Editor's Note: The 2003 North American blackout started with a transmission line failure in Ohio, but within minutes plunged 55 million people across eight U.S. states and parts of Canada into darkness. The author uses this case as a metaphor: highly interconnected systems do not always fail slowly; they often break at a critical point and then transmit the load to the next node, eventually leading to a cascade failure.
This article attempts to apply this framework to the current global financial system. The author argues that the U.S. dollar and U.S. Treasuries form the "main power grid" of the modern financial world. The energy shock from the closure of the Strait of Hormuz is putting pressure on some emerging market countries that rely on oil imports. After oil prices rise, these countries need more dollars to purchase energy, forcing them to sell their dollar assets, especially U.S. Treasuries; once this selling pressure spreads from individual countries to collective action, it could potentially impact the U.S. Treasury market itself.
The article focuses on oil-importing emerging market countries like Turkey. On one hand, they heavily rely on imported energy, and on the other hand, they hold foreign exchange reserves in U.S. Treasuries, gold, and other assets. When oil prices were still in the $70 to $105 range, some countries had already begun selling U.S. Treasuries or even tapping into their gold reserves; if oil prices continue to rise, the author is concerned that the foreign exchange pressure on these vulnerable countries may first evolve into energy shortages, currency depreciation, and political crises, and then transmit to core markets through asset sales and risk reassessment.
This article has a distinct crisis scenario tone. Its assessments of the endgame for the U.S. dollar, U.S. Treasury sell-offs, and emerging market collapses are not deterministic predictions. However, it raises a vigilant question: the vulnerability of the global financial system may not initially manifest from the U.S. mainland but could first emerge in countries that are most reliant on the dollar, energy, and external liquidity. Perhaps what truly needs observation is not a specific oil price figure but rather which country will deplete its usable dollar buffer first.
Below is the original text:
How a Transmission Line Brought Down the Dollar System
On the afternoon of August 14, 2003, a transmission line in Ohio sagged in the summer heat, entangled with an untrimmed tree. A few minutes later, 55 million people across eight U.S. states and Canada were plunged into darkness.
It wasn't because 55 million transmission lines failed simultaneously. The real issue was just one—the rest was the grid taking care of itself.
When the first line tripped offline, the power it was carrying didn't vanish; it was squeezed onto the next line. The next line then became overloaded, tripped offline, and pushed the load onto the next line. And then the next one tripped.
Each time there was a fault, the next one became more severe. In less than ten minutes, the entire Northeastern North America was paralyzed.
What's truly important is this: no flicker, no dimming, no warning significant enough to react to in advance. The power remained at full load, running smoothly—until it suddenly wasn't there. In the control rooms, operators stared at screens showing everything was stable; a few minutes later, the system collapsed.
This is how a highly interconnected system fails. It doesn't degrade gradually, nor does it give you a warning large enough to act upon. It fails all at once at a particular moment—and that moment often starts from the most heavily loaded node.
We can use this framework to understand: the entire financial world is actually connected to the same grid—the US dollar and the US Treasury bonds that underpin the dollar system. Each country is a power line, and the closure of the Strait of Hormuz is causing some of these lines to sag.
Let's get to the point.
Let's start with the endgame—because predicting the end is much easier than predicting what comes next.
In history, every currency that has once dominated the world has eventually lost its crown: the Roman denarius, the Islamic golden dinar, China's paper money, the Dutch guilder, the pound sterling. Without exception. Rome, Baghdad, Beijing, London—different centuries, different continents, but the same ending. The dollar is not exempt from history.
The endings are often similar: the heavily indebted state at the center, excessive currency supply expansion, the world slowly losing trust in its currency. One day, the US will either default on its debt or print too many dollars to avoid default, letting the dollar bleed out quietly.
Empires always choose the latter.
Hence, predicting how this game will end is not difficult. What's truly difficult is predicting: When will it end? Which events will occur first? In what sequence will they unfold?
