Ray Dalio: The Resolution of the US-Iran Conflict Is In the Strait of Hormuz

Original Article Title: It All Comes Down to Who Controls the Strait of Hormuz: The "Final Battle"
Original Article Author: Ray Dalio
Translation: Peggy, BlockBeats

Editor's Note: In most wars, disagreements and uncertainties are often the norm. However, in this conflict surrounding Iran, the criteria for victory or defeat are unusually clear: who controls the Strait of Hormuz.

This is not only an energy transport route but also a "valve" for global capital flows and geopolitical power structures. Once passage rights are weaponized, their impact will quickly spill over to oil prices, inflation, financial markets, and even the entire international order.

Author Ray Dalio's assessment in this article is quite straightforward: if Iran maintains control of the Strait of Hormuz (even just using it as a bargaining chip), the outcome of this war will be seen as a failure for the United States. And the meaning of this failure goes far beyond the gains and losses of a military operation.

Starting from a historical comparison, the author points out that similar inflection points often correspond to shifts in power structures. Building on this foundation, the author places this conflict within the broader framework of a "historical supercycle," viewing the current Middle East situation as just one part of the evolution of debt, politics, and geopolitical patterns.

When the outcome of a war can be measured by whether a strait is open, its significance is no longer limited to the Middle East but points to the next stage in the world order.

The following is the original text:

Contrasting what is happening now with similar situations in history, and calibrating one's thinking with the judgments of more informed decision-makers and experts, has always helped me make better decisions.

I have found that it is often accompanied by great divergences and surprises about the future direction. However, when it comes to this conflict, there is one judgment that is almost undisputed: the key lies in one point, who controls the Strait of Hormuz.

The consensus I have heard from government officials, geopolitical experts, and observers from different regions around the world is: if Iran still holds the passage control of the Strait of Hormuz, or even retains the ability to use it as a bargaining chip, then

The consensus I have heard from government officials, geopolitical experts, and people from around the world is that if Iran continues to hold the passage control of the Strait of Hormuz, or even just retains it as leverage for negotiations, then:

The US Will Lose, Iran Will Win

The US will be seen as having lost this war, while Iran will be seen as the winner. The reason is simple. If Iran can use the Strait of Hormuz as a "weapon," it means the US is unable to resolve this issue.

This strait is one of the world's most critical energy passageways and should have been protected at all costs. Because once Iran blocks it, the damage is not only to the US but also to its Gulf allies, oil-dependent countries, the global economy, and even the entire international order.

In terms of outcome, the victory or defeat of this war can almost be measured by one indicator: whether the safe passage of the Strait of Hormuz can be ensured. If Trump and the US cannot "win" this war, not only will they be seen as losers, but they will also be seen as having created an intractable situation.

As for why they can't win, it doesn't really matter. Is it due to domestic anti-war sentiment affecting midterm elections? Is it that American society is unwilling to bear the cost of war? Is it due to insufficient military capability? Or is it the inability to rally allies to jointly maintain open navigation routes?

All of this is irrelevant. There is only one result: the US has lost.

Historically, such a failure could be very serious. Losing control of the Strait of Hormuz could be to the US what the Suez Canal Crisis of 1956 was to the UK (the UK was forced to concede on the canal issue, leading to a shift in global power), or what happened to Spain in the 17th century (lost its advantage due to financial overstretch and naval weakening) and the Netherlands in the 18th century (replaced by the UK as a trade and financial center).

History often repeats a similar script: a seemingly weaker country challenges the dominant power on a key trade route; the dominant power issues threats, and the world watches the outcome; then, positions and capital are reallocated based on victory or defeat.

This "key battle" determining victory or defeat often quickly reshapes history because people and money instinctively flow to the winner. This shift is directly reflected in the markets, bonds, currency, gold, and the deeper geopolitical power structures.

Based on numerous historical cases, I have summarized a simple yet important principle: when a dominant country with reserve currency status overextends itself financially, and shows fatigue on both military and financial fronts simultaneously, one should beware that allies and creditors may begin to lose confidence, debts may be dumped, the currency may weaken, and even reserve currency status may be shaken.

If the US and Trump cannot control the shipping flow in the Strait of Hormuz, this risk will significantly increase.

In the past, it was assumed that the US could overpower its opponents militarily and financially. However, Vietnam, Afghanistan, Iraq, coupled with a potential conflict like this, the cumulative effect is eroding this belief and shaking the post-war US-led international order.

