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

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.

Author: Ray Dalio

Translation: Deep潮 TechFlow

Deep潮 Guide: Bridgewater founder Ray Dalio has rarely published such a lengthy article on the direction of the Iran conflict, with a highly clear argument:

The only critical factor in this war is who controls the Strait of Hormuz, and losing control might be more than just a defeat — he compares it to the 1956 Suez Canal crisis, which marked 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.

Full Text:

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 over the course and unexpected turning points.

However, in this Iran conflict, the conclusion is clear and almost universally agreed upon: ultimately, it all comes down to 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 passage through the Strait of Hormuz, or even just the bargaining chips:

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

This is because Iran controlling the Strait and using it as a weapon would clearly demonstrate that the U.S. is incapable of resolving 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.

It doesn’t matter why the U.S. fails to control the Strait — whether it’s because anti-war politics threaten Trump’s political grip before midterm elections, or because he and the American public are unwilling to bear the human and financial costs of winning, or because the U.S. lacks sufficient military power to seize and maintain control, or because he cannot rally other countries to form a coalition to keep the strait open.

Either way, 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 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 and in The Changing World Order, but I can tell you here: history is full of cases where a perceived weaker power challenged the dominant world power to control a key trade route (e.g., 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 defeat, 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, gold markets, and 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, watch out for 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 flock to 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, people have assumed the U.S. is the dominant power capable of defeating opponents militarily and financially (including medium powers); however, the cumulative effects of the Vietnam, Afghanistan, Iraq wars, and this potential Iran conflict are not good news for the sustainability of U.S. dominance post-1945.

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 Iran’s release of hostages, 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 — namely, ensuring the freedom of passage through the Strait of Hormuz and eliminating Iran’s threats to its neighbors and the world — it would 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 against U.S. Gulf allies and the broader global economy, everyone becomes hostage to Iran, and Trump will be seen as provoking a war that he cannot win.

He would 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 Romans are in the arena or sports fans awaiting the final championship.

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 would be a major victory.

Relying solely on the U.S. and Israel to secure safe passage without recapturing the Strait from Iran 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 Iranians, this war is largely about revenge and defending things more important than life itself.

They are willing to die — because demonstrating willingness 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 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” worldwide will see that the U.S. will not protect them at critical moments.

This would damage U.S. relations with countries in similar situations.

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

What happens next — whether Iran retains 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, probably 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 destroyed immediately, reduced 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 not yet 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.

On the other hand, 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 globally, affecting trade flows, capital movements, 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, classic “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 bear 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 will not be positive.

In closing, I want to emphasize: I am not a politician; I am a pragmatic person who must assess what is likely to happen, drawing lessons from history to do so better.

I am sharing my principles and thoughts now 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 — which is part of my research for making macro global bets, shared in my books and YouTube videos 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 Broke),

2. The related order and chaos political cycles (with clear phases, potentially leading to civil war in the worst case),

3. The related international geopolitical order and chaos cycles (also with phases, 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 today 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 cycle is quite straightforward.

The most important question for you is: does this cycle’s evolution seem real? Do these indicators reveal where we are in the cycle? If so, what should I do?

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