Ray Dalio Warns: Loss of Hormuz Would Replay Britain's Suez Crisis for America

Author: Ray Dalio

Translation: Deep Tide TechFlow

Deep Tide Guide: Bridgewater founder Ray Dalio has rarely commented in detail on the direction of the Iran conflict, with a highly clear point:

The only key variable in this war is control of the Strait of Hormuz, and the cost of losing control could be more than just a defeat — he compares it to the 1956 Suez Canal Crisis, a turning point in the decline of the British Empire.

The article discusses the interconnected logic of reserve currencies, debt, gold, and geopolitics, offering direct reference value for macro asset judgments.

The full text is as follows:

Comparing current events with similar historical situations and cross-verifying with experienced leaders and experts has always been my way to make better decisions. I find that most wars are filled with significant disagreements about the outcome and unexpected turning points.

However, in this Iran conflict, the conclusion is obvious and almost universally agreed upon: everything ultimately depends on who controls the Strait of Hormuz.

From leaders of various governments, geopolitical experts, and people around the world, I hear the same judgment: if Iran retains control over the Strait of Hormuz, or even just its negotiating leverage:

1. The U.S. will be seen as having lost this war, and Iran as the winner.

This is because Iran controlling the Strait and using it as a weapon will clearly demonstrate that the U.S. is unable to resolve the situation. Allowing Iran to blockade the world’s most important strait — a route that must be protected at all costs — would cause enormous damage to the U.S., its regional allies (especially Gulf allies), countries most dependent on this oil route, the global economy, and the world order.

If Trump and the U.S. cannot win this war — with the simple measure of victory being ensuring the safe passage through the Strait of Hormuz — they will also be seen as having created a disaster they cannot manage.

Regardless of the reasons why the U.S. fails to gain control of the Strait — whether anti-war politics threaten Trump’s political grip before midterm elections, or he and American voters are unwilling to bear the human and financial costs of winning, or the U.S. lacks sufficient military power to seize and maintain control, or he cannot rally other countries to form a coalition to keep the strait open — the outcome is the same.

Trump and the U.S. will be considered defeated.

My interpretation of history and current trends lead me to believe: if the U.S. loses in this way, losing control of the Strait of Hormuz could very likely replicate the impact of the Suez Canal Crisis on the British Empire (1956), as well as similar failures experienced 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. I discuss this more comprehensively in my book Principles: Life and Work, but I can tell you here: history is full of cases where a seemingly weaker power challenged the dominant world power to control a key trade route (for example, Egypt challenging Britain’s control of the Suez Canal).

In these cases, the dominant power (like Britain) threatens the weaker (like Egypt) to open the route, and everyone observes and adjusts their stance and capital flows based on the outcome.

This decisive “final battle” — determining victory or loss, and the fate of the empire — reshapes history because people and capital tend to flow swiftly and naturally away from the loser.

These shifts impact markets, especially debt, currency, and gold markets, as well as geopolitical dynamics.

So many similar cases have led me to this principle: when the dominant power holding the world’s reserve currency is overextended financially and exposes its weaknesses by losing military and fiscal control, beware of allies and creditors losing confidence, the reserve currency losing its status, debt assets being sold off, and currency devaluation — especially relative to gold.

Because people, nations, and capital will quickly and naturally gravitate toward the winners — if the U.S. and Trump cannot control the flow through the Strait of Hormuz, it threatens U.S. global power and the existing world order.

For a long time, it has been assumed that the U.S. is the dominant power, capable of defeating opponents militarily and financially (including medium-power rivals); however, the cumulative military, fiscal, and geopolitical consequences of the Vietnam, Afghanistan, Iraq wars, and this potential Iran conflict are not good news for the U.S. or the sustainability of the post-1945 U.S.-led world order.

Conversely, when the world’s leading power demonstrates its military and fiscal strength, it boosts confidence and willingness among others to hold its debt and currency.

Reagan, after being elected, immediately facilitated the release of hostages from Iran, and during the Iran-Iraq war, he ordered the U.S. Navy to escort oil tankers, demonstrating U.S. strength against Iran.

If Trump can prove that he and the U.S. are capable of fulfilling their promises — specifically, ensuring free passage through the Strait of Hormuz and eliminating Iran’s threats to its neighbors and the world — it will greatly boost external confidence in his and America’s strength.

2. Conversely, if the Strait remains in Iran’s hands and is used as leverage to threaten U.S. Gulf allies and the broader global economy, everyone will become hostages to Iran, and Trump will be seen as provoking a war that he cannot win.

He will put U.S. allies in the region in a difficult position and lose credibility — especially considering his previous statements.

