Death Throes of the American Empire

The American empire approaches a tipping point. The 2026 US-Iran war threatens the dollar's dominance and the established global order. Every empire comes to an end, often to the sound of applause. Sometimes a new order is formed to pick up the pieces. Sometimes the transition is marked by global chaos, nationalism, and isolationism.

America’s greatest strength is also its biggest vulnerability: Dollar hegemony via the petrodollar system. The system enabled America to expand its sphere of influence while financing a stretched domestic standard of living, as proxied by consumption. However, if the dollar were to lose its power, America could collapse. Its adversaries know this and have spent years building an alternative to the petrodollar system. With Iran seizing control of the Strait of Hormuz, this effort has accelerated as Iran can now force a significant proportion of global oil trade to be sold in non-dollar currency, namely Chinese yuan. By triggering war with Iran, America has ironically hastened its own collapse.

Many observers might welcome the end of American hegemony as a necessary rebalancing of global power. However, the short-term reality of this transition guarantees profound economic pain for everyday citizens.

The collapse of the petrodollar system destroys the purchasing power of Western consumers. It triggers skyrocketing inflation, supply chain failures, and a severe contraction of the domestic standard of living. Even if a multipolar world or replacement hegemony proves more equitable in the long term, the transitional years will inflict devastating financial ruin on ordinary people.

The Connection between Globalism and Empire

Globalism requires a global hegemon. The interconnected world of free trade, complex supply chains, and frictionless capital flows is a man-made architecture. It relies entirely on a singular superpower willing and able to enforce the rules of the system. For the past eighty years, the United States served this role. The US Navy aggressively policed the global commons, guaranteeing safe passage for commercial shipping across every ocean. The US dollar provided a universal, trusted medium of exchange for international trade.

This hegemonic umbrella eliminated the need for individual nations to militarize their own supply chains. This security guarantee created the immense benefits of globalism. It allowed for hyper-efficient, just-in-time manufacturing. It facilitated the eradication of extreme poverty in developing, export-driven nations. Most visibly, it delivered a steady stream of remarkably cheap consumer goods, electronics, and out-of-season agriculture to Western populations.

The collapse of the American hegemon directly triggers the collapse of globalism. Without a singular enforcer, the oceans become contested territory. Trade routes fracture into regional, heavily militarized blocs. Maritime insurance premiums surge as piracy and state-sponsored commerce raiding return to the global sea lanes. The cost of doing business internationally skyrockets, permanently ending the era of cheap, globally sourced supply.

The Anatomy of a Reserve Currency

To understand the severity of this transition, one must understand the mechanics of a reserve currency. A reserve currency is a foreign currency held in massive quantities by central banks and major financial institutions worldwide. Nations use this currency to clear international transactions, pay for critical imports, and service debt denominated in that foreign currency.

Global empires and reserve currencies share a direct, causal, and mutually reinforcing relationship. Military and economic dominance establishes the currency's global utility and safety. Subsequently, the currency's reserve status funds the empire's continuous deficit spending and military expansion without triggering immediate domestic inflation. The empire expands the money supply to project global power; the rest of the world willingly absorbs that money to conduct daily trade. Losing military dominance destroys the currency's utility. Losing the reserve currency destroys the empire's ability to fund its military.

Throughout history, dominant empires established reserve currencies. The Dutch guilder dominated the 17th and 18th centuries through the vast global trade monopoly of the Dutch East India Company. The British pound sterling dominated the 19th and early 20th centuries, backed by the unrivaled Royal Navy and a strict adherence to the gold standard.

The end of these historical empires inflicted suffering on their citizens. To the individual, the final collapse, after a long period of decline, of reserve currency status feels like sudden, inexplicable poverty. As global demand for the imperial currency evaporates, its purchasing power plummets. Imported goods, food, and energy become impossibly expensive. Decades of accumulated middle-class savings can evaporate through rapid, uncontrollable inflation. The state drastically cuts domestic social services, raises taxes to service unpayable national debts, and implements strict capital controls to prevent citizens from fleeing with their wealth. The population experiences a profound psychological shock as their assumed global superiority is replaced by physical deprivation and rapidly decaying domestic infrastructure.

