Macro Voices
MacroVoices #528 Luke Gromen: Hormuz Could Lead To a 1956 US Suez Moment
Most Important Insight
A failure by the United States to maintain the security of the Strait of Hormuz would represent a 'Suez moment' that effectively ends the US dollar's role as the global reserve currency and the 'petrodollar' system.
Most Original Insight
The US is currently trapped in a 'fiscal dominance' loop where the Federal Reserve's attempts to fight inflation by raising rates actually increase the deficit so significantly through interest expense that it creates more inflationary pressure.
Key Points
- The US interest expense on its national debt has reached a critical threshold where it now rivals or exceeds the entire national defense budget.
- If the US cannot protect the Strait of Hormuz, the 50-year-old security-for-oil agreement with Saudi Arabia becomes functionally obsolete, removing a primary pillar of dollar demand.
- Gold is being re-monetized by global central banks as a neutral settlement asset to avoid the counterparty risk and 'weaponization' of US Treasuries.
- The current geopolitical environment mirrors 1956, when the UK's inability to control the Suez Canal marked the definitive end of the British Pound's global dominance.
- China's aggressive gold accumulation is a strategic move to build a trade architecture that is immune to US dollar-based financial sanctions.
- The Federal Reserve will eventually be forced to implement Yield Curve Control to prevent government insolvency as interest costs spiral out of control.
- Energy is the true global currency, and the US's inability to ensure cheap energy flows will force a revaluation of all financial assets against commodities.
- The transition to a multipolar world means the US can no longer afford to maintain the global security umbrella while simultaneously servicing its massive debt load.
Investment Implications
| Asset / Sector / Instrument | Action | Source | Notes |
|---|---|---|---|
| Gold | BUY | explicit | Gromen argues gold is the only neutral reserve asset that solves the Triffin Dilemma in a world where the US can no longer guarantee global security. |
| Oil | BUY | implicit | Geopolitical instability in the Strait of Hormuz and the end of the US security umbrella threaten the structural supply of global energy. |
| Bitcoin | BUY | implicit | Mentioned as a potential alternative to fiat that benefits from the same debasement themes as gold in a fiscal dominance regime. |
| US 10Y Treasuries | SELL | implicit | Fiscal dominance and rising interest costs make long-term debt unsustainable without eventual debt monetization and high inflation. |
| USD | SELL | implicit | The loss of the 'Suez moment' would lead to a structural decline in global dollar demand as the petrodollar system collapses. |
Hang on a sec…
- Gromen's 'Suez moment' analogy may be exaggerated because the US is currently a net exporter of energy, unlike the UK in 1956 which was desperately dependent on imports.
- The claim that interest expense 'forces' debt monetization assumes there is no political possibility for significant fiscal austerity or entitlement reform to close the gap.
- He suggests China can easily replace the USD with gold-backed trade, but gold's lack of liquidity and the physical logistics of settlement make it a difficult primary medium for high-velocity global trade.