Bridgewater Associates founder Ray Dalio has warned that failure to secure the Strait of Hormuz could significantly increase the risk to the US dollar’s status as the world’s reserve currency.
Dalio compared the current situation to pivotal moments in the decline of past empires. In his view, losing the Strait of Hormuz could prove as consequential for American global standing as the 1956 Suez Canal Crisis was for Britain.
Ray Dalio on Hormuz and the Dollar Reserve Currency Risk
In a recent analysis, Dalio suggested that the US-Iran war essentially boils down to one question: who controls the Strait of Hormuz? He noted that if Iran retains the ability to control or threaten the waterway, it would likely be perceived globally as a US loss. This would undermine confidence in American power and leadership.
“When the world’s dominant power that has the world’s reserve currency is overextended financially, and it reveals its weakness by losing both military and financial control, watch out for allies and creditors losing confidence, the loss of its reserve currency status, the selling of its debt assets, and the weakening of its currency, especially relative to gold,” he said.
Meanwhile, Balaji Srinivasan, founder of The Network School, also noted that an Iranian win could mark the end of five eras. This includes the petrodollar era.
“Specifically, the end of the petrodollar (1974) would also be the end of the unipolar moment (1991) and the postwar order (1945),” Srinivasan wrote. “Finally, a rapid crash in the dollar’s purchasing power coupled with military defeat could well break apart the American union (1776)…Few seem to viscerally understand just how dependent America is on money printing. But the end of the petrodollar is the end of Keynesianism as we know it.”
The Strait of Hormuz is a critical energy chokepoint, with roughly 20% of globally traded petroleum passing through it daily. Reports indicate Iran has proposed allowing limited tanker traffic through the strait.
However, the condition is only if the cargo is settled in Chinese yuan rather than dollars. This directly targets the dollar’s monopoly on energy trade.
The US-Iran conflict has also added fresh pressure to an already fragile economic outlook. Mark Zandi, chief economist at Moody’s Analytics, warned that recession risks had climbed before hostilities even began to escalate.
The firm’s machine learning model assigned a 49% probability of a recession starting within the next 12 months. With oil prices now surging amid the conflict, Zandi suggested that the threshold could soon tip past 50%.
“Oil prices are an important variable in the model, and with good reason: every recession since WWII, save the pandemic recession, has been preceded by a spike in oil prices. Higher oil prices don’t do the same economic damage as in years past, as we produce as much as we consume, but consumers still get hit hard and fast, and they were already increasingly nervous spenders,” he added.
The situation highlights how quickly a geopolitical flashpoint can translate into currency-level risk.
The post How the Iran War Could Turn The Strait of Hormuz Into a Dollar Risk appeared first on BeInCrypto.