Conversely, the same holds true when a dominant country demonstrates clear military and financial strength, confidence is reinforced. For example, Ronald Reagan quickly facilitated the release of hostages by Iran after taking office and provided escort to oil tankers during the Iran-Iraq War, all of which enhanced the United States' deterrent power.

If Trump can fulfill his promise, ensure the Strait of Hormuz remains open, and suppress the Iran threat, then this will significantly boost external confidence in U.S. strength.

On the other hand, if the Strait of Hormuz falls into Iran's hands and is used as a tool of intimidation, the world will be held hostage by them. This not only means that the world's energy lifeline is "hostage," but also that the U.S. has "provoked a war but failed to win" in this conflict. Trump's reputation will be directly impacted, especially given his previous tough stance.

Many foreign policymakers' private views are quite direct, "He talks a good game, but when it comes down to it, can he win?" Some observers even see this conflict as an "ultimate showdown," akin to watching a gladiator match or the finals.

Trump is calling on other countries to join the escort operation, and whether he can truly rally allies is a test of his ability. The reality is that ensuring the safety of the waterway without weakening Iran's control is difficult with only the U.S. and Israel, likely requiring a genuine large-scale conflict.

Iran's attitude starkly contrasts with that of the U.S. For them, this is a war of belief and survival. They are willing to bear a greater cost, even sacrificing lives. American society is more concerned about oil prices, and U.S. politics are more concerned about elections.

In war, who can endure pain is often more important than who can inflict pain.

Iran's strategy is likely to be to drag out the war, prolonging and intensifying the pain, until the U.S. loses patience and withdraws. Once this happens, U.S. allies will quickly realize that the U.S. will not always stand behind them.

“Negotiated Settlement” is Just a Surface Option

While there are discussions of ending the war through an agreement, everyone knows: an agreement cannot truly resolve the issue. Almost everyone understands that conflicts of this nature cannot be genuinely ended through agreements. What truly determines the outcome is the subsequent "decisive battle."

Regardless of whether Iran continues to control the Strait of Hormuz or its control is taken away, the conflict will enter its most intense phase. This "final battle" that will decide the outcome is likely to be of immense scale.

The Iranian military has stated, “Any region's energy facilities related to or cooperating with the U.S. will be completely destroyed.” This is the action they may take. If the Trump administration successfully unites other countries to send warships for escort and the waterway has not been mined, then this may be a resolution path. But both sides are aware that the key battle that will truly determine the outcome lies ahead. If the U.S. cannot reopen the strait, the consequences will be extremely severe; conversely, if Trump wins this battle and eliminates the Iran threat, it will greatly enhance his prestige and showcase U.S. strength.

「Decisive Battle」 Will Impact the World

The direct and indirect impacts of this 「decisive battle」 will have global ramifications. It will affect trade flows, capital flows, and the geopolitical dynamics related to China, Russia, North Korea, Cuba, Ukraine, Europe, India, Japan, and more. More importantly, this conflict is not an isolated event but part of a larger 「historical cycle.」 This cycle is simultaneously driven by financial, political, and technological forces. The situation in the Middle East is just one aspect of it.

For instance, whether a country can win a war depends on its military quantity and intensity, domestic political situation, and its relationships with neighboring countries of interest (such as Iran, Russia, China, North Korea). No country has the ability to simultaneously engage in multiple wars, and in a highly interconnected world, war, like a pandemic, can spread in unpredictable ways.

Simultaneously, domestically, especially in democratic countries where there is a significant divide in wealth and values, there will always be intense debates surrounding 「whether to engage in the war and who should bear the cost (financially or in lives).」 These complex chain reactions, though difficult to predict, usually do not yield optimal results.

Lastly, I want to emphasize that I am not speaking from a political standpoint but as someone who must make judgments about the future. By studying the history of the rise and fall of empires and the transition of reserve currencies over the past 500 years, I have identified the five major forces that drive changes in the world order:

1) Long-term debt cycle

2) Cycle of the rise and fall of political orders

3) Cycle of the international geopolitical order

4) Technological progress

5) Natural events

The current situation in the Middle East is just a fragment of this 「grand cycle.」 While it is impossible to predict all details precisely, the operating status of these forces can be observed and measured.

History does not necessarily repeat itself, but it often advances with similar rhythms. What is truly important is: you need to judge whether this 「grand cycle」 is occurring, which stage we are in, and how you should act in this context.

[Original Article Link]