Inside today’s Daily Journal…

Editor’s note: Although Erez Kalir ordinarily focuses on technology, blockchain, and biotech issues in Porter & Co.’s Tech Frontiers, Porter turned over the Journal to him today so Erez could tell the story of the longer-term consequences of the extended closing of the Strait of Hormuz: erosion of the supremacy of the U.S. dollar and the Trump administration’s inability to stop it…

In the fall of 1956, the British Empire learned – in the most painful way imaginable – that it was no longer in charge.

The immediate trigger was Egypt’s decision to nationalize the strategic Suez Canal, the narrow artery through which nearly all of Europe’s oil flowed. For Britain, the canal was not merely an economic asset, but the connective tissue of an empire – the link between London and the Middle East, India, and beyond.

British Prime Minister Anthony Eden responded the only way a fading empire knows how: with force. In late October, Britain, France, and Israel launched a coordinated military operation to regain control of the Suez. Militarily, the operation succeeded.

Financially, it was a catastrophe.

The United States, Britain’s most important ally, refused to support the invasion. Worse, Washington undermined Britain using the one weapon that mattered most, the dollar.

At the time, Britain still clung to the illusion that its currency, pound sterling, remained the global reserve. But sterling’s position as the world’s dominant currency had been eroding for decades… losing ground to the ascendent U.S. greenback. And in this crucial moment of geopolitical crisis, Britain depended on foreign capital to support sterling’s stability in the foreign exchange markets. When President Dwight Eisenhower signaled that U.S. support for sterling would be withdrawn, the rest of the world’s capital followed.

Sterling collapsed… Britain’s foreign reserves evaporated – and within weeks, Prime Minister Eden was forced into a humiliating Suez withdrawal.

Historians often describe Suez as the end of the British Empire. That’s not quite right – empires rarely end in a single moment.

But Suez was the moment the world saw, unmistakably, that Britain could no longer enforce the system that underpinned its power. And once the world sees that, it can’t be unseen.

Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, has spent decades carefully studying the rise and fall of empires – the Dutch, the British, and now the American.

Dalio’s framework is both intuitive and powerful:

In the beginning, an ascending power’s naval strength protects key trade routes. Controlling key maritime trade routes makes a nation’s currency the one everyone wants to use. Reserve currency status enables that nation to borrow from the rest of the world more cheaply. Cheap borrowing helps reinforce the nation’s military strength – and so the loop closes.

An empire’s decline works through a feedback loop, too: As a dominant power borrows more, it becomes complacent, believing it can continue to borrow in perpetuity. Its debt mushrooms. At a certain juncture, the cost of maintaining the military that catalyzed the empire’s ascent begins to become painful, then prohibitive. Foreign creditors begin to question the currency. The currency’s reserve status erodes, causing borrowing costs to rise, and the military weakens. The empire falls into a terminal decline.

In this downward spiral, the crucial moment isn’t when the hegemon weakens – it’s when the world realizes it has weakened.

All of which brings us to what is unfolding today in the Strait of Hormuz.

As everyone who isn’t Robinson Crusoe knows, the Iran War has led to the closure of the Strait, through which roughly 20% of the world’s oil transits. But as I discussed in detail in the April issue of Tech Frontiers, Hormuz is a critical chokepoint for far more than oil.

Approximately 20% of the world’s liquefied natural gas (“LNG”) flows through it… along with over 20% of seaborne nitrogen fertilizers, on which the global food supply depends… and more than 30% of the global helium market – an essential, little-known input for the fabrication of the advanced memory chips that power the artificial intelligence (“AI”) buildout.

Embarrassingly for the U.S., the Strait of Hormuz was not closed before we launched this war. Iran shut it in response to our attack on February 28, making its closure what soccer players call a colossal “own goal” – points we ourselves scored for the other team.