For example, Trump once said: “If mines are laid for any reason and not immediately cleared, the military consequences for Iran will be unprecedented.”

“We will easily destroy those vulnerable targets, making it nearly impossible for Iran to rebuild as a nation — death, fire, and fury will descend upon them.”

“Iran’s new leaders must get our approval, or they won’t last long.” I often hear senior decision-makers from other countries privately say, “He makes sense, but when the tough times come, can he fight and win?” Some observers look forward to this confrontation as if watching gladiators in the Colosseum or waiting for the final championship match.

Currently, Trump is calling on other countries to join the U.S. in ensuring the freedom of passage through the Strait; whether he can succeed will reflect his ability to build alliances and gather strength — if successful, it will be a major victory.

Relying solely on the U.S. and Israel’s power makes it difficult to secure safe passage without retaking the Strait from Iran, which would likely require a large-scale military campaign.

The outcome of this war is a matter of life and death for Iran’s leadership and its most powerful factions.

For Iran, this war is largely about revenge and defending things more important than life itself.

They are willing to die — because demonstrating the will to die is crucial for their pride and for the devotion that can bring the highest rewards — while Americans are worried about high oil prices, and U.S. leaders are preoccupied with midterm elections.

In war, the capacity to endure pain can be even more important than the ability to inflict it. Iran’s strategy is to prolong and escalate the conflict, knowing that the American public and leadership have limited capacity to endure pain and delay war.

Therefore, if the war becomes sufficiently painful and prolonged, Americans will give up, and their Gulf “allies” and other “allies” around the world will see that the U.S. will not protect them at critical moments.

This will damage America’s relationships with countries in similar situations.

3. Despite discussions about ending the war through agreements, everyone knows that no agreement can truly resolve this conflict, because agreements are worthless.

What happens next — whether Iran keeps control of the Strait or it is taken away — is likely to be the worst phase of the conflict. This “final battle” will clearly determine who gains control and who loses it, likely involving a large-scale confrontation.

Iranian military officials have stated: “All oil, economic, and energy facilities in the region that belong partly to U.S.-owned or U.S.-cooperating oil companies will be immediately destroyed, turned to ashes.”

That is what they will attempt. If the Trump administration succeeds in rallying other countries and deploying warships to escort the routes — which are yet to be mined — we will see if this can be a solution.

Both sides understand that the decisive battle is still ahead. They also know that if Trump and the U.S. fail to fulfill their promise to reopen the strait, the consequences will be severe.

Conversely, if Trump wins this final battle and eliminates Iran’s threat for at least the coming years, it will leave a deep impression, boost his authority, and demonstrate U.S. strength.

4. The direct and indirect impacts of this “final battle” will ripple worldwide, affecting trade flows, capital flows, and geopolitical trends with China, Russia, North Korea, Cuba, Ukraine, Europe, India, Japan, and others.

This current conflict, along with recent wars, is part of a larger “big cycle” evolution with financial, political, and technological impacts.

The best way to understand these effects is to study past similar wars and apply their lessons to the current situation.

For example, a country’s ability to wage war financially and militarily depends on the number and intensity of wars it engages in, its domestic political environment, and its relationships with aligned countries (like 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 differences in wealth and values, debates over what to do, who should pay the costs, and in what form (money, lives, etc.) are endless.

These direct and indirect relationships and consequences are almost certain to occur, are difficult to predict precisely, but are unlikely to be positive.

As I conclude, I want to emphasize: I am not a politician; I am simply a pragmatic person who must assess what is likely to happen, learning from history to do so better.

I now share my principles and thoughts in hopes of helping others navigate this turbulent period.

As I have explained before: by studying the rise and fall of empires and their reserve currencies over the past 500 years — a research I’ve conducted to improve my global macro bets, shared in my books and YouTube series The Changing World Order — five interconnected forces drive the shifts in monetary, political, and geopolitical orders. They are:

1. Long-term debt cycles (detailed in my book How Nations Go Bankrupt),

2. The related order and chaos political cycles (which evolve through identifiable stages, sometimes leading to civil war),

3. The related international geopolitical order and chaos cycles (also evolving through stages, potentially leading to devastating world wars),

4. Technological progress (which can improve or destroy lives), and

5. Natural events.

What is happening in the Middle East now is just a small part of this larger cycle at this moment.

While it’s impossible to predict and fully grasp all details, assessing the health and stage of these five forces and the overall big cycle is quite straightforward.

The most important question for you is: does this big cycle’s evolution match what these indicators reveal about our current position — and if so, what should I do?

If you want to ask me questions in the comments, I am always ready to discuss these issues.