How Arthur Hayes Thinks the Iran War Is Eroding Demand for US Treasuries

Added: 2026-05-20

[00:00:00]So, I think let's go back to the Asian financial crisis in sort of the late '90s and essentially you had the situation where a lot of these Asian countries like Thailand, Malaysia, um Indonesia, they ran out of dollars because they borrowed all this money, they couldn't service the debt in dollars, and then all of a sudden they have a balance of payments crisis. You know, the situation resolved, ultimately the Fed printed money and made sure that it got to the banks to sort of roll over some of the worst loans and they muddled through, but the lesson for a sovereign reserve manager was, I need to have dollars ready because if something happens, I need to be able to buy medicine and oil and different things and to defend my currency. So, if I have any savings from an export-oriented economy, which most of Southeast and North Asia is, then I save those in dollars. What does that mean? I have large US Treasury balances, large investments in equities, and the corporates followed suit, right?

[00:00:55]There's no investment opportunities at home, it's an export-oriented economy, the you know, the people in the country can't really afford to buy their goods, but everyone can afford to buy them in America and Europe, and so therefore you save in dollar assets, Treasuries and equities.

[00:01:09]And you believe that you're safe because of the last crisis, which was caused by a shortage of dollars, therefore if I have a lot of dollars, I'm safe.

[00:01:17]And so you didn't really think about the physical world that we live in, right?

[00:01:21]That a lot of your commodities first come from, you know, the Middle East, then they transit through what a 3-km, 3-mile long waterway that's controlled by Singapore, Indonesia, and Malaysia, the Strait of Malacca, and then they get to, you know, their destination. And this Iran war is making people realize the physical constraints to trade.

[00:01:41]If for whatever reason, um Iran can close the strait or severely curtail the flow of goods, and the United States, who you hold all their assets because you believe that they'd be able to do something about it, and we're already like 7 or 8 weeks into the war, and regardless of what Trump says about the straight thing open, it's not open in the volumes needed to supply the rest of the world with the commodities that they needed. An example would be Australia.

[00:02:06]Australia imports pretty much 100% of its refined hydrocarbons from China.

[00:02:10]Why? Because it's a little bit cheaper.

[00:02:12]And they, you know, don't believe there's any sort of reason why you would build build your own refineries. And so then when China says, "Hey, we need to make sure that our people have enough uh fuel and we're not exporting anymore."

[00:02:24]This was at the start of the war they put this I think I think January they stopped exporting certain refined um hydrocarbons. Australia finds themselves with no jet fuel. And then no foreign airlines were to land in Australia because they don't know if they're going to have enough fuel to make the return flight. And so all of a sudden you have this country at the ass end of the world depending on China for their 100% of the refined oil products. Their prime minister literally got on a flight to Singapore and begged the prime minister of Singapore pay whatever it would cost to get jet fuel so that his population wasn't stranded.

[00:02:53]And great, what is your treasury bond and your equities worth when you can't have a commercial flight so that your people can come and go as they please, right? And so I think sovereign nations are freaking out to the fact that great, I have a lot of dollars, but they don't buy me anything. So why do I have these dollars? Maybe I should have built my own refinery. Maybe I should have built another pipeline out to um export my hydrocarbons out of the Persian Gulf if I'm, you know, the UAE or some other countries in the Gulf.

[00:03:21]Maybe I should have stockpiled more than, you know, 30 days worth of food or hydrocarbons and spent that money on that rather than holding this piece of paper, you know, guaranteed by the mighty of US government. And so I think that's this is a secular trend where people are going to wake up and realize this is the problem that I face based on this crisis. How do I solve it? Well, I either don't save in dollars, I save in another currency like gold, and I make sure that I have enough of the inputs of civilization so that if there's another sort of war or conflict, I'm not begging around the world or in certain cases my people are starving.

[00:03:58]And so that I think diminishes on a structural secular basis this demand for treasuries. And so people want to recalibrate how they save at the sovereign level, which is very bad for the United States because the massive trade balance is financed with a massive capital account surplus. And this capital account surplus is this um phenomenon of sovereign nations recycling their savings into dollar assets to protect their currencies and to be able to buy dollar things in the global markets.

[00:04:30]And so then play that out a little bit further. So then what the reserve assets in yuan go up and then how does that affect the markets? What Or does that just lead to more money printing or Well, it's at the end of the day it means that if I hold a treasury bond and I need to instead of holding treasuries I need to hold more oil and wheat and building infrastructure, then number one I'm not going to buy as much or any US treasuries with my, you know, export surpluses. And number two I have to sell down these assets to build these physical things or stockpile these physical commodities. And if foreigners are were this inelastic bid for assets and dollars disappearing, you have a problem in the US markets. And the US markets are they need this foreign bid of of assets to have these lofty prices. These lofty prices get people capital gains taxes, they you know, this funds the government.

[00:05:22]And so without this capital flowing into the United States, there's an issue with how the government funds itself.

[00:05:28]Interest rates go up, um the cost of debt goes up, equity prices go down, people feel less wealthy, they spend less. And so this really affects the the US economy. And so my thesis is that, you know, Betsin and whoever is the chairman of the Fed will print enough money to make sure that you know, this foreign selling on a sector basis that does not impact up only for US asset markets.

[00:05:51]You just heard a piece of Unchained. I'm host Laura Shin, and the full conversation is in the description below. We go live every Monday and Thursday. Subscribe [music] so you never miss it.

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