@RayDalio
Translation: Big Claw | PANews Lobster
Comparing current events with similar historical situations and cross-checking with wise, well-informed leaders and experts has always helped me make better decisions. I find that most wars are filled with significant disagreements over the outcome and unexpected variables. However, in this Iran conflict, one thing is clear: almost everyone agrees that everything ultimately depends on who controls the Strait of Hormuz. Whether it’s government leaders, geopolitical experts, or people around the world, they tell me: if Iran still retains control over the Strait of Hormuz, even just as a bargaining chip:
1. The U.S. will be deemed to have lost the war, and Iran will be seen as the winner.
Because Iran using the Strait of Hormuz as a weapon clearly shows that the U.S. lacks the ability to resolve the situation. Allowing Iran to blockade the world’s most vital waterway—an essential route that must remain open—would cause enormous damage to the U.S., its regional allies (especially Gulf allies), countries most dependent on oil flows, the global economy, and the world order. If Trump and the U.S. cannot win this war—where victory is simply defined as ensuring the safe passage through the Strait of Hormuz—they will be viewed as having created a disaster they cannot manage. The reasons for the U.S. failure to secure control of the Strait—whether due to anti-war political threats before the upcoming midterm elections, a lack of willingness among Trump and American voters to bear the lives and financial costs, insufficient military strength to seize and maintain control, or inability to unite other nations into a coalition to keep the strait open—are all secondary. Trump and the U.S. will have failed.
My study of history and current assessments lead me to believe: if the U.S. fails in this way, losing control of the Strait of Hormuz will pose significant risks—similar to Britain’s Suez Crisis in 1956, or the failures faced by the Dutch Empire in the 18th century and the Spanish Empire in the 17th century. The pattern of empire collapse is almost always the same. While I discuss this more comprehensively in my book Principles for Navigating a Changing World Order, I can tell you here: in countless cases, a perceived weaker power challenges the dominant world power over control of key trade routes (e.g., Egypt challenging Britain’s control of the Suez Canal). In these cases, the dominant power (like Britain) threatens the weaker power (like Egypt) to open the route, and everyone watches closely, adjusting their attitudes and investments based on the outcome. This decisive battle—deciding the fate of empires—reshapes history because personnel and capital tend to flow rapidly and naturally away from the loser. These shifts influence markets, especially debt, currency, and gold markets, as well as geopolitical dynamics. After studying so many similar cases, I’ve derived the following principle:
When the leading global power—holding the world’s reserve currency—overextends financially and exposes its weakness by losing both military and fiscal control, beware of allies and creditors losing confidence, losing reserve currency status, debt assets being sold off, and currency devaluation, especially relative to gold.
Because personnel, nations, and capital will quickly and naturally gravitate toward the victor, if the U.S. and Trump cannot control the ships passing through the Strait of Hormuz, it threatens U.S. power and the existing world order. Although many have believed the U.S. is the dominant force capable of defeating opponents militarily and financially (especially medium-power rivals), the cumulative effects of wars in Vietnam, Afghanistan, Iraq, and perhaps this Iran conflict’s military, fiscal, and geopolitical consequences are not conducive to the sustainability of the U.S. and the post-1945 U.S.-led world order.
Conversely, when the leading global power demonstrates its military and fiscal strength, it boosts external confidence and willingness to hold its debt and currency. When Reagan immediately facilitated Iran’s release of hostages after his election, and during the Iran-Iraq war when Iran attacked Gulf shipping, Reagan ordered the U.S. Navy to escort oil tankers—this showcased U.S. strength and resolve. If Trump proves he and the U.S. can deliver on their promises—namely, ensuring the free passage of the Strait of Hormuz and eliminating Iran’s threats to its neighbors and the world—it will greatly enhance external confidence in U.S. power.
2. Conversely, if the Strait remains under Iran’s control and is used as a weapon against U.S. Gulf allies and the broader global economy, everyone will become hostages to Iran, and Donald Trump will be seen as having provoked a fight he lost.
He will leave U.S. allies in the region with a huge dilemma and will lose credibility, especially considering his previous statements. For example, Trump once said: “If we mine the Strait for any reason and it’s not immediately cleared, the military consequences for Iran will be unprecedented.” “We will easily destroy targets that can be destroyed, making Iran almost impossible to rise again as a nation—death, fire, and fury will engulf them.” “Iran’s new leaders must get our approval; otherwise, they won’t last long.” I often hear senior decision-makers from other countries privately say: “He makes sense, but when the situation gets serious, can he really win?” Some observers are eager for this showdown, like Romans watching from the arena or sports fans waiting for the final battle. Trump is calling on other countries to join the U.S. to ensure the Strait’s freedom of passage; whether he can succeed in rallying these nations will demonstrate his ability to form alliances and gather strength, making this a major victory.
