Editor's Note: The 2003 North American blackout began with a power line failure in Ohio, but within less than ten minutes, it plunged 55 million people in eight U.S. states and parts of Canada into darkness. The author uses this case as a metaphor: highly connected systems do not always fail slowly; they often fracture at a certain stressed node, transferring the load to the next node, ultimately leading to a cascading collapse.

This article attempts to apply this framework to the current global financial system. The author argues that the U.S. dollar and U.S. Treasury bonds constitute the "main power grid" of the contemporary financial world. The energy shock caused by 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 buy energy, forcing them to sell their dollar-denominated assets, especially U.S. Treasury bonds. Once this selling spreads from individual countries to a collective behavior, it may in turn impact the U.S. Treasury bond market itself.

The article focuses on oil-importing emerging market countries like Turkey. On one hand, they are highly dependent on imported energy; on the other hand, they park their foreign exchange reserves in assets like U.S. Treasury bonds and gold. When oil prices were still in the range of $70 to $105 per barrel, some countries had already begun selling U.S. Treasury bonds and even tapping into their gold reserves. If oil prices rise further, the author worries that the foreign exchange pressure on peripheral countries might first evolve into energy shortages, currency depreciation, and political crises, and then transmit to central markets through asset sales and risk repricing.

This article has a distinct crisis-simulation tone. Its judgments about the dollar's endgame, U.S. Treasury bond sell-offs, and emerging market collapses are not deterministic predictions. However, it raises an issue worth alerting: the fragility of the global financial system may not manifest first in the United States itself, but may be exposed first in those countries most dependent on the dollar, energy, and external liquidity. What truly needs observation may not be a specific oil price number, but rather which country will first exhaust its usable dollar buffers.

The following is the original text:

How a Single Power Line Could Bring Down the Dollar System

On the afternoon of August 14, 2003, a power line in Ohio sagged under the summer heat and came into contact with an untrimmed tree. Within minutes, 55 million people across eight U.S. states and parts of Canada were plunged into darkness.

It wasn't because 55 million power lines failed simultaneously. Only one line was truly problematic—the rest was the grid's own doing.

When the first line tripped, the power it was carrying didn't disappear; it was squeezed onto the next line. That next line then overloaded and tripped, pushing the load onto the line after that. And then, the line after that also tripped.

Each failure made the next failure worse. In less than ten minutes, the entire northeastern part of North America was paralyzed.

The crucial point is this: there were no flickers, no gradual dimming, no warnings sufficient for people to react. The electricity was running at full, stable capacity—until it suddenly vanished. In the control rooms, operators stared at screens showing the system as perfectly stable; minutes later, the system crashed.

This is how a highly connected system fails. It doesn't break down slowly, nor does it give you enough warning to act. It fails simultaneously at a certain moment—and the starting point is often precisely the node bearing the heaviest load.

We can use this framework to understand that the entire financial world is connected to the same grid—the U.S. dollar and the U.S. 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 begin sagging.

Let's get to the main point.

Let's start with the end—because predicting the endgame is far easier than predicting what happens next.

Historically, every currency that once dominated the world has ultimately lost its crown: the Roman denarius, the Islamic gold dinar, Chinese imperial paper money, the Dutch guilder, the British pound. Without exception. Rome, Baghdad, Beijing, London—different centuries, different continents, but the same ending. The U.S. dollar does not stand outside history.

The endings are often similar: the central country becomes too deeply indebted, money supply expands excessively, and the world gradually loses trust in its currency. One day, the United States will either default on its debt or, to avoid default, print so many dollars that the dollar bleeds value in a quieter, sustained manner.

Empires always choose the second option.

Therefore, judging how this game will end is not difficult. What's truly hard is judging: when will it end? Which events will occur first? In what order will they appear?

Two years ago, no analyst would have written "Closure of the Strait of Hormuz" on their list. This is a black swan—an event no one foresaw—but it reshuffles the deck and exposes some short-term vulnerabilities. Even if the Strait of Hormuz never closed, the dollar's endgame would not change; it would just arrive on another timeline, with a different sequence of falling dominoes.

