the conflict. This “final showdown” will determine the outcome, likely on a large scale.

Dalio states that the direct and indirect effects of this “final showdown” will reach globally, affecting trade flows, capital movements, and geopolitical developments with China, Russia, North Korea, Cuba, Ukraine, Europe, India, Japan, and others. The current war, along with recent conflicts, is part of a larger, cyclical process with financial, political, and technological impacts.

Dalio mentions that a country’s capacity for war—its fiscal and military strength—is influenced by the number and severity of wars it engages in, its internal politics, and its relationships with countries sharing common interests. The US cannot fight multiple wars simultaneously (no country can), and in such an interconnected world, wars spread like pandemics in unimaginable ways.

Finally, Dalio emphasizes that he is not a politician—his sharing of principles and ideas aims to help others navigate this turbulent era. As he has explained before, by studying the rise and fall of empires over the past 500 years and their reserve currencies, five major interconnected forces drive the shifts in monetary, political, and geopolitical orders:

1. Long-term debt cycles;

2. Related domestic political order and chaos cycles;

3. Related international geopolitical order and chaos cycles;

4. Technological progress—capable of improving or destroying lives;

5. Natural disasters.

What is happening in the Middle East is just a small part of this “big cycle” at the moment.

Dalio concludes that while it is impossible to predict and grasp all details precisely, measuring these five forces and the overall health and progress of the “big cycle” is quite straightforward. What matters is asking oneself whether this “big cycle” is unfolding as expected, and whether these indicators signal our current position within it—if so, what should I do?

(Original article: Caixin)