The USD remains flat. In the editorial of Issue 8, I outlined a risk scenario that is becoming increasingly likely while the US continues to block the Strait of Hormuz unrestrainedly. This measure is tactically understandable, as it prevents the Tehran regime from receiving cash from oil sales.
The problem is that, if it comes under too much pressure, the regime is likely to strike again in an effort to drag as many people down with it as possible, thereby forcing the U.S. to back down.
More than two months have now passed since the start of the “special operation”, despite the U.S. boasting at the time that it would be over in 4–6 weeks. Currently, there is no indication that it will be over within the next 4–6 weeks, and as a result, the global economy is heading towards a precipice from which it could plummet.
Not only are oil storage facilities not full, but gas storage facilities are also effectively empty. This is particularly problematic for Europe, as it needs to replenish its reserves in time for winter.
This problem will affect Asia more severely than Europe because Asia depends on supplies from the Arab world.
I expect the price of fossil fuels to rise over the summer, driven by a bidding war among energy-hungry economies. Emerging market countries will be hit particularly hard, and they will also be the first to experience shortages of fertiliser. This means that the war against Iran could lead to global famine.
This complex situation creates a security risk for the United States that may have been overlooked in initial assessments.
The Demand for USD Will Decline Further
The U.S. dollar’s exceptional status was based on the fact that the United States’ military power ensured international trade routes remained open.
However, it is now becoming clear that inexpensive missiles and cheap drones are sufficient to endanger American naval infrastructure worth billions, thereby rendering it ineffective as a deterrent. This marks the collapse of Pax Americana, leaving the rest of the world to wonder what the point of holding U.S. dollars is if they can’t be used to buy anything anyway.
This does not mean that the USD will lose its importance overnight. However, it is a structural factor that will reduce demand for the USD.
Lower Demand Coupled With High Debt Suggests That Interest Rates in the US Are Likely to Rise
Given that he has made a name for himself as a renowned macro strategist, it seems odd that Scott Bessent might not have fully grasped the implications. It is possible that holding a position of power clouds one’s objective perspective more than not holding such a position.
For the US, its stock markets and its public finances, the realisation by the rest of the world that the US is, in effect, militarily powerless poses a major threat. There is no point in holding U.S. dollars if they cannot be used to purchase security. If the chosen subheading comes true, a complete shift away from the U.S. dollar is possible.
A More Dangerous World Order Is Looming
The wars in Ukraine and Iran have shown that even relatively small countries can stand up to superpowers. The resources required for defence and attack are decreasing significantly, enabling high levels of efficiency. A major problem with modern warfare is that it can be conducted increasingly without human involvement and at low cost. This means that victims of attacks are unable to effectively defend themselves against pinpoint strikes, especially against critical infrastructure.