The destination is set. Before the largest domino falls, several smaller ones will fall first. What we can do is observe current global events and point out where the next domino most likely to fall is.

Today, our position is this: war has closed the Strait of Hormuz. Closing the Strait of Hormuz equals choking off 20% of the global oil supply. Restricted supply drives up oil prices. Higher oil prices force oil-importing countries to need more dollars to buy more expensive oil—so they sell their most liquid dollar-denominated assets: U.S. Treasury bonds, to obtain the dollars needed to buy oil.

But the reason this is a spiral, not a one-time event, lies in a key point: every country that sells U.S. Treasury bonds pushes the bond price down a bit further; this, in turn, makes countries still holding U.S. Treasury bonds nervous, prompting them to sell before prices fall further. Selling breeds fear, fear drives more selling. And the U.S. government's financing depends on people buying U.S. Treasury bonds; it needs buyers, not sellers, otherwise it goes bankrupt. Each link is a domino.

Today, the pressure is pointing to a very specific place. But not the United States yet. It points to those oil-importing emerging market countries.

So, What's Happening?

Since March, oil-importing emerging market countries have started selling more U.S. Treasury bonds on a monthly basis, reaching levels rarely seen in years.

These are the countries in the middle: still growing, but not yet rich enough to lie back and absorb the shock; they have to buy almost all their oil from elsewhere. India, Turkey, Indonesia, Thailand, Philippines, South Africa, Egypt, Pakistan, Vietnam.

They have two things in common:

· They must import oil.

· They park their national savings in U.S. Treasury bonds.

So, when the oil bill soars, it is precisely this group of countries that gets squeezed first.

Let's start with Turkey, because it is almost a microcosm of the entire story.

After the Strait closed, Turkey did what all oil-importing countries are doing—sold U.S. Treasury bonds to get the dollars needed to buy fuel. And it wasn't a minor reduction: in March alone, Turkey cut its U.S. Treasury holdings from $15.7 billion to $1.8 billion, offloading nearly 90% of its holdings in a single month. But these reserves were never large to begin with. Once sold, the country could only turn to its last reserve: gold. Within the first two weeks of the war, the Turkish central bank sold or swapped about 58 tons of gold, worth approximately $8 billion, out of total gold reserves of around $130 billion. That was three months ago, and the bleeding hasn't stopped. When a country starts selling gold to buy diesel, it means it has no better options left—and on this path, no country has gone further than Turkey. This is also why it is most likely to be the next country to fall.

This is not a prediction. It is a fact that has already happened and is recorded in the books.

Another important detail: all this data is reported with a lag—so what we are seeing now is data from March. In other words, these sales of U.S. Treasury bonds and gold occurred when oil was in the range of $70 to $105 per barrel.

Remember this range. We'll come back to it later.

Sri Lanka, 2022

We don't need to imagine a scenario where a country first runs out of dollars, then runs out of energy. It happened in Sri Lanka in 2022.

Sri Lanka imports almost everything needed to keep the country running—fuel, most food, almost all medicine—and pays for it all in dollars. Its largest source of dollars is tourism: foreign tourists bring in about $4 billion annually, accounting for over 5% of the entire economy.

When tourism paused in 2020, Sri Lanka started depleting its savings to fill the gap. Foreign exchange reserves fell from $7.6 billion at the end of 2019 to about $50 million in the spring of 2022—just as these emerging market countries are now depleting their reserves. Once savings are gone, dollars are gone too.

When a country runs out of dollars, it runs out of the things dollars can buy. Lines at gas stations stretched for miles, then fuel supplies ran out completely. Power outages lasted for hours daily. Medicine shortages began. Food prices soared beyond what ordinary people could afford. That July, the populace finally reached a breaking point: they stormed the presidential palace en masse, and the president fled his country in the dead of night.

This is what "a country exhausting its reserves" truly looks like. It's not a number on a screen; it's a head of state boarding a plane, fleeing his own people.