And now, over six weeks after we initiated the conflict, we’ve belatedly discovered that re-opening the Strait is really hard, even with the world’s most expensive and technologically advanced military. Last week, a mere 19 hours after President Donald Trump posted on Truth Social that Iran had promised to keep the Strait “permanently” open as an outcome of peace negotiations, Islamic Revolutionary Guard Corp (“IRGC”) forces fired live ammunition on two civilian tankers seeking to transit the Strait, forcing them to turn around.

The Hormuz crisis, which the U.S. precipitated, is causing devastating injury to the dollar system in at least three ways.

1. The world is seeing – in the most painfully visible way imaginable – that the U.S. can’t keep the most important maritime trade route in the world open. The three aircraft carriers we have dispatched to the Persian Gulf, which cost U.S. taxpayers about $13 billion each to build? No match yet for the credible threat posed by the IRGC’s cheap drones and “mosquito fleet” of fast-attack speedboats. The U.S. financial backstop meant to stabilize the maritime insurance market for Hormuz transit? Hasn’t returned insurance rates anywhere close to their pre-conflict levels. Most importantly, vessels still simply aren’t transiting.

2. The Hormuz closure is wreaking havoc on the economies of U.S. allies. Europe, Japan, Korea, India, and large parts of Asia depend on energy flows implicitly secured by U.S. naval power. When these flows come to a sudden stop, their economies suffer – and for several of our key allies, the economic damage is rapidly becoming a bona fide crisis. When the dust settles, and even before, the inevitable conclusion our allies will draw is that their reliance on the Pax Americana and the dollar system at its foundation made them vulnerable, not strong.

3. A boost for China’s currency. The final development may be the most important. Because during the first six weeks of the war, while virtually all U.S.-allied vessel transit across Hormuz was halted, one other category of vessels continued to move smoothly: Chinese shadow-fleet tankers carrying Iranian crude – which China paid for in renminbi (“RMB”) not dollars, and settled using its own bespoke CIPS payment system, not the U.S. backed, dollar-based SWIFT.

The Trump administration belatedly realized that allowing Iran to facilitate Hormuz transit for Chinese vessels while zeroing out U.S.-allied vessels was a really dumb idea. We accordingly implemented our own naval blockade – effectively conceding that if we couldn’t re-open the Strait, we would at least close it for everyone, including China. But for over a month, the world got a striking, real-time demonstration of renminbi-denominated oil flowing seamlessly while dollar-based oil was totally stuck. That “proof of concept” for renminbi-denominated oil is not one the world is likely to forget.

This alone is not going to lead to the replacement of the dollar… but it’s a sign of the slow erosion of the dollar’s dominance both as a reserve currency and as a medium of exchange.

U.S. policymakers aren’t blind to China’s strategy. And recently, the U.S. response has begun to coalesce around two important pieces of our own, each of which can be understood as a way of updating the fading petrodollar.

The first is what we might call the “crypto-dollar.” Stablecoins – dollar-backed, blockchain-based digital assets – are extending the reach of the dollar into every corner of the global economy. Every unit of stablecoin requires backing in U.S. Treasuries. Every transaction therefore reinforces the dollar’s role as the unit of account. And because stablecoins operate outside traditional banking systems, they reach populations and markets that the old system never could. Stablecoins are, in effect, a digital version of the Eurodollar system that has helped sustain the dollar’s dominance after the collapse of the Bretton Woods agreement when President Nixon closed the “gold window” in 1971.

The second pillar is even more interesting… what might be called the “GPU-dollar.” In the 1970s, oil created structural demand for dollars, because all oil was priced in dollars. Today, a new, scarce commodity is emerging: access to AI computational power, or AI “compute.” High-end GPU chips, AI infrastructure, and the compute + energy “stack” are increasingly becoming essential inputs for economic competitiveness and growth. In this new world, GPUs are the new oil, Nvidia is the new Saudi Aramco, and AI infrastructure is the new foundation of global economic power. If the U.S. can ensure that access to this “stack” is mainly dollar-denominated, it can replicate the logic of the old petrodollar order:

America’s strategy – to advance the dollar’s reign by advancing stablecoins and AI compute – is elegant and smart.

But there’s a problem.

