The Dollar Under Pressure: How a Closed Strait, a $40 Trillion Debt, and the Rise of Stablecoins Are Rewriting the Rules of Global Finance

There is a chart that almost nobody in mainstream financial media is talking about, and it may be one of the most important data points you can look at right now. It tracks total tanker transit calls through the Strait of Hormuz, and the numbers are down sharply. That single fact sits at the center of a cascade of economic consequences that stretches from global oil markets all the way to the US Treasury market, the Federal Reserve’s balance sheet, and ultimately, the wallets of everyday people who have no idea any of this is happening.

To understand why this matters, you have to start with geography and scale. The Strait of Hormuz is the narrow waterway connecting the Persian Gulf to the Gulf of Oman. Approximately 20 million barrels of oil pass through it every single day, representing roughly 20% of global oil supply. It is not an exaggeration to call it the most consequential oil chokepoint on the planet. When it is disrupted, the effects ripple through every economy that depends on oil, which is to say every economy on Earth.

The Feedback Loop That Puts US Debt in the Crosshairs

Here is where it gets complicated in a way that most financial commentary does not take the time to explain properly.

The countries most dependent on oil moving through the Strait, Europe, Japan, China, and much of Southeast Asia, also happen to collectively hold an enormous amount of US dollar denominated assets. According to available data, foreigners currently own approximately $70 trillion in US dollar assets, of which $9.4 trillion is US Treasury bonds alone. The United States net international investment position, a measure of how much of America’s assets foreigners own versus how much of their assets Americans own, currently sits at roughly negative 87% of GDP. To put that in historical perspective, after the first Gulf War it was negative 7%. After the 2008 financial crisis, it was still only negative 15%. The deterioration since then has been dramatic.

Now connect those two facts. Countries that desperately need oil are also countries that need dollars to buy oil, because oil is globally priced in US dollars. When those countries need dollars fast, the most liquid source available to them is their existing holdings of US dollar assets, including Treasury bonds. So they sell Treasuries. When they sell Treasuries, yields go up. When yields go up, the cost of financing America’s nearly $40 trillion national debt rises. Former Federal Reserve Chair Jerome Powell has publicly stated that the trajectory of US debt growth is unsustainable. That is not a fringe opinion. It is the assessment of the person who ran the world’s most powerful central bank.

Foreign central bank holdings of US Treasuries at the New York Federal Reserve have already declined to their lowest level since 2012, with tens of billions moving out in a matter of weeks. The 10 year Treasury yield, which was sitting in the low 3% range when the current Middle East conflict intensified, has been moving upward. Independent economic research suggests that a sustained move into the 4.6% to 4.8% range on the 10 year Treasury begins to create serious stress across the broader US economy, as higher borrowing costs compound an already large and growing deficit.

Three Outcomes, None of Them Comfortable

When you lay out the realistic paths forward for US economic policy under these conditions, none of them are painless. The first option is to let bond yields rise and allow the market to find its own level. The consequence of that path is a weaker stock market, lower tax revenues, higher deficits, a weaker housing market, reduced consumer spending, and a potential recession that, given the scale of foreign ownership of US assets, could drag significant parts of the global economy with it.

The second option is for the Federal Reserve to step in and purchase Treasuries to cap yields, a policy known as quantitative easing. The problem with doing this while oil prices are elevated is that you are injecting liquidity into an economy already experiencing an inflationary shock from energy prices. Economists who have studied the 2020 QE cycle note that the inflation that followed peaked at approximately 9% roughly 12 to 18 months after the initial money creation. Doing the same thing in an environment of simultaneously rising oil prices could, in theory, produce a worse outcome. The combination of slowing economic growth and rising inflation is known as stagflation, and it is historically one of the most difficult economic environments for policymakers to navigate.

