“Watch out for allies and creditors losing confidence, the loss of its reserve currency status, the selling of its debt assets, and the weakening of its currency, especially relative to gold.”

Ray Dalio didn’t write that sentence about Britain in 1956. He wrote it about the United States in March 2026. But the parallel he was drawing was unmistakable — and deliberate. The Bridgewater Associates founder and Fortune contributor, who has spent decades mapping the rise and fall of reserve-currency empires over 500 years of history, traced back to a single afternoon in November 1956 to explain what he believed was happening in real time to the most powerful country on earth.

That afternoon, British Prime Minister Anthony Eden received a phone call that ended an empire.

The original Suez moment

In late October 1956, Britain and France — alongside Israel — invaded Egypt after President Gamal Abdel Nasser nationalized the Suez Canal, the vital trade artery connecting Europe to Asia. Militarily, the operation was a success. Within days, Anglo-French forces controlled the northern portion of the canal, but it unraveled off the battlefield.

The United States, alarmed by the unilateral action and unwilling to allow its allies to destabilize the Cold War equilibrium, applied crushing pressure. Washington threatened to withhold emergency IMF loans as the British pound came under speculative attack. It was financial warfare, and it worked. Eden, facing a currency crisis, withdrew from Egypt in humiliation within weeks.

The military had won. The empire had lost. And what followed was a cascade that Dalio, in Bridgewater’s research, describes as the classic sequence of imperial decline: allies stopped deferring to London; creditors reassessed British debt; the pound sterling — which had served as the world’s reserve currency for over a century — began its long retreat. Within four years of the Suez Crisis, Britain had granted independence to Ghana, Malaya, Nigeria, and Cyprus. Within a decade, Harold Macmillan’s “winds of change” speech had formalized what Suez had revealed: the British Empire was in managed retreat, not strategic expansion.

Today, Britain is a prosperous, mid-sized economy of nearly 70 million people, with a GDP that ranks fifth globally — behind the United States, China, Germany, and Japan. It is a respected member of NATO and the G7, a permanent member of the UN Security Council, and home to London, one of the world’s great financial centers. But its “special relationship” with the U.S. is not the same as it was before the Suez Crisis.

Dalio compared the Hormuz standoff directly to the Suez crisis in March — invoking a pattern he says has recurred across centuries: a rising power challenges the dominant empire over a critical trade route while the world watches, as money and alliances shift toward the winner.

The problem, he argued, was motivational asymmetry. For Iran’s leadership, the war was existential, while American voters had gas prices on the mind and American politicians the midterms. “In war,” Dalio wrote, “one’s ability to withstand pain is even more important than one’s ability to inflict pain.” By April, he had widened the frame entirely: “We are in the early stages of a world war that isn’t going to end any time soon,” he wrote on his Substack — arguing the Iran conflict was not a standalone episode but a systemic reorganization of global power, one in which the financial and military contests are inseparable.

The 2026 Iran War: Military victory that revealed strategic limits

The U.S. and Israel launched a bombing campaign against Iran beginning in late February, followed by a ceasefire and months of grinding, inconclusive negotiations. American forces struck nuclear sites, missile facilities, and military installations across the country. The Iranian regime was battered, its economy buckled, and yet Iran survived. Regime change never happened, and the nuclear program was not verifiably dismantled.

By late June, U.S. negotiators were still in Qatar, pursuing a memorandum of understanding to reopen the Strait of Hormuz in exchange for phased economic relief — a far cry from the decisive victory the operation’s architects envisioned.

Dalio was only the most famous voice to make the comparison, which became a bit of a meme during the Iran War. Fawaz Gerges, professor of international relations at the London School of Economics, the New Yorker‘s Ishaan Tharoor, and veteran analyst James Dorsey all drew the comparison. The most substantive rebuttal came from Asharq Al-Awsat, an influential Arabic-language outlet, which ran an opinion piece in April calling it a “tempting but misleading comparison.” Essentially, it boils down to whether you think the U.S. was declining before Suez, and whether the U.S. was in decline before Hormuz, plus the fact that Britain was forced by a creditor to back off its plan. Only China could play that role with the U.S. today.

Secret deal that built the dollar’s dominance

Two key factors behind the decline are the “petrodollar” system and the national debt. To get the former, you have to flash forward to a 1974 handshake that the public wouldn’t learn about for another 42 years.

President Nixon had dispatched Henry Kissinger to Saudi Arabia to strike a secret arrangement. Riyadh agreed to price and trade its oil exclusively in U.S. dollars and channel its petroleum windfalls back into U.S. Treasury bonds; in return, Washington promised military aid, equipment, and security guarantees. Other OPEC members followed, locking in the dollar as the indispensable currency of the modern world and giving rise to the “petrodollar” system.

French Finance Minister Valéry Giscard d’Estaing called it an “exorbitant privilege.” Economist Yanis Varoufakis called it “the global minotaur” — likening the U.S. to the ancient king of Crete who held international trade captive to tribute.

The Strait of Hormuz is where that privilege has always been physically most exposed.

Meanwhile, weeks after the outbreak of hostilities, the U.S. national debt crossed $39 trillion on March 18, 2026. The U.S. had already suffered credit downgrades from all three major ratings agencies — S&P in 2011, Fitch in 2023, and Moody’s in May 2025. The dollar’s share of global foreign exchange reserves had fallen to 56.9%, its lowest level since 1995 and down from a peak of 72% in 2001.

The dollar’s dominance is not collapsing. It is, as Wall Street analysts like to say, the “cleanest dirty shirt” among all the troubled currencies worldwide. But then again, Britain’s sterling didn’t collapse at Suez. It bled for 30 years until a certain George Soros bet that it wasn’t worth what the government said. At that point, aided by his colleague Scott Bessent, Soros “broke the Bank of England” and sealed the long cycle set in motion by the Suez Crisis.

Decline is not collapse

The Suez analogy has limits that its most serious proponents acknowledge. Dalio frames this as a contingent possibility, not a certainty. The United States remains the world’s largest economy, its military without peer in raw capability, its cultural reach still unmatched. Crisis conditions historically drive a flight to dollars, not away from them.

Britain’s pound had been the anchor of global trade since the Napoleonic era; it took two world wars, a Great Depression, and a humiliation in Egypt to finish it off. The dollar’s own arc runs roughly 80 years, from the 1944 Bretton Woods agreement, where the victorious United States anchored the postwar monetary order to a simple promise: every dollar was redeemable for gold at $35 an ounce. It mutated again in 1971, when the costs of Vietnam and the Great Society had so strained American finances that Nixon unilaterally slammed the gold window shut — ending dollar convertibility overnight and untethering the currency from any hard constraint. What replaced the gold anchor was something more abstract and more fragile: the credibility of American power itself, significantly boosted by the forthcoming secret Petrodollar deal.

What is different now — what makes the Iran war more than just another Middle East misadventure — is the convergence: a $39 trillion debt load, a 30-year low in the dollar’s share of foreign reserves, a physically threatened petrodollar chokepoint, and a domestic political climate that has made endurance nearly impossible.

But Dalio’s warning cuts through the reassurances: “Both sides know that the final battle, which will make clear which side won and which side lost, still lies ahead.”

For this story, Fortune journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing.