THE HORMUZ GAMBIT, OR: HOW TO HOLD THE WORLD AT GUNPOINT AND STILL LOSE
March 21, 2026
Somewhere in a windowless room in Foggy Bottom, someone in their fifties is staring at a map of the Persian Gulf and thinking about the Suez Crisis of 1956. That's the historical analogy haunting the back of every serious strategist's mind right now — the moment a great power overplayed its hand around a critical waterway and discovered, too late, that geography has a vote.
We are three weeks into this war and the trading logic has become almost theological. Oil spikes. Equities sell. Bitcoin dips, then recovers to a higher low. Repeat. The pattern has run so many times that the reflexive sell-the-headline impulse is visibly compressing. Bitcoin found buyers at $64,000 after the February 28th opening strikes, then $66,000 after Iran's retaliatory missiles, then $68,000 after the tanker attacks, then $69,400 after the March 12th escalation, then $70,596 after the Kharg Island raid. Each floor higher than the last. The crypto market is doing something unusual: it is learning in real time. Every event that doesn't end civilization refines the pricing.
But spend too long watching the crypto tape and you miss the actual story. The actual story is Kharg Island, and what it implies about a world the petrodollar system was never designed to survive.
Kharg is a small protrusion of rock and pipe twenty miles off the Iranian coast that handles roughly 90% of Iran's crude exports — 500,000 barrels per day from the Falat Iran Oil Company alone. On March 13th, the U.S. Air Force hit more than 90 military targets on the island, obliterated naval mine facilities and missile bunkers, and deliberately spared the oil infrastructure. Trump announced the restraint himself, in language that managed to be both magnanimous and threatening simultaneously, warning he would "immediately reconsider" if Iran kept blocking the strait. Iran responded that any strike on energy infrastructure would trigger retaliatory attacks on U.S.-linked facilities across the region. The UAE, from whose territory the U.S. apparently launched the strikes, immediately denied involvement.
So now we have a situation where the world's most important energy chokepoint is under effective blockade by Iran, Iran is simultaneously still shipping its own oil through that chokepoint, the U.S. is weighing a physical occupation of the island it just bombed, and every Gulf producer from Saudi Aramco to Kuwait's Al Zour refinery — a 615,000-barrel-per-day operation, Europe's principal jet fuel source — is operating under force majeure conditions. Brent touched $112 this week before settling around $105. The IEA has called this the largest supply disruption in recorded history. The SPR release of 172 million barrels, announced by the Trump administration, amounts to roughly eight or nine days of global demand. A gesture, not a solution.
Here is what the market is trying to price and finding genuinely difficult: this is not a temporary supply shock. The temporary supply shock scenario — S&P Global's base case, the one where Brent returns to $60 by year-end — requires a diplomatic resolution within weeks. What the Axios reporting describes instead is an administration actively debating physical seizure of a foreign island. That's not a de-escalation posture. That's a siege posture. And sieges take time.
The broader market has been registering this slowly, the way a patient registers a diagnosis they already suspected. The S&P 500 has now lost ground in four consecutive weeks, sitting roughly 5% below January's all-time high. The 10-year yield is above 4.39%. Both numbers are consistent with an economy that isn't collapsing but is absorbing a significant and persistent cost shock. The Fed, holding at 3.5%–3.75%, cannot cut into a $105-per-barrel oil price without making inflation structurally worse. It also cannot raise into a slowing growth picture without tipping the soft landing into something harder. Powell's hands are tied with velvet rope, and he knows it.
The ECB is in an identical bind, but with worse underlying economics and a German fiscal stimulus that hasn't yet translated into real activity. The BoJ is pretending its 0.75% rate is a considered position rather than an admission of structural impotence. The BoE is holding at 3.75% while the UK faces energy input costs that will take months to show up fully in CPI. Every major central bank met this week. None of them have the tools for a geopolitical oil shock. They have interest rates. You cannot drill barrels with interest rates.
The detail that deserves its own paragraph — the one that gets lost in the military headlines — is what Iran is doing with the strait's selective closure. Iran itself is still moving roughly 2 million barrels per day through the strait. India's foreign minister quietly secured passage for two Indian LPG tankers through undisclosed negotiations. Iran has floated allowing select tankers through, provided oil cargoes are settled in Chinese yuan.
Read that last sentence again.
The petrodollar system, constructed from the rubble of the 1973 oil shock and formalized through the U.S.-Saudi agreement of 1974, rests on a single foundational arrangement: oil is priced and settled in dollars, globally, always. That arrangement has survived every crisis for fifty years because every country that wanted oil needed dollars to buy it. What Iran is now proposing — selectively, tactically, as leverage — is the ability to grant or deny transit based on currency denomination. The yuan channel isn't theoretical anymore. It exists. It cleared two Indian LPG tankers this week while American-linked tankers sat anchored off Oman.
This is not a death blow to dollar hegemony. It is a proof of concept that someone has been waiting thirty years to demonstrate.
The bitcoin chart says something about all of this, even if it says it sideways. The correlation between BTC and the Nasdaq-100 has reached 85% during this oil price spike — meaning crypto is trading as a high-beta tech asset, not an inflation hedge or a safe haven. When institutional allocators de-risk, they sell everything including Bitcoin. But the higher-low pattern persists because some portion of buyers appears genuinely uncorrelated from traditional allocation logic. Call it retail stubbornness, call it ideological commitment, call it the natural floor of an asset held by people who believe in its thesis regardless of macro conditions.
What it isn't is gold. Gold has done what gold does in geopolitical crises: moved modestly higher and attracted respectful commentary from people who will sell it the moment volatility subsides. Gold is the asset class that gets politely invited to the table and never quite changes anything. The real monetary story is in the yuan settlement channel, not the gold chart.
Somewhere in the same windowless room, someone is also thinking about 1979. The Iranian Revolution. The hostage crisis. The Carter Doctrine, which committed American military force to defending the free flow of Persian Gulf oil — the doctrine that created the infrastructure that now sits at Kharg Island, waiting. The U.S. has fought for this strait before, in the Tanker War of 1987–88, escorting Kuwaiti tankers under American flags while Iran and Iraq traded missiles over the water.
The difference then was that oil market alternatives barely existed. SPR releases meant something. Alternative routes were more theoretical than practical. Today, American domestic production from the Permian Basin has reduced U.S. import dependence to a fraction of what it was in 1979. The political cost of high gasoline prices is real but the strategic vulnerability is diminished. The countries most exposed to a prolonged Hormuz closure are Japan, South Korea, India, and China. Three of those four are American partners. One of them is not.
And Iran knows all of this. That's the gambit. Block the strait selectively enough to impose costs on American allies and create leverage with Asian customers, while maintaining just enough Iranian export flow to fund the war effort. Force the U.S. into a position where occupying Kharg — with all the escalation risk that entails — becomes the only logical next move. Then watch how the occupation plays.
The market is pricing a short-lived disruption because the alternative is too complicated to model. Sometimes that's the right call. Sometimes the thing that's too complicated to model is what actually happens.
Brent at $105. Tanker traffic at less than 10% of pre-war levels. Five central banks holding rates into a stagflationary backdrop. A proposed island occupation. A yuan settlement channel that just cleared Indian tankers.
The world has been here before, in fragments. Never quite in this configuration.
All figures as of market close, March 21, 2026.