This time, we underestimated the impact of oil prices.

Ask AI · How the Strait of Hormuz Game Could Shake the Foundations of the U.S. Dollar

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Produced by | Miaotou APP

Author | Dong Bizheng

Editor | Ding Ping

Header Image | Visual China

After the Middle East conflict, the course of the war has completely diverged from the expectation of a quick resolution, evolving into a seemingly endless tug-of-war.

Brent crude oil prices have once again surpassed $100. Although the battlefield is in the Middle East, the surge in oil prices is a direct “invisible tax” caused by the war, shared globally. Over time, ordinary Americans will realize they are paying the price for presidential decisions.

Oil prices directly impact Trump’s midterm support and are even more crucial to the “core” of U.S. dollar hegemony. Additionally, allies like Europe, Japan, and South Korea are dissatisfied with rising energy costs, reducing cooperation, and weakening the U.S. alliance system.

Meanwhile, financial markets have been hit by another round of bloodshed, with East Asian stock markets plunging, and U.S. and A-shares weakening.

It is foreseeable that a major revaluation of global asset pricing is quietly beginning, with the turbulence in the Strait of Hormuz as the catalyst. The key factor remains oil prices.

1. Uncontrollable Oil Prices

Lowering oil prices is a necessary move for the Trump administration.

On March 11, the U.S. Department of Energy announced the release of 172 million barrels from the Strategic Petroleum Reserve (SPR) within 120 days, one of the largest single releases in history.

On March 14, U.S. Secretary of the Interior Deb Haaland said that the Trump administration had discussed using oil futures trading to curb the surge in crude prices during the Iran war.

Soon after, U.S. Treasury Secretary Janet Yellen emphasized that the U.S. government has not intervened in energy contracts and that inflation expectations remain “well-anchored.”

Nevertheless, Wall Street has begun to suspect that Trump may have established a “price control team” targeting oil prices.

According to intelligence circles on Wall Street, at around midnight, 2:00, 4:00, 6:00, and 8:00 (every two hours), oil prices suddenly reversed downward without corresponding news, making such movements highly suspicious.

However, relying solely on releasing reserves and financial manipulation cannot solve the fundamental issue. The real key to oil prices remains the Strait of Hormuz.

To open this “world oil valve,” Trump announced that the U.S. military would escort oil tankers through the strait and invited allies to join in escorting.

So far, no country has officially committed to deploying ships.

Looking back at history, U.S. escort operations in this region have been “a history of blood and tears.” During the Iran-Iraq war in the 1980s, U.S. ships escorted Kuwaiti oil tankers. In 1988, the USS Roberts was severely damaged by an explosion here.

Furthermore, the narrowest part of the Strait of Hormuz is less than 40 km wide, with shallow waters generally less than 25 meters deep. These shallow areas greatly limit sonar and maneuvering capabilities, making it difficult for U.S. warships to exert advantage.

From a military escort perspective, oil tankers may not be able to pass safely.

Currently, Miaotou believes that it is unlikely that the U.S. military can seize control of the Strait of Hormuz, and military escort is not a long-term solution. Unless a ceasefire is reached, oil prices will remain difficult to suppress.

2. The Last Line of Defense of Dollar Hegemony Begins to Collapse

Oil prices are no longer just an energy issue but the final line of defense for U.S. dollar hegemony in the energy sector.

If the U.S. loses influence over oil prices, the foundation of the petrodollar system will truly shake.

The core of the petrodollar system is that the U.S. provides military protection, Saudi Arabia ensures oil transactions are dollar-denominated, and the proceeds are used to buy U.S. Treasuries.

“Oil–Dollar–U.S. Debt” forms a closed loop of wealth accumulation.

If Iran continues to control the Strait of Hormuz, it indicates the U.S. is unable to provide sufficient military protection. Why would Saudi Arabia still use dollars and buy U.S. debt? Confidence begins to waver.

If Saudi Arabia stops using dollars and ceases buying U.S. debt, it would be a nuclear strike against dollar hegemony and the economic system—more damaging than Iran’s nuclear facilities.

Currently, Saudi Arabia and Middle Eastern sovereign funds are major buyers of U.S. debt. If Middle Eastern capital withdraws, who will step in?

If no one does, U.S. Treasury yields could spiral out of control. This would mean skyrocketing borrowing costs for the U.S. government, with interest payments possibly consuming all fiscal revenue. At that point, the Federal Reserve would have to print money at full throttle to cover debt, leading to hyperinflation in the U.S.