Relying solely on the U.S. and Israel to secure safe passage without recapturing the Strait from Iran may require a large-scale conflict. For Iran’s leaders and its largest, most populous group, the outcome of this war is a matter of life and death. For Iranians, it’s largely about revenge and defending something more important than life itself. They are willing to sacrifice—showing a willingness to die is crucial for their pride, and it’s also a way to demonstrate devotion and gain maximum reward. Meanwhile, Americans worry about high oil prices, and U.S. leaders fret over midterm elections.
In war, the ability to endure pain is even more important than the ability to inflict pain.
Iran’s strategy is to delay and gradually escalate the war because it’s well known that the American public—and consequently U.S. leaders—have limited capacity to endure prolonged, painful conflicts. Therefore, if the war drags on long enough to be sufficiently painful, Americans will give up, abandon their Gulf “allies,” and other “allies” in similar situations worldwide will see that the U.S. will not protect them at critical moments. This will undermine relationships with allies.
3. Although there is discussion about ending this war through a treaty, everyone knows that no agreement can truly resolve this conflict because any treaty would be worthless.
What happens next—whether the Strait remains in Iran’s hands or control is taken away—may be the most intense phase of this conflict. This final decisive battle will clearly reveal who wins and who loses control, and it’s likely to be extremely large in scale.
Iranian military officials have said: “All oil, economic, and energy facilities in the region that belong to oil companies, or are partially owned or operated in cooperation with the U.S., will be immediately destroyed and turned to ashes.” That’s what they will attempt. If the Trump administration succeeds in getting other countries to send warships for security, and if the waterways are not mined, we will see whether this can be a solution. Both sides understand that the final battle—one that will clearly reveal who wins and who loses—is still ahead. They also understand that if Trump and the U.S. fail to deliver on reopening the strait, the consequences will be very unfavorable for them. Conversely, if Trump wins this final battle and at least eliminates the Iranian threat for years to come, it will be a profound shock, greatly boosting Trump’s authority and demonstrating U.S. strength.
4. The direct and indirect effects of this “final battle” will ripple worldwide, impacting trade flows, capital flows, and geopolitical developments with China, Russia, North Korea, Cuba, Ukraine, Europe, India, Japan, and others.
The current conflict, along with recent wars, is part of a larger “big cycle” evolution with profound financial, political, and technological implications. By studying past similar wars and applying those lessons to the present, we can better understand these impacts. For example:
A country’s capacity to wage war—financially and militarily—is influenced by the number and intensity of wars it participates in, domestic politics, and relationships with other countries with shared interests (e.g., Iran, Russia, China, North Korea).
The U.S. cannot fight multiple wars simultaneously (no country can), and in this highly interconnected world, wars spread like pandemics in unimaginable ways. Meanwhile, within countries—especially democracies with vast wealth and differing values—debates about what should be done and who should bear how much cost (money, lives, etc.) are inevitable. These direct and indirect connections and consequences are almost certain to occur, though difficult to predict, and the outcomes are unlikely to be optimistic.
In closing, I want to emphasize: I do not have any political bias. I am simply a pragmatic person who needs to assess what’s coming, learn from history, and help myself make the right judgments. I am sharing my principles and thoughts here in the hope of helping others find their way in these turbulent times.
As I’ve explained before, by studying the rise and fall of empires and their reserve currencies over the past 500 years—initially to help myself make global macro bets (and sharing this in my book and YouTube series The Changing World Order)—five interconnected forces drive the rise and fall of monetary, political, and geopolitical orders:
- Long-term debt cycles (covered extensively in my book How Nations Go Broke)
- Order and disorder political cycles (with clear phases, sometimes leading to civil war)
- International geopolitical order and disorder cycles (also with clear phases, sometimes leading to devastating world wars)
- Technological progress (which can improve or destroy lives)
- Natural forces
What’s happening in the Middle East today is just a small part of this “big cycle” at this particular moment in history.
While it’s impossible to predict and precisely grasp all details and specific situations, assessing the health and evolution of these five forces and the overall “big cycle” is quite straightforward. The most important thing for you is to ask yourself: Is this “big cycle” truly unfolding? Do these indicators show where we are in the “big cycle”? If so, how should I respond? If you want to ask me questions in the comments, I am always happy to discuss these issues with you.
