Dalio writes: The ultimate showdown! Everything depends on who controls the Strait of Hormuz.

Bridgewater Fund founder and macro investor Ray Dalio gave a very clear assessment of the current situation in the Middle East: the ultimate outcome of this conflict will depend on who controls the Strait of Hormuz. In a lengthy article posted on X on March 16, Dalio stated that this strait is not only a critical node in geopolitical gamesmanship, but could also become the site of an "ultimate battle" that decides the global power structure: If Iran retains control over the navigation of the Strait of Hormuz, or even just has the ability to threaten to block the strait for negotiation purposes, the United States will be seen as having lost the war; on the other hand, if the US can ensure freedom of navigation in the strait and weaken Iran's threats, it will strengthen America's global leadership. The Strait of Hormuz is considered one of the most critical energy transit routes globally, with a large quantity of Middle Eastern oil and natural gas needing to pass through to reach international markets. If the passage through this strait is threatened, it will not only impact global energy supply but could also quickly affect financial markets, trade systems, and geopolitical dynamics. Dalio believes that because of this, the control over this strait could be a key point in determining the outcome of the war. Historical experience: Empire decline often starts with critical channels Furthermore, Dalio draws parallels between this situation and several critical points in historical empires: For instance, after the Suez Canal Crisis, Britain's global influence quickly dwindled. Similar situations have also appeared in the decline of the Dutch and Spanish empires: when a dominant power shows its inability to maintain order in a key TRADELINK channel, global capital, allies, and political forces often quickly realign. In the article, Dalio presents an important historical principle: when a dominant country with a global reserve currency shows weakness in fiscal, military, and political aspects simultaneously, its allies and creditors tend to start losing confidence. This shift in confidence ultimately reflects in financial markets, such as bond sell-offs, currency depreciation, and rising gold prices. Not just war, but also a test of the world order Dalio also points out that the current situation is not an isolated event, but rather a part of a larger historical cycle. Over recent decades, the US has experienced wars in Vietnam, Afghanistan, and Iraq, which have had long-term impacts on fiscal, military, and geopolitical levels. If this conflict around Iran and the Strait of Hormuz evolves into a massive war of attrition, its cumulative effects could further weaken the post-World War II US-led global order. At the same time, he also reminds that the US still has a significant advantage in this game. If the US can ensure safe passage through the Strait of Hormuz via military force and alliance systems, it will once again demonstrate its ability to maintain international order and strengthen global capital's confidence in the US financial system and dollar assets. According to Dalio, this conflict surrounding the Strait of Hormuz has implications beyond the Middle East region. The outcome of the war will affect global trade and energy flow, potentially changing the direction of capital allocation globally and leading to chain reactions in the geopolitics of related countries. Therefore, in Dalio's view, this potential "ultimate battle" is not just about the outcome of a war but also about the future direction of the global financial system, the status of the US dollar, and the world order. The following is the full text of Dalio's post on the X platform, translated by AI, with some edits: It all comes down to who controls the Strait of Hormuz: the "final battle" Comparing current events to similar historical situations and cross-verifying with intelligent and well-informed leaders and experts has always helped me make better decisions. I find that in most wars, there are huge divergences about the future path as well as unexpected major events. However, in this war related to Iran, one thing is obvious and almost universally agreed upon: everything depends on who controls the Strait of Hormuz. I have heard from government officials, geopolitical experts, and people around the world that if Iran still holds the power to decide who can pass through the Strait of Hormuz, or even just retains the bargaining chip of using it as leverage, then: 1. The US will be seen as losing the war, and Iran will be seen as winning the war. This is because if Iran can control the Strait of Hormuz and use it as a weapon, it will signify that the US lacks the capability to resolve the situation. If Iran is allowed to close the most important strait in the world a strait that must ensure freedom of navigation at any cost the consequences will be disastrous for the US, US allies in the region (especially Gulf allies), countries highly dependent on oil transportation through this strait, the world economy, and the global order. If Donald Trump and the US do not win this war and the criteria for winning or losing is quite simple: can they ensure the safe passage of the Strait of Hormuz they will be seen as creating a disastrous situation that they cannot solve. It does not matter why the US ultimately fails to control the Strait of Hormuz whether it is because anti-war politics threatens Trump's political standing before the upcoming midterm elections and makes him hesitant about it; or because he and US voters are unwilling to bear the life and financial costs required to win the war; or because the US lacks sufficient military power to gain and maintain control of the strait; or because he cannot organize other countries to form an alliance to maintain the strait's openness these reasons are irrelevant. President Trump and the US will be seen as losers. Based on my study of history and my assessment of the current situation, if the US fails in this way, losing control over the Strait of Hormuz will be akin to: The Suez Canal Crisis of 1956 for Britain, Similar setbacks for the Dutch Empire in the 18th century, And the similar failures of the Spanish Empire in the 17th century. The events leading to the decline of empires are almost always the same. Though I have elaborated on this more comprehensively in my work "Principles for Dealing with the Changing World Order," I can summarize here: history has many cases showing that a weaker country will challenge the dominant power of the time over control of critical TRADELINK channels (such as Egypt challenging Britain over the control of the Suez Canal). In such situations, the dominant power (such as Britain) would threaten the weaker side (such as Egypt) to keep the waterways open. Subsequently, the