Two years ago, no analyst would have had "Strait of Hormuz Closure" on their list. It was a black swan—an event unforeseen by anyone—but it reshuffled the deck and exposed some short-term vulnerabilities. Even if the Strait of Hormuz never closed, the dollar's endgame would still arrive, just on a different timetable, and the falling dominoes would be in a different order.
The endpoint has been determined. Before the largest domino falls, several smaller ones will topple first. What we can do is observe current global events and identify where the next most likely domino to fall is.
Today, our position is this: War has closed the Strait of Hormuz. The closure of the Strait of Hormuz equates to choking off 20% of the global oil supply. With the supply constrained, oil prices rise. Rising oil prices force oil-importing countries to need more dollars to purchase the more expensive oil—thus, they will sell their most liquid dollar-denominated assets: U.S. treasuries, in exchange for the dollars needed to buy oil.
But the reason this is a spiral, not a one-time event, is key: Every country selling U.S. treasuries will push the price of treasuries down a bit more; this, in turn, will make countries still holding U.S. treasuries nervous, prompting them to sell before prices fall further. Selling begets fear, and fear drives more selling. And the U.S. government's financing relies on people buying U.S. treasuries; it needs buyers, not sellers, or else it will go bankrupt. Each link is a domino.
Today, the pressure is pointing to a very specific place. But it is not the U.S. It's pointing at those emerging market countries that rely on oil imports.
So, what's happening?
Starting in March, oil-importing emerging market countries began selling more U.S. treasuries each month, reaching levels unseen in years.
These are the in-between countries: still growing but not wealthy enough to weather the shock lying down; they almost entirely have to buy oil from elsewhere. India, Turkey, Indonesia, Thailand, Philippines, South Africa, Egypt, Pakistan, Vietnam.
They have two common traits:
· They must import oil.
· They park their national savings in U.S. treasuries.
So when the oil bill skyrockets, these countries are the first to be squeezed.
Let's start with Turkey because it is almost the epitome of the entire story.
After the strait closed, Turkey did what all oil-importing countries are doing—selling U.S. treasuries to get the dollars needed to buy fuel. And it's not a minor reduction: In March alone, Turkey reduced its U.S. treasury holdings from $15.7 billion to $1.8 billion, shedding nearly 90% of its holdings in a single month. But its reserves were already small, so once exhausted, the country could only turn to its last resort: gold. In the first two weeks of the war, the Central Bank of Turkey sold or swapped about 58 tons of gold, worth around $8 billion, while its total gold reserves amount to about $130 billion. That was three months ago, and the bleeding has not stopped. When a country starts selling gold to buy diesel, it means it has run out of better options—and on this path, no country has gone further than Turkey. That's also why it is most likely to be the next country to fall.
This is not a prediction. This is a fact that has already occurred and been recorded on the books.
One important detail to note: all this data is reported with a lag—so what we are seeing now is data from March. This means that the selling of U.S. Treasuries and gold took place when oil was priced between $70 and $105 per barrel.
Remember this range. We will come back to it later.
Sri Lanka, 2022
A scenario where a country depletes its dollars first, then its energy, is not a mere thought experiment. In 2022, it happened in Sri Lanka.
Sri Lanka imports almost everything it needs to keep the country running—fuel, most food, nearly all medicines—and it pays for everything in dollars. Its largest source of dollars is tourism: foreign visitors bring in about $4 billion in revenue annually, accounting for over 5% of the entire economy.
After tourism ground to a halt in 2020, Sri Lanka started burning through its savings to fill the gap, with foreign reserves plummeting from $7.6 billion at the end of 2019 to around $50.1 million in the spring of 2022—just as emerging markets are burning through their own reserves today. When the savings are gone, so are the dollars.
When a country runs out of dollars, it runs out of what those dollars can buy. Lines at gas stations stretch for miles before fuel runs out completely. Daily blackouts last hours. Medicines start running short. Food prices skyrocket beyond the reach of ordinary people. In July of that year, ordinary people finally had enough: they stormed the presidential palace en masse, while the president fled the country in the dead of night.