But a tourism crisis affects only a few countries. An energy crisis affects everyone—which is precisely why the probability of a cascading effect today is much higher. Back to that earlier sentence:

Every country that sells U.S. Treasury bonds pushes the bond price down a bit further; this, in turn, makes countries still holding U.S. Treasury bonds nervous, prompting them to sell before prices fall further. Selling breeds fear, fear drives more selling. And the U.S. government's financing depends on people buying U.S. Treasury bonds; it needs buyers, not sellers, otherwise it goes bankrupt. Each link is a domino.

Washington understands this. Most people listen to what governments say. I prefer to watch what governments do—especially those strange, quiet actions they'd rather you didn't notice.

Right now, two things are happening.

First, the United States is drawing down its Strategic Petroleum Reserve—the nation's emergency oil tank, the one that should only be opened in a real crisis—at a record pace. But a large portion of this oil is not flowing to Americans; it's being shipped overseas.

Second, the U.S. Treasury Department quietly relaxed sanctions on Russian oil—twice—during a war in which Russia is helping to strike U.S. forces.

Why do this?

The reason behind both actions is the same.

If struggling countries can get oil from America's emergency tank, or from suddenly "legal" Russian sources, it can lower global oil prices, meaning these countries would need to sell fewer U.S. Treasury bonds to buy oil. But these actions are not truly targeting oil; they are targeting the U.S. Treasury bond market—they are protecting the U.S. Treasury bond market, preventing the most vulnerable countries from selling excessively, preventing any one of them from collapsing first and triggering a cascade.

Read that again, because that's the signal. The U.S. government is depleting its own emergency reserves and loosening restrictions on an adversary's oil—just to prevent a distant emerging market country from buckling. If the system were truly fine, there would be no need for such actions.

So, where we are now is: the most vulnerable countries have started selling. Washington has started trying to catch them. And the longer the Strait of Hormuz stays closed, the harder this becomes—because each week of restricted oil supply increases the system's pressure.

Will Oil Prices Go Even Higher?

In late May, Neil Chapman, Senior Vice President of ExxonMobil, one of the world's largest oil companies, stated at an investor conference: "We are approaching unprecedented inventory levels. I mean, really, really low."

The cushion the world has relied on for buffering—oil stored in tanks around the world—is almost gone.

Chapman also gave a timeframe: "You can argue whether it's two weeks away or three weeks away. But once you hit that point, you're going to see prices spike."

Where does he expect oil prices to go? Physical oil cargoes could spike to $150 to $160 per barrel.

Now, bring back the range I asked you to remember. Everything we just saw—Turkey selling U.S. Treasuries, then selling gold; emerging markets depleting reserves—all happened when oil was between $70 and $105. And Exxon's next number is $150 to $160.

So, there's only one truly important question left: If selling gold is what happens at $90 oil, then what happens when oil reaches $150—and the gold is already sold?

Why is $150 Oil Fundamentally Different from $90 Oil?

Most people think incorrectly here. The instinct is to see this as a linear amplification: $90 oil caused some U.S. Treasury selling, so $150 oil just causes more selling. Just a bigger version of the same thing.

But it's not.

$90 oil is still bearable because three layers of cushion have been quietly absorbing the shock. The first layer is the oil stored in tanks worldwide—when the Strait choked supply, countries first drew down inventories instead of immediately bidding the price to the sky. The second layer is the U.S. Strategic Petroleum Reserve, which Washington has been releasing at a record pace to suppress prices. The third layer is the reserves of these vulnerable countries themselves: when Turkey needed dollars, it still had $15 billion in U.S. Treasuries to sell before touching gold.

At $90 oil, these three cushions absorbed the shock. U.S. Treasury selling is real, but still orderly—countries sell what they have, prices stay within a range, the system holds.

When oil reaches $150, all three cushions will be gone—that's precisely the problem. Global inventories are already at record lows and falling further. The U.S. Strategic Petroleum Reserve is at its lowest level since 1983 and still declining. Those vulnerable countries have already sold their U.S. Treasuries.