The third option is a geopolitical one: de-escalation and withdrawal from the current conflict, which reopens the Strait and stabilizes oil markets. The economic case for this path is clear. But analysts point out that the geopolitical cost could be significant. Historian and financial writer Luke Groman has drawn comparisons to Britain’s Suez Canal crisis of 1956, in which Britain’s failure to impose its will on a critical waterway is widely regarded as the moment that effectively ended British imperial dominance and accelerated the dollar’s rise as the global reserve currency. If the US were perceived to have failed in restoring order to a critical global shipping lane, it could accelerate existing trends among oil producing and consuming nations to price and settle energy transactions in currencies other than the dollar, which carries its own long term inflationary consequences for American consumers.

The Debt Distribution Theory That Deserves Serious Attention

Beyond the immediate crisis mechanics, there is a longer term structural question worth examining: how does a country carrying nearly $40 trillion in debt, growing faster than its economy, ultimately manage that burden without either defaulting or inflating it away in a way that destroys its currency?

One theory gaining traction among economists and financial analysts is that the answer lies in broadening the base of creditors, specifically by distributing US government debt through the private sector in a way that embeds it into the daily financial lives of ordinary people around the world.

The mechanism that makes this conceivable is already taking shape in US legislation. The GENIUS Act, currently moving through Congress, requires any company wishing to issue a dollar pegged digital asset, known as a stablecoin, to hold US Treasury bonds or equivalent assets as backing on a dollar for dollar basis. This means that every corporation that wants to participate in the digital payments economy would be required to become a buyer of US government debt. The proof of concept for this model already exists. Tether, the company behind the world’s largest stablecoin, currently holds over $120 billion in US Treasury securities, making it one of the largest holders of US government debt on the planet, larger than many sovereign nations.

The logical extension of this model, if it scales to major consumer brands with existing global reach, is that hundreds of millions of people in countries around the world could find their digital wallets backed by US Treasuries, effectively becoming indirect creditors of the US government without necessarily understanding that, that is the role they are playing. Whether one views this as a pragmatic solution to a genuine debt management problem or as something more concerning from a financial sovereignty standpoint is a legitimate matter of debate. What is not debatable is that the legislative framework for it is already being built.

What Historically Has Protected Individual Wealth in These Conditions

Against this backdrop, a number of financial commentators and economists have returned to a discussion that tends to surface every time dollar denominated assets face structural pressure: the role of hard assets in preserving purchasing power.

Physical gold’s track record as a store of value predates every modern financial institution by millennia. It carries no counterparty risk, requires no network or government to function, and cannot be digitally disabled or frozen. The United States government did confiscate privately held gold in 1933 under Executive Order 6102, a historical fact worth acknowledging when evaluating any argument about the absolute safety of physical precious metals. But in the context of a world where digital financial assets are increasingly subject to sanctions, wallet freezes, and regulatory control, the argument for holding some portion of wealth in assets that exist entirely outside the digital financial system is one that a growing number of serious analysts are making, not as a fringe position, but as a straightforward risk management consideration.

Bitcoin held in self custody, meaning held in a private wallet rather than through an ETF or exchange, is increasingly discussed in similar terms by those who prioritize financial sovereignty over convenience. The key distinction analysts draw is between owning an asset directly versus owning a claim on an asset held by an institution, a distinction that matters considerably in scenarios where institutional access to assets can be restricted.

The Bigger Picture

What ties all of these threads together is a structural reality that is easy to miss when you are focused on any single data point. The Strait of Hormuz disruption, the US Treasury selloff by foreign central banks, the rise in yields, the legislative push around stablecoin backing requirements: these are not isolated events. They are connected nodes in a system under pressure, and the pressure is building from multiple directions simultaneously.

Whether the resolution comes through a geopolitical settlement, a Federal Reserve intervention, a new framework for how US debt gets distributed globally, or some combination of all three, the decisions made in the next 12 to 24 months are likely to shape the structure of the global financial system for a generation. Understanding the mechanics of how that system actually works, rather than how it is presented in headlines, is the starting point for making any informed decision about how to position yourself within it.

This article is written for educational and informational purposes only and does not constitute financial or legal advice. The views and analytical frameworks presented draw on publicly available information and reported commentary from industry participants. Readers are encouraged to consult primary sources and form their own informed views on these complex topics.