This is what it looks like when a country runs out of reserves. It's not just a number on a screen; it's a head of state boarding a plane, abandoning their people.
But a tourism crisis impacts only a few countries. An energy crisis affects everyone—and that's precisely why the probability of cascading effects happening today is much higher. Going back to the earlier statement:
Every country selling U.S. Treasuries will push the price down a bit more, causing the countries still holding U.S. Treasuries to feel nervous and sell before the price drops further. The selling creates fear, and fear begets more selling. The U.S. government relies on people buying U.S. Treasuries; it needs buyers, not sellers, or it goes bankrupt. Each link is a domino.
Washington understands this, but most people hear what the government says. I prefer to watch what the government does—especially those strange, quiet moves they'd rather you didn't notice.
Now, two things are happening.
First, the United States is tapping into its strategic oil reserves — the country's emergency oil stash meant to be opened only in a true crisis — at a record pace. However, a large portion of this oil is not going to Americans but being shipped overseas.
Second, the U.S. Treasury quietly eased sanctions on Russian oil — and did so twice in a war where Russia is assisting in attacks against American forces.
Why is this happening?
The reason behind both moves is the same.
If those struggling countries can get oil from the U.S. emergency reserves or from suddenly "legitimate" Russian sources, it would drive down global oil prices, and also mean fewer U.S. treasuries sold by those countries to buy oil. However, these moves are not really about oil, they are about the U.S. Treasury market — they are protecting the U.S. Treasury market, preventing the most vulnerable countries from excessive selling, avoiding any one of them from going down first and triggering a domino effect.
Read it again, because this is the signal. The U.S. government is tapping into its own emergency reserves and loosening the grip on enemy oil — all just to prevent a distant emerging market country from folding. If the system were really fine, these things wouldn't be happening.
So, where we are now: the most vulnerable countries have started selling. Washington has started to try and catch them. And the longer the Strait of Hormuz remains closed, the harder it gets — because each week of constrained oil supply puts more strain on the system.
Will oil prices go even higher?
In late May, Neil Chapman, Senior Vice President of ExxonMobil, one of the world's largest oil companies, said at an investor conference: "We are approaching unprecedented inventory levels. I mean, really, really low levels."
The cushion the world has relied on — oil in storage tanks around the world — is almost gone.
Chapman also gave a timeline: "You can debate whether it's two weeks from now or three weeks from now. But once you get to that point, you're going to see prices take off."
Where does he see oil prices going? Physical barrels of oil could spike to $150 to $160 per barrel.
Now, bring back the range I just had you remember. Everything we've just seen — Turkey selling off U.S. treasuries, then selling gold; emerging markets depleting reserves — has all happened with oil prices between $70 and $105. And the next number given by Exxon is $150 to $160.
So, there is only one truly important question left: if selling gold looked like at a $90 oil price, then what happens when the oil price hits $150—and the gold has already been sold?
Why is a $150 Oil Price Entirely Different from a $90 Oil Price?
Most people here get this wrong. Human instinct sees this as linear amplification: a $90 oil price caused some U.S. Treasury selling, so a $150 oil price just causes more selling. Just a bigger version of the same thing.
But it isn't.
The reason a $90 oil price is still bearable is that three layers of shock absorbers have been quietly soaking up the impact. The first layer is the oil sitting in tankers worldwide—when the strait squeezes supply, countries run down inventories before letting the price shoot up. The second layer is the U.S. strategic petroleum reserve, which Washington has been releasing onto the market at record rates to keep oil prices down. The third layer is these fragile countries' own reserves: when Turkey needs dollars, it still has $15 billion in U.S. Treasuries to sell, something to use before tapping into gold.
At a $90 oil price, these three layers absorb the impact. U.S. Treasury selling is indeed real, but still orderly—nations sell what they have in an organized manner, keeping prices within a range, and the system holds.
By the time the oil price hits $150, all three layers of cushioning will be gone—and that is the problem. Global stockpiles are already at record lows and falling. The U.S. strategic petroleum reserve is at its lowest level since 1983 and still shrinking. Those fragile countries have already sold off their U.S. Treasuries.