Petrodollar System 101

The US dollar’s place as a dominant global currency was cemented during WWII. Backed by gold, massive resources, and a relatively unscathed industrial base, American hegemony was fast-tracked. However, years of fiscal excess pressured this original gold-backed construct (Bretton Woods), as dollar-holders threatened to take their gold and run.

In 1971, President Richard Nixon suspended the dollar's convertibility into gold and the United States needed a new mechanism to ensure global demand for its currency. In 1974, the US brokered an agreement with Saudi Arabia, stipulating that Saudi Arabia would price its oil exports exclusively in US dollars in exchange for US security guarantees. The Organization of the Petroleum Exporting Countries (OPEC) formally adopted this standard in 1975.

The requirement to trade energy, something every country needs, in dollars creates continuous global demand for the currency. Nations must hold dollar reserves to buy energy. Oil-exporting nations subsequently reinvest their dollar surpluses into the United States by purchasing US Treasury bonds and financial assets. This petrodollar recycling allows the United States to run large deficits without suffering the typical effects, such as currency devaluation. Moreover, the capital influx suppresses US borrowing costs (interest rates). It directly funds a defense budget nearing $1 trillion and maintains hundreds of overseas military bases. The US Treasury uses this system to sanction adversaries by severing their access to dollars.

The US defends this financial system through military force. The Petrodollar War Theory argues the US overthrows governments that threaten the dollar-denominated oil trade. In 2000, Iraq priced oil in euros. The US invaded Iraq in 2003, removed Saddam Hussein's government, and reverted oil sales to dollars. Muammar Gaddafi proposed a gold dinar for Libyan oil exports. NATO intervened in 2011, Gaddafi died, and the initiative ended. Venezuela priced crude in yuan. The US applied crippling sanctions and captured Nicolás Maduro in 2026.

Iran signed a 25-year agreement with China in 2021 to sell oil in yuan.

Iran is Threatening to Take Down the US Empire

Before the current war, the Strait of Hormuz transited over 20% of global oil and liquefied natural gas (LNG), not to mention other critical commodities like sulfur, urea, and helium.

Following the initial attacks by Israel and the US, Iran shut the Strait by threatening to attack any ship that transits. Iran has since set up an informal toll for ships under non-enemy flags, allowing them to pass the Strait unharmed. Ships must navigate a northern route near Larak Island under armed Islamic Revolutionary Guard Corps (IRGC) escort. Operators submit documentation to IRGC brokers for approval. The IRGC attacks unauthorized ships.

The IRGC demands a transit fee equivalent to $2 million per vessel. Because US sanctions block Iran from the dollar system, the IRGC requires payment in Chinese yuan. Vessels submit yuan payments to secure passage. Iran forces nations to acquire yuan, bypassing the petrodollar system entirely.

This should not come as a surprise. The BRICS coalition (an intergovernmental organization initially comprising Brazil, Russia, India, China, and South Africa, which recently expanded to include Iran, Egypt, Ethiopia, and the United Arab Emirates) has been developing and refining a non-dollar denominated alternative payment platform for years. Indeed, the platform currently supports over $55 billion in annual transactions. It effectively enables cross-border settlements without relying on Western correspondent banks, bypassing the US Treasury’s ability to enforce control.

The use of non-dollar reserves has quietly grown for years. This trend accelerated after Russian dollar-denominated assets were confiscated when it attacked Ukraine, underscoring the vulnerability of relying on the petrodollar system.

Now, the attack on Iran provides another catalyst to force global trade off the dollar. The attack gave the IRGC the geopolitical capital to take control of the Strait as a defensive response, rather than an offensive act. This control is a lever to push countries trading commodities through the Strait of Hormuz away from the dollar system. This is supported by China, Russia, Pakistan, and many other countries that would be happy to see the dollar’s hegemony weakened. With regional dependence on the Strait for the transit of goods, even US allies could be forced to abandon the dollar.

End-State Scenarios

At the end of this conflict, either the US controls the Strait or it does not. To control the Strait, either Iran has to concede and agree to a negotiated return to business as usual or the US has to control the Strait by force. Given its newfound strategic power (and source of revenue) it is unlikely Iran voluntarily hands the Strait over to the US (or some sort of coalition Western force). Controlling the Strait by force would require a deep incursion into Iranian territory to control missile sites. Even then, safe transit could not be guaranteed and the costs would be enormous.

