Two Wars. One You Can See. One You Can't

A $39 Trillion Problem with a Military Solution

Two Wars

Every empire fights two wars at once. One is the war you can see - the missiles, the carrier groups, the maps on cable news with arrows pointing at places most people couldn’t find on a globe six months ago.

The other is the war you can’t see. The one fought in bond auctions, currency markets, and the quiet panic of finance ministers who stop sleeping.

America is fighting both right now. And the one nobody is watching is the one that matters more.

Stay with me.

The War Everyone Sees

Five weeks into the U.S.-Israeli campaign against Iran, here is what we know. The Strait of Hormuz - the twenty-one-mile-wide corridor through which roughly one-fifth of the world’s oil supply flows on any given day - is effectively closed. Tanker traffic has collapsed from a normal range of 60-70 transits per day to near zero.

Iran’s parliament speaker has said publicly that the Strait “will not return to its pre-war status.” The International Energy Agency has called this the greatest global energy security threat in history.

The consequences are spreading like cracks in a windshield. Qatar’s Ras Laffan complex - the largest liquefied natural gas plant on Earth, responsible for supplying fuel to dozens of countries - has suffered extensive missile damage, knocking out 17% of Qatar’s LNG export capacity for up to five years.

Taiwan, which relies on LNG for 40% of its electricity, has an eleven-day emergency stockpile.

Australia has lowered its diesel quality standards and watched hundreds of petrol stations run dry.

Slovenia became the first EU state to introduce fuel rationing.

South Korea is enforcing a five-day vehicle rotation system.

Michael Haigh, the Global Head of Commodities Research at Société Générale - one of the largest banks in Europe - said last week that the final vessels carrying jet fuel to the UK were arriving, and that “there is no more after that.”

Let that sink in. No more jet fuel for the United Kingdom.

Dow Chemical - one of the world’s largest chemical companies, whose products end up in everything from food packaging to medical supplies - doubled its polyethylene price overnight.

Why does that matter?

Polyethylene is in your grocery bags, water bottles, food packaging, medical equipment, and much more. If you bought it at a store, there’s a good chance it touched polyethylene before it reached your hands.

Polyethylene is made from petroleum-based feedstocks, and when Hormuz closed, about 50% of the global polyethylene supply was affected.

They say that when the price of energy goes up, the price of everything goes up. You could say the same thing about polyethylene.

This is how a war in the Middle East shows up at your grocery store. Energy doesn’t stay in the energy sector. It flows through everything you buy, everything you eat, everything you build.

American and Israeli interceptor stockpiles are running dangerously low - the Royal United Services Institute estimates America is roughly a month from exhausting key missile defence systems, and it could take five years to rebuild what was expended in the first sixteen days.

Thirteen American military bases in the region are now deemed “all but uninhabitable,” not because they are destroyed, but because they are undefendable against the onslaught of 20-30 missiles and drones per day - a steady, grinding pace that has confounded every analyst who expected Iran to run out weeks ago.

Despite what you might have read about the ambiguous and disputed cease-fire, none of the above has changed.

The Iranians have, by most honest assessments, locked the U.S. out of the Middle East. Not because they have a better military. Because they don’t need one. Cheap missiles, cheap drones, and Russian satellite targeting have shown - for the first time in modern naval history - that a relatively inexpensive arsenal can deny the world’s most powerful navy access to a critical waterway.

For four hundred years, since the days of the Dutch Empire, control of the seas has been the foundation of global power. The idea that a navy could be neutralized by a country with a fraction of America’s military budget was, until five weeks ago, considered impossible by most defence analysts. That assumption is now dead.

So yes, everyone is watching Iran. Every headline, every missile strike, every Trump post about “productive conversations” that Tehran immediately denies.

But that is only half of this story.

The War Nobody Sees

To understand the second war - the one that may matter more - I need to explain something that most people never think about. It’s not complicated, but it is important.

When the U.S. government spends more money than it collects in taxes - which it does, every single year, to the tune of trillions of dollars - it borrows the difference. It does this by selling IOUs called Treasury bonds. A “10-year Treasury” is just a promise from the U.S. government to pay you back in ten years, with interest. These bonds are considered the safest investment in the world because, in theory, the U.S. government will always pay its debts.