The chain reaction would be devastating: the dollar would plummet, global capital would panic and withdraw from the U.S., and stocks, bonds, and real estate markets could crash simultaneously. This would trigger a systemic financial crisis.

Of course, this is an extreme scenario.

Miaotou believes that a more likely path is gradual de-dollarization and diversification of oil trade. Saudi Arabia will not abandon the dollar as the main settlement currency but will gradually increase non-dollar transactions, such as settling in RMB.

Iran has already publicly stated it is considering allowing some oil tankers to pass through the strait, provided the cargo is traded in RMB.

As oil trade diversifies, the flow of oil revenues in the Gulf region will no longer be centered on Wall Street. This “warm water boiling frog” process is gradually eroding the liquidity support of U.S. Treasuries.

At this point, Trump faces a dilemma:

On one hand, continuing the fight, the U.S. cannot dominate Iran, and high oil prices will erode the wallets of middle-class Americans, likely costing him control of Congress in midterms;

On the other hand, withdrawing would mean losing control of the Middle East, and U.S. dollar hegemony begins to crumble, risking long-term economic backlash.

Overestimating allies and underestimating Iran, Trump is playing a dangerous game of “lighting a fire on himself.”

This energy crisis also points capital toward new directions, and global assets will be re-priced.

3. Asset Revaluation

In this upheaval, old investment logic is failing.

Miaotou believes that RMB assets will enter a premium era.

This is the most critical revaluation logic.

Historically, the dollar and U.S. Treasuries have been the “anchor” for global asset pricing. When the Fed raises interest rates, capital flows back to the U.S. But now, as funds realize that US assets are no longer absolutely safe and oil begins to link to the RMB, the global allocation structure is diversifying.

In other words, foreign capital holding RMB will consider flowing into Chinese assets.

According to Hong Kong media, recent inquiries from Middle Eastern clients about Hong Kong stocks, bonds, and family offices have surged over 50% month-on-month. From stocks, bonds, insurance products, to establishing family offices in Hong Kong, Middle Eastern wealthy are asking detailed questions.

This indirectly indicates that Middle Eastern sovereign wealth funds are accelerating their search for “safe havens” outside the dollar.

If so, Hong Kong stocks and A-shares could attract new inflows, especially if policies continue to support and fundamentals improve, making continued bullish prospects possible.

Meanwhile, the Strait of Hormuz accounts for about 20% of global oil consumption. Based on a daily consumption of 100 million barrels, about 20 million barrels pass through here daily.

The hardest hit are Japan and South Korea. Japan and South Korea depend on Middle Eastern oil by over 95% and 70%, respectively, and their reliance hinges on the control of the Strait.

If Iran becomes the controller of the Strait and implements “RMB settlement rules,” these U.S. allies will face a choice: join the RMB settlement camp or not. If Japan and South Korea turn away from the U.S., Russia, and South America for oil, they will face high costs and risk economic slowdown and currency depreciation. Foreign investment will also decline due to risk aversion, possibly leading to capital outflows. European countries face similar risks.

Under such trends, Miaotou believes that Europe, Japan, and South Korea will be forced to accelerate the transition from traditional energy to new energy sources.

As traditional energy becomes more expensive and unstable, renewable energy shifts from “environmental protection” to “survival necessity.”

For example, the UK government announced that starting April 1, it will remove tariffs on 33 wind power components, including cables and blades. This has led to valuation re-ratings for wind power companies listed in A-shares, with many seeing their stock prices rise.

Previously, mainstream investment logic focused on AI narratives, assigning high premiums to tech industries; energy was viewed as a defensive asset and undervalued. Now, as countries and markets reassess energy security, risk aversion is rising, and energy assets are being revalued.

With traditional energy being replaced, wind, solar, and nuclear power remain long-term investment tracks.

Of course, before a ceasefire, oil prices will likely stay high or fluctuate repeatedly, and global capital will continue to trade based on “inflation logic,” with oil and chemicals still attracting funds.

However, Miaotou believes that we cannot precisely predict when high oil prices will end, but the balance of the conflict is tilting toward Iran, and market confidence in the dollar is showing signs of marginal loosening. Global capital is seeking new allocation directions.

In this context, if domestic policies continue to support and fundamentals keep improving, RMB assets could become a potential beneficiary of this reallocation.

Disclaimer: The content of this article is for reference only. The information and opinions expressed do not constitute investment advice. Readers should exercise caution when making investment decisions.