When a shock hits a system with no cushion left, it no longer operates as it did when the cushion was there. It cannot be absorbed. It hits the system directly and shatters two things simultaneously.

First, the most vulnerable countries will exhaust their salable assets and begin to collapse—they'll enter a "Sri Lanka 2022" state. They can no longer "sell more U.S. Treasuries" to buy oil because the Treasuries are already gone.

Second, all this forced selling will push U.S. interest rates to levels the U.S. cannot bear. There is a number—around 5% for the 10-year U.S. Treasury yield—once exceeded, America's interest burden is no longer just a manageable problem but begins to compound on itself. The cushion has been keeping yields below that line. Remove the cushion, force the selling, and yields will skyrocket. Once past that line, the U.S. has only two choices: let the bond market collapse or print a record amount of currency to stop it from collapsing.

"But Jay, the Strait might reopen."

Yes. It might.

Since early March, we've heard a version of this every week: we are "just days away from a peace deal."

I hope it's true this time.

If it is true, the entire system will stabilize—oil prices fall, pressure subsides, emerging markets stabilize, and we'll go back to arguing about other things. I sincerely hope that's the outcome. That's the exit ramp. That's the good ending.

But don't mistake a reprieve for a pardon. Even if the Strait reopens tomorrow, the long-term endgame doesn't change—only the timeline changes. The dollar's endgame was set long before Iran; it will still be waiting ahead even after this war ends. Hormuz didn't light this fire. It just poured gasoline on it.

The Next Domino

So, this is what I'm really watching. Not a chart, not a number, but a country—the next country that runs out of dollars like Sri Lanka did in 2022.

Right now, the most likely candidate is Turkey. It has already sold its bonds and started selling gold; no country has gone further down this road. Maybe it won't be Turkey—I can't guarantee who falls first; some unforeseen shock might push another country over the edge first. But one will fall first.

And when that day comes—when a real economy exhausts its resources and collapses like Sri Lanka did—it ceases to be a prediction and becomes news. Because that collapse is not the end of the story; it's the start of the cascade: the fear it triggers spreads to the next country, then the next; each country sells U.S. Treasuries to buy oil, each sale pushes the price lower, each decline scares the next country into selling more—until it reaches the market upon which the entire system is built. America.

What's the point, Jay?

Where you read this article only changes the speed at which this reaches you, not whether it arrives.

If you live in the United States or another wealthy economy, you likely won't wake up to find gas stations empty. Your version will be slower, quieter: inflation. The selling we've been tracking will eventually force America to print more money, and for every dollar printed, each dollar in your account becomes slightly less valuable. The number in your savings account doesn't change; it's just that what it can buy—food, fuel, rent—gets a little less each year.

If you live in one of those vulnerable countries—and many of you do—I don't need to explain this. You've either already experienced currency devaluation, are watching it happen now, or your parents told you what it felt like the last time it happened. For you, this isn't a prediction; it's a memory and a warning.

But regardless of which side the reader is on, the lesson is the same: what will fail is paper. Dollars, lira, rupees, pesos—when a government is backed into a corner, it protects itself by printing money, and the bill is paid by everyone holding that paper. What truly survives are things that cannot be printed.

So I won't tell you what to buy or sell. I'll only tell you how I think. The most dangerous place to hold savings is precisely the place that looks safest—cash, and promises to pay in cash. A safer place is things the government cannot create out of thin air by typing on a keyboard: gold, energy, and real physical assets the world cannot do without. Those who have already lived through this understand it instinctively.

If the Strait reopens tomorrow and I'm wrong, the cost of holding some of these things in advance is almost negligible. If the Strait stays closed, they are the things that hold value while paper money loses value. On one side of this bet, the cost is small; on the other side, it protects everything you've already accumulated.

Countries on the periphery will fall first. But they were never the endpoint of this story. They are warnings that the cascade has begun—and it is moving, domino by domino, ultimately pointing to the biggest one: the dollar. All other currencies, and every saver on the planet, ultimately depend on it.