Here’s why this matters right now.

Countries around the world - Japan, the UK, China, South Korea, dozens of others - hold roughly $9.4 trillion worth of these American IOUs. They bought them because Treasuries are safe, liquid, and denominated in dollars. For decades, this system has worked beautifully. The U.S. borrows cheaply. Foreign governments park their savings in a safe asset. Everyone wins.

Until everyone needs cash at the same time.

Let me ask you a question. If you were running Japan’s central bank, and your country was suddenly staring down an energy crisis that threatened to shut down factories, power plants, and shipping routes - and you needed dollars immediately to buy oil on the open market - what would you sell first?

You would sell the most liquid dollar asset you own. You would sell U.S. Treasuries.

And that is exactly what is happening. Foreign central bank holdings of Treasuries at the New York Federal Reserve have dropped to their lowest level since 2012. The decline started the month the war began. Countries that are short of energy and panicking are dumping American government bonds to raise dollars to pay for fuel. Japan holds $1.2 trillion in Treasuries. The United Kingdom holds $895 billion.

These are not small positions.

Now here is the problem. When lots of people sell the same asset at the same time, the price drops. When the price of a Treasury bond drops, its interest rate - what Wall Street calls the “yield” (the incentive to lend the U.S. money) - goes up.

And because Treasury yields set the baseline for borrowing costs across the entire economy, everything gets more expensive. Mortgages. Car loans. Corporate debt. Government refinancing. All of it.

Let me take a minute to break this down - because although everybody talks about the Treasury market, many people don’t really understand it.

It’s actually quite simple. Let me explain.

Put me in the position of the U.S. government. I spend more than I make, so I need to borrow some cash.

Let’s say you loan me $1,000, and I agree to pay you 5% interest - $50 a year - for five years. You’re earning annual interest, and you’ll get your $1,000 back in five years.

Good deal.

But two years in, you get a cash call. You need your money back now. The problem is, I don’t owe you your $1,000 for another three years.

So you go looking for someone to buy the loan from you.

You find a third party and say: Jay owes me $1,000, he’s paying 5% a year, and the full amount is due in three years. If you buy this loan from me, the payments are yours.

But the third party can smell your desperation. He says: “I’ll take it - but I’m only paying you $800. You’re not getting full value, but you’re getting cash today, which is what you need.” So you take the deal.

Now think about what just happened. That third party just paid $800 for a note that will pay him $1,000 in three years, plus the $50 annual interest along the way. His effective return - his yield - just went up, because he paid less for the same interest payments.

Now imagine this happening at scale. Not one lender, but entire countries - Japan, the UK, South Korea - all desperate for cash to buy oil, all selling U.S. Treasury bonds at the same time, all willing to take less than full value. And we are not talking thousands, we are talking trillions.

Here is why that matters. The United States is still spending more than it earns, so it still needs to issue new debt. But if investors can buy existing Treasuries cheaply on the open market, why would they lend fresh money to the U.S. government at effectively lower rates?

They wouldn’t. Nobody would.

So the government has to offer higher interest rates on new debt to attract new buyers, which raises borrowing costs for Washington at exactly the moment it can least afford it. And because Treasury yields anchor the entire credit system - mortgages, car loans, corporate debt - everything gets more expensive, all at once.

This is the predicament. The U.S. needs to offer higher interest rates to incentivize other countries to lend it money, but paradoxically, higher interest rates will break its own economy.

OK. Back to our story.

Over the last twelve years, U.S. federal debt has risen by a staggering $22 trillion. Over that same period, foreign buyers of that debt have been flat to declining. The gap has been filled increasingly by the Federal Reserve itself - America’s central bank, essentially printing money to buy its own government’s IOUs.

That works when the world is calm and inflation is low. It does not work when oil is spiking, supply chains are fracturing, and the countries holding $9.4 trillion of your debt are selling it to keep their lights on.

