America's Suez Moment

What Britain Lost in 1956, America Is Losing Now

In July 1956, Egypt’s president Gamal Abdel Nasser did something that the British Empire considered unthinkable. He nationalized the Suez Canal — the single most important shipping route connecting Europe to Asia, and the crown jewel of Britain’s post-imperial infrastructure.

Britain didn’t take it well. In October, it invaded — alongside France and Israel — expecting a quick, decisive victory that would restore order and remind the world who still ran the show.

Militarily, it worked. The canal zone was secured within days.

But then something happened that no one in London had gamed out. The United States — Britain’s closest ally — refused to back the operation. Eisenhower was furious. And he didn’t just voice his displeasure diplomatically. He weaponized the one thing that mattered more than tanks or aircraft carriers: money.

Eisenhower threatened to dump America’s holdings of sterling bonds. This caused a run on the pound. Sterling had already been under speculative pressure since the invasion began in late October — and the threat from Washington was what tipped that weakness into full-blown panic. The Bank of England (BoE) hemorrhaged reserves trying to defend the pound — over $200 million in November 1956 alone — as the world suddenly lost confidence in the currency. And when the BoE went to the International Monetary Fund (IMF) begging for dollar liquidity, Washington blocked that too.

The aftermath was slow but irreversible. In the mid-1950s, sterling still accounted for close to half of global reserves. Within a decade, the dollar held twice sterling’s share. By 1967, Britain was forced to devalue the pound by 14%. It never recovered its status as the world’s reserve currency.

Incompetence or Intent?

Fast forward to today. The Iran war. Where Washington may be about to learn, 70 years later, the same lesson it once taught London.

I've been writing to you about this war since it broke out in late February, but to quickly recap:

The Trump administration joined Israel’s air campaign against Iran — supposedly over Iran’s nuclear program — but never really bothered to explain why. No clear objective. No defined endgame. Just “bomb and see what happens.”

Unsurprisingly, most Americans aren’t buying it. Polling has consistently shown roughly two-thirds opposed.

And it’s not just at home. Unlike Iraq in 2003, there’s no “coalition of the willing” forming here. No allies lining up. If anything, it’s the opposite — countries are distancing themselves, sometimes quietly, sometimes not.

Eight weeks in, and what is there to show for it?

Iran’s Supreme Leader is gone — replaced almost immediately by his son, which arguably makes any future deal harder, not easier. Iran’s above-ground military is flattened, but its asymmetric capabilities — mines, fast-attack boats, mobile missile batteries — are very much intact. And America’s allies in the region, especially the Gulf states, have taken direct hits as a result of escalation they didn’t ask for and can’t control.

And then there’s the Strait of Hormuz — the single most important artery in the global energy system, a 21-mile chokepoint through which roughly 20% of the world’s oil flows every day.

Iran closed it almost immediately.

Last Thursday, Trump declared it “fully open” and took a victory lap. By Saturday, the IRGC was firing on tankers.

Open Thursday. Closed Friday. Gunfire Saturday.

And that pretty much sums up this war — constant back-and-forth, contradictory claims, and a level of dysfunction that would be funny if it wasn’t so consequential.

Watching all of this, you have to ask: is this incompetence, or is it intentional?

Because Hormuz didn’t come out of nowhere. Iranian officials said for months this is exactly what they would do. The Iranian parliament passed a motion authorizing it. CENTCOM war-gamed it. Israeli intelligence named it the “Hormuz card.” Everyone saw it coming.

Which means either the administration accepted it as collateral damage — or it was part of the plan.

America’s 1956?

Either way — and this is the point I'm getting at — if this war drags on long enough, it becomes America's Suez moment. And right now, every signal points to exactly that. Yesterday was supposed to be the day the ceasefire ended — one way or the other. Instead, Trump kicked it down the road, extending it indefinitely at Pakistan's request, while Tehran warns it has "new cards on the battlefield.”

Now, Britain's bind in '56 was a currency peg under Bretton Woods. Sterling had to defend its fixed rate against the dollar, or the whole system broke. America has no peg. What it has is worse.

$39 trillion in federal debt. Over $1 trillion a year just in interest. Peacetime deficits near 7% of GDP. And roughly $9 trillion of Treasuries — nearly a quarter of the total — sitting in foreign hands. That pile has to be rolled over constantly.

The Gulf countries alone hold over $1 trillion in U.S. financial assets between them. The problem is, pretty much all of them are in crisis. Iraq, Kuwait, the UAE, and Bahrain have all declared force majeure or shut wells in. Saudi Arabia has cut production 20%. Around 9.1 million barrels a day of Gulf output is offline — roughly 10% of global supply, gone.

All of which means their revenues are collapsing in real time. They’re about to flip from fiscal surplus to deficit. And the way that deficit gets plugged is by reaching for the biggest pool of liquid assets they own — U.S. Treasuries. Which flips them from one of Washington’s biggest creditors into one of its biggest sellers.

Then last week, all of this stopped being theoretical.

Khaled Balama, the UAE’s central bank governor, flew to Washington and met with Treasury Secretary Scott Bessent and senior Fed officials. He came asking for a currency swap line. In private, UAE officials told the Americans that Trump’s decision to attack Iran had dragged them into a war whose economic damage was mounting daily. And that if Washington didn’t extend dollar liquidity, the UAE would begin settling oil sales in yuan.

That’s right. An oil exporter the U.S. spent four decades anchoring into dollar-denominated trade went to Washington asking for a bailout — and threatened the yuan if it didn’t get one.

And settling oil in yuan is one step short of dumping the debt. So how long before others follow — and not just in the Gulf?

We already know France, Japan, Malaysia, Thailand, and the Philippines have quietly negotiated passage through the strait directly with Iran, paying in yuan through China’s Bank of Kunlun. These are longstanding U.S. allies — treaty partners, the countries the U.S. has spent decades hosting bases in and selling arms to. And they’re settling oil trades in Chinese currency because the Iranians won’t take dollars and the Americans can’t deliver open sea lanes.

This looks a lot like 1956 all over again — America’s own Suez moment.

Regards,

Lau Vegys