‘It all comes down to who controls Strait of Hormuz’: Ray Dalio says no agreement will resolve Iran war

No “worthless” agreement will resolve the Iran war, and it all boils down to who actually has the controls to the Strait of Hormuz, analysed US billionaire and founder of one of the world's largest hedge funds, Bridgewater Associates, Ray Dalio. 

“In the case of this Iran war, it is obvious, and there is near-universal agreement, that it all comes down to who controls the Strait of Hormuz,” said Dalio in an article on X, elaborating on the nuances of the war, based on historical trends, his own thinking, and the understandings of leaders and experts.

‘Trump and US would have lost’ 

Dalio said that the US would be judged to have lost and Iran to have won the war. Iran’s control of the Strait of Hormuz is an indication that the US does not have the power to fix the situation. Victory of this war would be measured by who can ensure safe passage through the strait, he said. If Trump and the US don't win this war, they would have been seen as causing a disastrous situation they could not fix. Whatever the reason for the US not winning, it would not matter – “President Trump and the US will have lost,” said Dalio. 

The US’ loss of the Strait of Hormuz would be akin to the Suez Canal Crisis for Great Britain in 1956. “The pattern of events that leads to the breakdown of empires is almost always the same,” said Dalio. The ‘final battle’  that determines winners and losers also reshapes history and redirects financial flows, affects the debt, currency, and gold markets, and shifts geopolitical power. People, countries and financial flows flock to the winner. 

If the US and Trump don’t get control of the Strait of Hormuz, it will threaten American power in the world as well as the existing world order. Also when the world’s dominant power demonstrates its military and financial strength, it bolsters confidence and willingness to hold its debt and currency. 

‘If Strait of Hormuz is left in the hands of the Iranians…’

Dalio said Trump would have been perceived to have picked a fight and lost if the Strait of Hormuz was left in the hands of the Iranians. It would also leave US allies in the region with a huge problem. Trump’s ability to get other nations to join the US to secure the strait will be “indicative of his ability to form alliances and muster power”.

However, it would be very difficult for the US and Israel alone to ensure the safe passage of ships without taking control of the strait. “The outcome is existential for the Iranian leaders and the largest and most powerful segment of Iran’s population,” said Dalio. 

The war is about revenge and commitment to what matters more than life for the Iranians, who have demonstrated a willingness to die for it. However, the Americans are worrying about gas prices and mid-term elections. Iranians want to drag the war out because the American public and leader’s limited capacities for pain is widely known. 

‘No agreement will resolve the Iran war’ 

“While there is talk of ending this war with an agreement, everyone knows that no agreement will resolve this war because agreements are worthless. Whatever happens next—i.e., leaving Hormuz in Iranian hands or taking control away from them—is likely to be the worst phase of the conflict,” wrote Dalio. 

“Both sides know that the final battle, which will make clear which side won and which side lost, still lies ahead. And they know that if President Trump and the United States don’t deliver on reopening the strait, it will be terrible for them,” said Dalio, adding that Trump’s win, on the other hand, will greatly impress everyone and demonstrate American power.  

‘Direct and indirect effects of the Iran war’ 

The Iran war will send ripples around the world, “affecting trade flows, capital flows, and geopolitical developments with China, Russia, North Korea, Cuba, Ukraine, Europe, India, Japan, etc”. It is part of the far bigger classic Big Cycle progression that has financial, political, and technological implications, said Dalio.