This brings us to Scott Bessent - Trump’s Treasury Secretary, the man responsible for making sure the U.S. government can continue to borrow the money it needs to function. Every time the interest rate on the 10-year Treasury has crept toward 4.4% in the last six weeks, Trump has dialled back military action to calm the market. He pauses strikes. He extends deadlines. He tweets about “productive conversations.” This is not a coincidence. 4.4% appears to be the line - the yield at which the cost of servicing America’s $39 trillion national debt starts spiralling out of control.

Three consecutive Treasury auctions in late March - events where the government tries to sell new bonds to investors - attracted weak demand. In plain terms, the government put bonds up for sale, and fewer people wanted to buy them, which means the government has to offer higher interest rates to attract buyers. The 2-year and 5-year auctions were the weakest in years. The bond market is sending a message: we don’t trust that this ends well.

What’s the point, Jay?

The point is this: the United States is not just fighting a war in the Strait of Hormuz. It is fighting a war in the bond market. And right now, both are running hot.

If Hormuz remains closed for a few more weeks, which appears highly likely, oil prices will remain at levels that guarantee a global recession, triggered by high energy, high polyethylene, high fertilizer, and high food prices.

A recession means government tax revenues collapse. When revenues collapse, but the debt stays the same, the cost of interest payments eats an ever-larger share of the budget. This forces the government to borrow even more, at higher rates, which drives the debt higher, which drives rates higher still.

Let’s personalize it again - you spend more than you earn, so you borrow. Then your income drops, so you borrow more. But lenders are nervous now, so you have to offer a higher interest rate to get the loan. That means your monthly payments increase, forcing you to borrow even more.

That is the exact same trap the U.S. government is in.

Economists call this a “debt spiral”. Now you understand why.

The Quagmire

The logical question - and I’d be asking it too - is this: if the bond market is the real threat, why not just leave Iran and focus on the financial crisis?

Because the two wars are the same war. You can’t fix one without fixing the other.

The bond market is under pressure because foreign central banks are selling Treasuries. They’re selling Treasuries because they need dollars. They need dollars because oil prices have spiked. Oil prices have spiked because the Strait of Hormuz is closed. And Hormuz is closed because the United States attacked Iran...

But since the train has already left the station, if you pull the thread in the other direction... it unravels just the same.

If the U.S. walks away from Iran, the Strait of Hormuz won’t stay closed. It reopens - but on Iran’s terms. This is not speculation. It is already happening. Iran is running a toll booth system in the Strait right now. Ships are paying passage in Chinese yuan and cryptocurrency. The IRGC is vetting vessels through its own clearance corridor.

Chinese ships have sailed through. A French-owned container ship transited last week - likely paying in yuan. As former British diplomat Alastair Crooke put it recently: Iran sees this conflict as “an opportunity to change the whole geopolitics of West Asia.”

So, if the U.S. withdraws, the oil flows again - but not in dollars. A big chunk of global energy trade shifts to yuan settlement, routed through China’s financial system. Deutsche Bank has already published a note calling the Iran war the potential catalyst for what they termed “the making of the Petroyuan.”

The dollar’s reserve currency status - the reason the U.S. Treasury has been deemed the safest investment in the world, allowing the United States to borrow $39 trillion and keep functioning - takes a hit it may not recover from. And so the bond market breaks anyway. Just for a different reason.

That is the quagmire. Not two doors, one good and one bad. Two doors, both of them terrible. Stay, and the bond market bleeds from high oil prices and foreign selling. Leave, and the bond market bleeds from the death of the petrodollar and a collapse in global confidence.

The only scenario where the Treasury market stabilizes is the one where the U.S. regains control of the Strait, and oil flows again - in dollars, through American-secured waters, on American terms.

And that is why this war is not going to end quietly.

Two wars. One you can see - the missiles, the drones, the carrier groups in the Gulf. One you can’t - the bond auctions, the yield curve, the slow-motion panic in central bank vaults from Tokyo to London.

They are the same war. And right now, it looks like America is losing both of them.

But before we assume that outcome is inevitable, it is worth stress-testing the opposite scenario...

...because, what if I am wrong?