Another potential scenario, given the low domestic support for this war and lack of a clear exit strategy, is the US simply declares “victory” and walks away, leaving the responsibility to countries that depend on commodities transited through the Strait. Namely, the BRICS nations that are building an alternative to the dollar system.

This withdrawal scenario mirrors the 1956 Suez Crisis, which effectively ended the British Empire’s credibility. In 1956, Britain, France, and Israel invaded Egypt to seize the recently nationalized Suez Canal. The United States strongly opposed the intervention. President Dwight D. Eisenhower threatened to sell America's massive reserves of the British pound sterling. This threat of a deliberate, instantaneous currency collapse forced Britain into a humiliating military withdrawal. The Suez Crisis proved that a nation cannot project military power without supreme financial sovereignty. It exposed Britain's absolute reliance on American debt forgiveness and finalized the transition of global reserve status from the pound to the US dollar. A similar American retreat from the Strait of Hormuz in 2026 signals to the world that the US military can no longer secure global commerce or enforce the dollar's supremacy.

Of course, a third scenario is protracted chaos and violence, which is quite possible. This scenario would also likely lead to collapse as the American financial system cannot survive another Iraq + Afghanistan. We’re already seeing the bond market reject the current war, with 10-year US Treasury yields rising as the bond market grows concerned over the economic costs of this war, increased borrowing, and inflation. The war is less than a month old, the US is spending $1b per day, and so far they’re just lobbing bombs around. It could get a lot worse, throwing the entire Middle East into a hellstorm.

What Decline of American Empire Would Look Like

The acceleration away from the petrodollar and toward the petroyuan creates severe second-order macroeconomic and geopolitical vulnerabilities for the United States and its traditional allies.

The primary economic vulnerability is the catastrophic unwinding of America’s debt-financed standard of living. For decades, the petrodollar system provided the United States with artificially low borrowing costs and a uniquely strong currency. The rapid transition to the petroyuan reverses this dynamic, triggering a violent downside overcorrection. Without the mandatory global demand for dollars to purchase oil, foreign central banks would sell US Treasury bonds. While the war has temporarily supported dollar strength, it has been on a structural decline.

If the dollar were to lose reserve currency status, the United States would face structurally higher borrowing costs to service its massive national debt and unfunded liabilities compared to average nations, fundamentally breaking the federal budget. This financial contraction guarantees deeply unpopular domestic austerity, massive tax increases, and a permanent reduction in the purchasing power of American consumers. Prices go up, infrastructure crumbles, and social security is cut.

This economic collapse directly destroys American military and political projection. The US Treasury loses its ability to enforce global sanctions or weaponize the SWIFT network against geopolitical rivals. Without the capital influx of petrodollar recycling, the Pentagon cannot finance its $1 trillion budget or maintain its sprawling network of overseas bases. The United States must formally abandon its global security commitments, pull back its carrier strike groups, and retreat to a strictly hemispheric defense posture.

This rapid structural realignment fractures the traditional Western alliance system, forcing Europe, Canada, and Asia into painful, immediate recalibrations. Highly dependent on imported energy, European nations face rapid deindustrialization and severe consumer inflation. Unable to rely on the US Navy for supply chain security, Europe must capitulate to Eurasian terms and integrate into BRICS financial architectures to keep its economies functioning.

In North America, Canada suffers severe collateral damage due to its inextricable integration with the US economy. The collapse of the US dollar creates a severe dilemma for Canadian resource exports. While nominal dollar prices for these exports rise as the US currency devalues, the overall volume of exports to the United States precipitously declines due to the contracting American economy. To maintain global purchasing power and avoid domestic economic collapse, Canada is forced to begin accepting the Chinese yuan for its energy and agricultural exports, rapidly seeking new, non-Western trade partnerships outside the collapsing American umbrella.

In Asia, import-dependent allies like Japan, South Korea, and the ASEAN states face a stark survival imperative. They must adopt the petroyuan to secure necessary oil and gas shipments from the Middle East. To guarantee this energy access, these nations definitively pivot their economic and military alignments toward Beijing, permanently dismantling the US "hub and spoke" alliance architecture in the Pacific and cementing Chinese hegemony in the Eastern Hemisphere.

In the end, the American empire would be gone. The country may persist and life will go on, but the death throes will be terrifying.