When an impact hits a system without shock absorbers, it does not operate as it did when the buffers were in place. It cannot be absorbed. It lands directly on the system, shattering two things simultaneously.
First, the most fragile countries will deplete their saleable assets and start to collapse—they will enter a "Sri Lanka 2022" state. They cannot "sell more U.S. Treasuries" to buy oil because the U.S. Treasuries have already run out.
Second, all this forced selling will drive U.S. rates up to a level the U.S. cannot bear. There is a number—around a 5% yield on the 10-year U.S. Treasury note—once it crosses that threshold, U.S. interest burden is no longer just a manageable issue but begins to compound on itself. Buffer all along has kept the yield below that line. Remove the buffer, force the selling to happen, and the yield will spike. Once over that line, the U.S. has only two choices: let the bond market crash or print a record amount of money to stop it from crashing.
"But Jay, the strait may reopen."
Yes. Maybe.
Since early March, we have been hearing every week that we are "just days away from a peace agreement."
I hope this time it's true.
If it is true, the whole system will stabilize—oil prices will drop, pressure will ease, emerging markets will stabilize, and we'll be back to arguing about other things. I truly hope this is the end. That's the off-ramp. That's the good ending.
But don't mistake probation for a pardon. Even if the strait reopens tomorrow, the long-term endpoint will not change—only the timetable will. The dollar's endgame was set long before Iran, and after this war ends, it will still be waiting up ahead. Hormuz did not ignite this fire. It only poured more fuel onto it.
The Next Domino
So, this is what I'm really focused on. Not a chart, not a number, but a country—the next one to run out of dollars like Sri Lanka did in 2022.
Right now, the most likely candidate is Turkey. It has sold bonds and started selling gold; no country has gone further down this road. Maybe not Turkey—I can't say who will be the first to fall, some unseen shock may push another country off the cliff first. But someone will fall first.
And when that day comes—when a real economy runs out of resources and collapses like Sri Lanka did—that won't be a prediction anymore, it will be news. Because that collapse isn't the end of the story, it's the start of a cascade: the fear it triggers will spread to the next country, then the next; every country will sell U.S. debt to buy oil, every sale will push the price lower, every drop will scare the next country into selling—until it hits the market that the whole system is built on. The U.S.
What is the key, Jay?
Where you read this article from will only change how quickly this thing reaches you, not whether it will arrive.
If you live in the U.S. or another rich economy, you probably won't wake up to find gas stations out of gas. Your version will be slower, quieter: inflation. The sell-off we've been tracking will eventually force the U.S. to print more money, and with every dollar printed, your dollars in your account will be slightly less valuable. The number in your savings account won't change, it's just what it can buy—food, fuel, rent—that will be a little less each year.
If you live in one of those fragile countries—and many of you do—I don’t need to explain this to you. You’ve either lived through a currency devaluation, you’re watching it happen, or your parents told you what it felt like the last time around. For you, this is not a prediction, it’s a memory, and a warning.
But no matter where the reader stands, the lesson is the same: paper will fail. Dollar, lira, rupee, peso—when a government is pushed into a corner, it will protect itself by printing money, and the bill will be footed by everyone holding that paper. What truly survives is what cannot be printed into existence.
So I won’t tell you what to buy or sell. I’ll only tell you how I think. The most dangerous place to store value is often in the place that looks safest—cash, and claims on cash. Safer still is something that cannot be conjured out of thin air by a government's keystrokes: gold, energy, and tangible real-world assets that cannot be left behind. Those who have been through this instinctually understand.
If the strait opens tomorrow and I’m wrong, having a bit of such things early carries little cost. If the strait remains closed, they are what holds value when the paper fails. One side of this bet has a small cost; the other protects what you’ve already earned.
The edge countries fall first. But they're never the end of the story. They are the canary, signaling that a domino effect has already begun—and it is moving from one falling domino to the next, finally pointing to the largest one: the dollar. Every other currency, and every saver on earth, ultimately relies on it.
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