The Flip

Here’s where I want you to flip the script entirely. Because most of the analysis you’re reading right now - on social media, in financial newsletters, on cable news - is focused on the risk of failure. What if the U.S. loses? What if Hormuz becomes a permanent Iranian toll booth? What if the dollar loses its reserve status?

Those are real risks. I’ve laid them out. But now consider the other side.

What if the U.S. “wins”?

Not a negotiated compromise. Not a face-saving withdrawal. A decisive, total victory that establishes American operational control over the Strait of Hormuz and neutralizes Iran as a military threat for a generation.

The power dynamic of the last fifty years wouldn’t just stabilize. It would intensify.

Consider the energy map in that scenario.

U.S. shale production remains a domestic powerhouse. Venezuela - which holds the world’s largest proven oil reserves and produces heavy crude similar to Canada’s - is increasingly under American influence following recent interventions. Add operational control of the Strait, and the U.S. now controls the passage of Saudi, Kuwaiti, Qatari, and Iraqi oil exports. Every barrel of Gulf crude flows at America’s pleasure.

The U.S. wouldn’t just be energy independent. It would be energy-dominant. A monopoly position over global energy supply that arguably exceeds anything the American empire has held at any point in its history - including the immediate post-World War II era, when the U.S. produced two-thirds of the world’s oil.

And with that monopoly comes leverage. Not theoretical leverage. A concrete veto over the industrial survival of any nation that depends on Gulf energy, which is most of them. Japan, which imports nearly all of its oil. South Korea, which imports 98%. India. Australia. The UK, which just ran out of jet fuel. The message to any country stepping out of line would be simple and devastating: we control the tap, and we can turn it off.

Show me a nation that thinks it can challenge the United States with that kind of energy leverage, and I’ll show you a nation that hasn’t thought it through.

The Terrifying Logic of Destruction

Now here’s where this gets uncomfortable. But I need you to have the full picture I just painted firmly in your mind before we go further, because without understanding the financial stakes, what follows will sound like hysteria.

It is not.

If you accept the above premise - that an American loss would be existential, but an American win would revitalize the Empire for the foreseeable future… then you must ask - how far will they be willing to take it?

Which brings us to the terrible option.

The one that nobody wants to say out loud, but one that is certainly being discussed in small circles in Washington.

If negotiations fail, and if withdrawal means financial collapse and strategic humiliation, the remaining path is overwhelming force. Not a targeted strike. Not a “precision campaign.” The utter destruction of Iran’s ability to threaten the Strait - its military infrastructure, its missile production, its command and control, and possibly much more.

Ninety-two million people live in Iran. Let that number sit with you for a moment.

I am not saying that it would “work” and accomplish the American Presidents’ goals. And I pray that it does not happen.

But it would not be without precedent. History is full of moments when great powers, cornered by economic pressures, chose devastating violence because the financial alternative was worse.

In 1899, the British Empire went to war against the Boer republics of South Africa - primarily to secure control of the world’s richest gold and diamond mines at a time when Britain’s industrial dominance was fading, and its finances were stretched thin. When the Boers refused to surrender and turned to guerrilla warfare, Britain didn’t negotiate. It burned farms, poisoned wells, and forced over 100,000 civilians - including women and children - into concentration camps where an estimated 28,000 died. The cost of the war - £230 million, the most expensive British military campaign since Napoleon - was itself a sign of how desperate the stakes were. Britain chose devastation because losing control of South African resources would have accelerated the empire’s financial decline.

In 1945, the United States dropped atomic bombs on Hiroshima and Nagasaki. The strategic calculation was, in part, financial. Operation Downfall - the planned land invasion of Japan - carried projected American casualty estimates ranging from 268,000 to over one million, with total casualties on both sides potentially reaching five to ten million. The Pentagon had pre-ordered 370,000 Purple Heart medals. Beyond the human cost, the financial burden of a prolonged Pacific campaign - on top of the European reconstruction already underway - threatened to break a nation already running wartime deficits. The bombs ended the war in days. The calculus was brutal.

Unfortunately, there is no shortage of examples.

The French in Algeria from 1954 to 1962, where a bankrupt Fourth Republic turned to torture and collective punishment to hold a colony whose oil and tax revenues it could not afford to lose.