Dalio’s framework reminds us that innovation and even control over scarce resources don’t sustain a reserve currency. At its core, reserve currency status depends on something more basic: The ability to enforce the system, through a combination of military and economic might.

In the 1970s, that meant guaranteeing oil flows. Today, it means guaranteeing the trade routes, physical and digital, on which the system depends.

Which brings us back to the Strait of Hormuz.

If the United States cannot demonstrate that it can keep the Strait open – if it cannot restore dollar-based flows – then the entire dollar order begins to wobble.

The crypto-dollar can extend the system.

The GPU-dollar can evolve it.

But neither can replace the foundation. The foundation is military credibility – the power to enforce our will on the trade routes that make the global economy run.

Which is why we almost certainly have not seen the end of this conflict.

For investors, the Hormuz crisis isn’t a garden-variety geopolitical story. Instead, to paraphrase Soviet leader Vladimir Lenin, it’s a period of weeks when decades happen.

Because resources, currencies, capital flows, and technological systems all rest on the same underlying question: Who enforces the rules?

For over 75 years, the answer has been the United States. In the waters of the Persian Gulf today, that answer is being tested.

The outcome of the test will determine the course of the global economy over the rest of our lifetimes.

Tell us what you think of today’s Daily Journal: [email protected]

Erez Kalir
Berkeley, California

P.S. Three of the current open positions in Tech Frontiers are up more than 100% since Erez recommended them – and he exited three now-closed positions far above 100%. Erez will release his next Tech Frontiers issue in early May. To get access to his next recommendations and all archives, click here now.

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1. The ESG bubble has popped. Environmental, social, and governance (“ESG”)-related fund flows as a percentage of overall ETF flows have collapsed to their lowest levels since 2018. According to Morningstar, global sustainable funds hemorrhaged $84 billion in 2025 – the first annual net outflow since tracking began. ESG was never a performance strategy – it was a political strategy dressed up in performance language. You cannot exclude the most profitable sectors on Earth (energy, tobacco, defense) and compete with a broad index. This is why we own Philip Morris (PM), ExxonMobil (XOM), and other energy-related names in Complete Investor and Porter’s Permanent Portfolio.

2. Technology takeover of the U.S. manufacturing. The production of computers, semiconductors, and communications equipment is up 90% since 2017, while the rest of the U.S. manufacturing sector has declined 4% over the same period. The AI revolution has accelerated a long-running trend of technology playing an increasingly larger role in the U.S. economy.

3. AI now dominates both U.S. equity and credit markets. AI-related stocks account for a record 45% of the S&P 500’s market cap, up 20 percentage points since ChatGPT launched in November 2022. Meanwhile, 15.4% of all investment-grade debt is now tied to AI, with AI-related debt nearly doubling since 2020 to $1.4 trillion. No single theme has ever gripped both markets this completely at the same time.

Yesterday, Complete Investor recommendation Kinsale Capital (KNSL) reported Q1 earnings – the property and casualty insurance company’s business fundamentals remain robust, with an industry-leading 77.4% combined ratio and 24% operating return on equity. As happens after almost every KNSL positive quarterly earnings report, shares dropped significantly. As such, its valuation is more than 30% below its five-year average, offering an attractive entry point.

In yesterday’s Daily Journal, Porter wrote the third part of his “A Turning Is Coming in 2029” series. Readers share their thoughts…

Franz B. writes:

Porter Comment: I think it’s virtually certain that the government will default on its promises to Social Security recipients within the next four years. How it will do so remains to be seen, but it will certainly include both more wealth confiscation and lower payouts (at least in real terms).

Bruce F. writes:

Tom A. writes:

Arthur G. writes:

Porter Comment: Arthur –

Thanks so much for letting me know. I’ve got a wonderful suggestion.

Would you like to try explaining it to everyone for me? Because, in at least half a dozen different emails, I’ve said exactly the same thing.

I don’t know how to say it any clearer – or I would have!

But, I’m happy to publish your version.

Just tell me what you want me to print —

Porter

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