Will the Iran war be the trigger for a "U.S. financial crisis"?

A war far away in the Middle East is precisely severing the "artery" of the U.S. financial system. On the surface, the blockade of the Strait of Hormuz appears to be an energy crisis triggered by geopolitics; but beneath the surface, it is cutting off a hidden lifeblood that has supported global capital markets for decades—the petro-dollar cycle. Even more deadly, across the ocean in America, a massive powder keg has long been hissing: the U.S. private credit market is deteriorating at an accelerated pace, consumer loan funds are freezing redemptions, Wall Street giants are urgently withdrawing debt issuance, and industry executives are openly warning. When “Middle East supply shock” meets “Wall Street bleeding,” both crisis threads are racing toward the same endpoint: a brewing U.S. financial crisis. As Israeli and Iranian attacks spread to core energy facilities, Wall Street’s initial “the conflict will end in a few weeks” fantasy is being shattered. If war with Iran drags on, the crisis could erupt at the same point. **Petrodollars: Middle Eastern Capital Behind the AI Boom** To understand the deeper logic of this crisis, one must first see the hidden gears in the global financial machine: the petro-dollar cycle (Petrocapital Cycle). This concept was first systematically introduced by economists el-Gamal and Jaffe: Gulf oil-producing countries reinject the huge U.S. dollars earned from selling oil back into international financial markets via investments. This not only prevents overheating inflation within Middle Eastern countries, but also continuously supplies liquidity to the global credit system. Since the birth of the oil crisis in 1973, this cycle has been the invisible cornerstone supporting global finance. History has shown that once this artery is cut off, the consequences are catastrophic. In 1979, the oil shock overlapped with the 1980 Iran–Iraq War; Gulf countries withdrew massive capital from the international banking system to fund the conflict. The result was a liquidity crunch in Latin America, directly causing the 1982 Latin American sovereign debt crisis—the first ever systemic financial crisis triggered by a “petro-dollar supply cut.” Today, the scale of this cycle is astonishing. As of November 2025, the UAE’s financial sector alone holds assets worth $1.4 trillion. More importantly, where does Middle Eastern money go? The answer: Silicon Valley and Wall Street. **The hottest AI sector—whether it’s Nvidia chips, OpenAI’s valuation, or the frenzied tech software lending in the private market—has Middle Eastern investors behind it.** Last year, Saudi Crown Prince Salman visited the U.S. and not only promised to boost investment from $600 billion to $1 trillion, but also specifically named “AI chips and computing power” as core targets. Soon after, Google, Oracle, AMD, and other tech giants signed $80 billion “cutting-edge technology” investment agreements with Saudi Arabia; Saudi DataVolt also invested $20 billion in U.S. AI data centers. In other words, Middle Eastern petro-dollars are already deeply welded into the capital chain of America’s AI industry. However, on February 28, the gears jammed. The Strait of Hormuz was closed, and Iran laid sea mines. Fitch was initially optimistic, predicting “a mild impact from a one-month blockade,” but reality struck hard: not only is the Strait blocked long-term, but key oil and gas infrastructure is also under sustained bombardment. The “artery” of petro-dollars flowing into U.S. capital markets is being tightly squeezed by war. **Private Credit: The Burning Powder Keg** If the Middle East supply cut is external, then within the U.S. financial system, a crisis has quietly taken shape. Before the Iran war broke out, Wall Street’s private credit market was already on the edge of the cliff. What pushed it over was the very AI fervently chased by Middle Eastern capital. In recent years, private credit grew wildly, most fond of lending money to tech software (SaaS) companies acquired by private equity funds, earning high spreads. UBS and Barclays data reveal terrifying concentration: in private credit loan books, commercial services and information technology together account for as much as 55%. **It was a perfect capital game—until Anthropic’s Claude emerged.** AI began to sweep away traditional software business models. SaaS company stock prices plunged; their loan repayment cash flows became empty promises overnight. With deteriorating underlying assets, the dominoes of private credit began to fall. See this “crash timeline”: - February 3: Private credit stocks plummet, “SaaS doomsday” shockwave spreads; - February 21: Giant Blue Owl faces abnormal redemptions, viewed in Wall Street as “the canary in the coal mine”; - February 26: UBS warns of impending record-breaking “chain defaults”; - March 5: BlackRock cuts the value of a private loan from 100 to 0; - March 6: BlackRock restricts redemptions on a $26 billion fund (“gating”); - March 11: JP Morgan downgrades collateral values, directly restricting lending to private institutions. Currently, giants including Blackstone, BlackRock, and Morgan Stanley face more than $10.1 billion in redemption pressure, only able to meet about 70% of demands. Industry leaders tore off the last fig leaf. Apollo Co-President John Zito said at a UBS meeting: “For an average mid-sized software company loan, recovering 20 to 40 cents on the dollar is considered lucky.” As for how long the redemption wave will last? “I don’t know.” JP Morgan pulled back its $5.3 billion Qualtrics debt issuance overnight. BofA analysts even say the current atmosphere “smells like the 2008 subprime crisis”—“Back then everyone said subprime was just a localized issue, until it toppled the whole world.” **War Timeline: The Longer, the More Dangerous** Given such a fragile financial foundation, why hasn’t the U.S. stock market crashed yet? Because Wall Street elites stubbornly cling to the assumption: this is only a short-lived, localized conflict. Initially, TS Lombard’s Managing Director of Global Political Research Christopher Granville predicted: the conflict would last at most four to five weeks, and the market could handle it. But that illusion was shattered on March 18. On that day, Israel bombed Iran’s largest gas field; in retaliation, Iran fired missiles at Qatar’s Ras Laffan Industrial City (an important energy hub). **Granville hastily revised his report, upgrading the forecast from “brief shock” to “a five-month energy tremor similar to the 2022 Russia–Ukraine war.”** He pessimistically noted: the chances of reopening the Strait are slim. Although Trump doesn’t want high oil prices ahead of elections, his remark “blockading the Strait is other countries’ problem” makes early U.S. intervention unlikely. Arbroath Group Managing Partner Christopher Smart pointed out a despairing reality: “Even if there’s a miraculous ceasefire tomorrow, the world now knows—20% of global oil flows freely only depending on the mood of Iran’s future government.” UBS strategist Bhanu Baweja issued a final warning: Wall Street is used to “whenever policy has issues, the Fed will bail out the market” like spoiled children, but they are totally unprepared for a prolonged war. If the conflict drags into April, oil could breach $150 a barrel. **Triple Crisis Converge** Together, these three threads weave out a financial crisis roadmap: 1. Source cut-off: War severs the petro-dollar cycle, draining Middle Eastern liquidity originally flowing into the U.S. AI and capital markets; 2. Internal bleeding: The massive $1.8 trillion private credit market faces existential reassessment under the impact of AI, with redemptions and defaults feeding on each other; 3. Prolonged war: Persistently high oil prices from a drawn-out conflict will firmly lock the Fed out of interest rate cuts, compounding an already fragile credit environment. Crises never arrive as expected. It always starts from a seemingly distant local conflict, follows secret veins of capital, and finally triggers an avalanche in the most prosperous financial centers—where no one can escape. Risk warning and Disclaimer The market is risky, invest with caution. This article does not constitute personal investment advice nor does it consider specific investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their particular circumstances. Invest accordingly at your own risk.