world would closely follow the development of events and adjust their attitudes toward these countries and the flow of funds based on the results. The "final battle" decisive in victory and defeat often reshapes history, as people and capital quickly and naturally flow from losers to winners. These transitions affect markets especially bond markets, currency markets, and gold markets as well as the geopolitical power structure. After studying many similar cases, I have come up with a principle: When a dominant power with a global reserve currency position shows weaknesses in fiscal expansion, military, and financial control simultaneously, it should be wary of the loss of confidence from its allies and creditors, the stability of the reserve currency position, the selling off of debt assets, and the devaluation of its currency especially relative to gold. Due to the swift and natural flow of people, countries, and capital toward victors, if the US and President Trump cannot control the flow of shipping through the Strait of Hormuz, this will threaten America's global power and the existing world order. In the past, it was assumed that the US was the dominant force and could defeat its opponents (especially moderate strength opponents) militarily and financially. However: Vietnam War Afghanistan War Iraq War And potentially this conflict with Iran These wars' cumulative impacts on military, fiscal, and geopolitical levels are not good news for the US or for the sustainability of the US-led global world order since 1945. On the contrary, When a world dominant power demonstrates its military and financial strength, it boosts confidence in it and increases the willingness to hold its debts and currency. When Ronald Reagan successfully secured the immediate release of hostages by Iran after his election and ordered the US Navy to escort tankers during the Iran-Iraq war, he demonstrated his and America's power against Iran. If President Trump can show the capacity he promised to win this war by ensuring the free passage of the Strait of Hormuz and eliminating Iran's threat to its neighbors and the world this will greatly bolster external confidence in him and America's power. 2. If the Strait of Hormuz remains in Iran's hands If the Strait of Hormuz remains in Iran's hands and is used as a weapon to threaten US Gulf allies and the global economy, then everyone will become Iran's "hostages." In this scenario, Trump will be seen as stirring up a conflict but ultimately failing. He will leave a massive problem for US allies in the region while also losing credibility especially considering his previous public statements. For example, Trump once said: If for any reason a naval mine is laid in the Strait and these mines are not immediately cleared, Iran faces an imminent military consequence. We will easily destroy those easily targeted targets, making it almost impossible for Iran to emerge as a country again death, flames, and rage will fall upon them. Iran's new leadership must receive our approval, or they won't last long. I often hear other countries' senior decision-makers privately say similar things: "He sounds good, but when the situation gets tough, can he really fight and win?" Some observers are waiting for this conflict as if watching gladiatorial combat in ancient Rome or waiting for the final match in sports. President Trump is now calling on other countries to join the US in ensuring the freedom of navigation in the Strait of Hormuz. His success in convincing these countries to join in will demonstrate his ability to build alliances and mobilize strength, making it an important victory. It will be extremely difficult, and likely require a major war, for the US and Israel alone to ensure maritime safety without depriving Iran of control over the Strait of Hormuz. The direct and indirect impacts of this "final battle" will spread globally, affecting: Trade flows Capital flows And the geopolitical developments with related countries The current war and other recent wars are, in fact, just a part of a larger "Big Cycle" process that encompasses financial, political, and technological effects. Understanding these impacts is best done through studying historical wars, extracting lessons, and applying them to the present environment. For instance: A country's financial and military capabilities in war depend on the number and intensity of wars it is engaged in, its domestic political situation, and its relationships with like-minded countries. No country has the capacity to fight multiple wars simultaneously in fact, no country does. In a highly interconnected world, war spreads like a pandemic in unimaginable ways. Internally in all countries especially in democratic countries where there are huge wealth disparities and differing values there are always heated debates over what actions should be taken and how much cost (be it money or lives) should be borne by whom. It is almost certain that these direct and indirect chain reactions will be very complex and hard to predict, but the outcome is likely not to be positive. Conclusion Lastly, I want to emphasize that I am not a political figure. I am just a pragmatic person who needs to bet on what might happen in the future. I study history to extract experience from it to help me make better judgments. Right now, I am just sharing these principles and thoughts in the hope of helping others navigate through this turbulent era better. As I previously explained, by studying the rise and fall of empires and reserve currencies over the past 500 years a research I conducted to help me with global macro investing and shared in the book and video series "The Changing World Order" I found that five interconnected important forces determine the rise and fall of currency orders, political orders, and geopolitical orders. They are: Long-term debt cycles (explained comprehensively in "How Countries Go Broke") Political order and chaos cycles (developing in identifiable stages, and in the most extreme cases leading to civil wars) International geopolitical order and chaos cycles (also progressing in stages, and in the most extreme cases leading to destructive world wars) Technological progress (which can improve life or destroy it) Natural forces The events in the Middle East right now are just a small segment of this "Big Cycle" at the present moment. Though we cannot predict all details accurately, gauging the health of these five forces and the trajectory of the entire "Big Cycle" is not difficult. The essential question is, you need to ask yourself: Does this "Big Cycle" process really exist? Do these indicators suggest we are at which stage of the cycle? If so, how should I respond? If you are willing to ask questions in the comments, I am still ready to continue discussing these questions with you. This article is a repost from "Wall Street Insights", GMTEight editor: Li Fo.