The Soviets in Afghanistan from 1979 to 1989, where a crumbling economy and collapsing ruble pushed Moscow to carpet-bomb villages and mine civilian footpaths in a war it could not win but could not walk away from.

Notice where all of these atrocities happened?

Never in New York, London, Paris, or Moscow. Always somewhere far enough from the capital that the voters back home can read the headlines over breakfast and go back to their day.

Distance is the empire’s favourite accomplice. It is a lot easier to sign off on brutality when it is inflicted on people your own citizens will never meet, in a country most of them could not find on a map.

The pattern repeats: when an empire’s financial survival is threatened, restraint is the first casualty - and geography is the alibi.

Building the Case

If this is the direction - and I am not saying it is inevitable, only that history points there with concerning force - then the next phase is persuasion. The international community, the American public, and European allies would need to be brought along. History, again, tells us how this works.

The GCC countries - Saudi Arabia, the UAE, Kuwait, Qatar, Bahrain, Oman - are already leaning in. Their infrastructure has been devastated by this war. Qatar’s LNG capacity has been damaged for years. Saudi Arabia’s Yanbu pipeline - its only bypass route for oil exports that avoids the Strait - is now under threat from the Houthis, who officially entered the war on March 28th after the U.S. and Israel struck Iranian atomic sites.

The reality is stark: these nations need the Strait open, and only the U.S. has the military capability to make that happen. Trump has publicly expressed interest in having Arab states help pay for the war. Whether they write checks or simply provide diplomatic and logistical support, the GCC alignment is forming.

Now the U.S. needs Americans and Europeans to agree. This is the harder part, and the pattern is well documented.

In August 1964, the Johnson administration told Congress and the American public that North Vietnamese torpedo boats had launched an unprovoked attack on the USS Maddox in the Gulf of Tonkin - not once, but twice.

The “second attack” on August 4th never happened.

Former Defence Secretary Robert McNamara admitted as much in 2003, forty years later, and a declassified NSA study in 2005 confirmed it: the incident was based on misread intelligence and, in some cases, outright fabrication. But it was enough. Congress passed the Gulf of Tonkin Resolution, and the United States escalated into a full-scale war that would last a decade and claim over 58,000 American lives.

In 2003, Secretary of State Colin Powell sat before the United Nations and presented what he called irrefutable evidence that Saddam Hussein possessed weapons of mass destruction. Mobile biological weapons labs. Aluminum tubes for uranium enrichment. The evidence was wrong - later investigations confirmed that Iraq had no active WMD program. But it was enough. The U.S. invaded, toppled the government, and spent the next decade occupying a country at a cost of over $2 trillion.

I am not saying these events are identical to what may happen with Iran. I am saying the pattern exists: when a great power decides military action is necessary, the justification follows. It always does. And it would be naive to assume that the pattern won’t repeat.

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The point is that everyone is watching the war. Not enough people are watching the men and women deciding how the war is fought.

Yes, the missiles are flying in the Strait of Hormuz. Yes, American bases are getting pounded. Yes, Iran is proving that asymmetric warfare works. All of that is true, and all of it matters. And the human cost of this war is the only thing that should matter at the end of any of it.

But if you want to understand what happens next in the hot war, you have to understand the “survive at all costs” mindset of Empires. You have to understand history.

Because history is full of leaders who made choices in a fiscal crisis that they would have called unthinkable a year earlier. Cold financial calculus — not ideology, not neoconservative ambition — has a way of pushing decision-makers past lines they swore they would never cross.

That is why the Treasury market matters. Not because a bond yield is more important than a human life. It isn’t. Not even close. It matters because if you want to know how desperate the people in charge are about to become — and what they are about to do with that desperation — the bond market will tell you before the Pentagon will.

The end of the war in West Asia won’t just decide the fate of the Middle East. It will decide whether the American financial system survives the decade intact and whether the dollar remains the world’s reserve currency.

One war. Fought in two places. One you can see. One you can’t.

And if I am right (I hope I am wrong), what happens in the place you can’t see will determine how the place you can see finally ends.

Honest question — let me know in the comments: what am I missing?

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That’s it for today,

Jay Martin

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