This essay was originally distributed via my newsletter.

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Everyone is watching the Strait of Hormuz and how it has turned into a strait jacket for oil and natural gas supplies. But that’s not the story I’m most interested in. 

The main story is who’s wearing that jacket—China. How fertilizer may be the biggest disruption that nobody is talking about. And how the tensions involving other Gulf states, the dollar, and the plumbing of the global financial system could ultimately shape how the conflict unfolds.

China may be the biggest loser here 

In a recent piece, days before the U.S. and Israel attacked Iran, I hypothesized that President Trump was trying to execute a “Beijing blockade.” Not only is China the world’s largest oil importer, they’re also Iran’s largest oil customer. 

Some 1.38 million barrels were going to China per day prior to this conflict. It’s true that China also buys oil from other major exporters like Russia, but it’s not like Russia can easily reallocate barrels they need for sale to other customers and to fuel their own war efforts in Ukraine. Russia already produces at near capacity. 

China used to buy regularly from Venezuela too. Cheap, sanctioned barrels from Venezuela and Iran purchased at steep discounts denominated in yuan (outside of the dollar system) have helped power Chinese manufacturing. 

It’s also built a foundation for a potentially post-dollar world. 

Even a slight disruption to this low margin trade means higher sustained energy costs into an already deflationary Chinese economy. 

And while China clearly anticipated future disruption given its recent stockpiling of some 430,000 barrels per day throughout 2025, those stockpiles are only good for probably 4-6 months. The Chinese economy would need to replace lost oil from Venezuela and Iran eventually. 

China is not the booming economic miracle it once was. The government has had to prop up its ailing domestic property market, which I previously argued has all the makings of a government-run Ponzi scheme. They also recently announced much lower anticipated growth. 

Remove the cheap, sanctioned oil that regularly flowed into China’s teapot refineries, factor in the Brent crude price that topped $89/barrel as of this writing, and the demand implications on China become very problematic. The added costs on an already wounded and completely energy dependent Chinese economy could dent their manufacturing prowess. 

It could also compel them to intervene in the conflict to protect its energy interests. Whether that’s arming Iran or finding other indirect means of supporting her, similar to Chinese covert buying of Russian oil throughout the war in Ukraine. 

And when you look at nearby India and consider how they have also thrived on the same sanctions-discount oil market, there’s added geographic weight. It’s no wonder why Iran has targeted a large Saudi oil refinery and a Qatari natural gas facility, among other targets — they want their neighbors and the broader market to feel the pain.

This type of market disruption is not bilateral and limited to China, but systemic, with massive macroeconomic implications. 

Which is why I was never fully convinced that President Trump was an evil genius orchestrating his Beijing Blockade behind the scenes. He may want to hurt China, but it’s unlikely he considered all of the unintended consequences. 

Iran firing missiles at Arab states clearly wasn’t in his script. Fertilizer disruptions that will inevitably hurt American farmers probably weren’t either.

The fertilizer disruption nobody is talking about 

I recently posted a video about the consequences the Strait of Hormuz disruption is having on urea, the most widely used fertilizer in the world. 

Urea is a nitrogen rich chemical compound that allows farmers to directly feed nitrogen to crops so they can produce higher yields. Roughly a third of the global urea exports go through the Strait of Hormuz. 

So with maritime traffic in the region essentially paralyzed, it’s not just the global supply of oil and natural gas getting pinched. It’s fertilizer. 

And this couldn’t have come at a worse time for American farmers. Which is why I’m betting the Trump administration didn’t prepare for these consequences. 

We are at the beginning of planting season in America. March and April are the primary months for urea imports to the United States. So even a short disruption of a week or two could delay shipments that miss this critical window. 

A vessel exporting urea that leaves the Strait of Hormuz today won’t arrive at U.S. ports until mid-April. Those are some of the last possible weeks for spring planting. 

If farmers think these imports will be delayed in any way they will be forced to make a decision. Do they risk planting crops like corn that require urea to increase yields? Do they accept the fact they’ll produce less? Or do they pivot to crops like soybeans that demand less nitrogen? 

Whichever route they choose will have downstream economic consequences on consumers. Less corn, for example, means higher feed prices. Which leads to higher meat and dairy prices. Which leads to more expensive beef and milk for me and you. 

It will also hurt smaller farmers more than big players like Cargill who can weather the storm better. If a small corn farmer suddenly has to pivot to soybeans, that has major economic consequences on margins and outlook. And these are already small business owners struggling under the weight of tariffs and less demand from China (who is the world’s largest soybean buyer). 

A urea disruption is not theoretical either. QatarEnergy has already halted urea and ammonia production at Ras Laffan, the world’s largest LNG and industrial complex.

The full effects of any urea disruption won’t be immediate. They will likely play out over the next 6 to 18 months, giving the Trump administration time to weather the storm or even bail out farmers as he has done in the past (with taxpayer dollars).

But in the end it’s the U.S. consumer footing the bill. 

Those dollar bills will rise in value, but tension is everywhere 

As we saw back in the first Gulf war, Gulf states like Saudi Arabia and the UAE generally move to dollar assets following U.S. military dominance. So if we reach a point where the U.S. and Israelis control Iranian oil, it will almost certainly strengthen the dollar. 

In the most bullish case for the dollar, Iranian oil goes through dollar clearing as opposed to China’s system (CIPS). This would marginalize the Chinese alternative to SWIFT and increase demand for greenbacks. With more energy cost pressures, Gulf states would likely start to lose faith in China, the only superpower that can’t reliably produce its own energy. 

Multiple tension points threaten the long term viability of this outcome, however. It would demand strategic follow-through on the part of the United States; the sort we haven’t witnessed to date in this conflict. Trump, for example, was clearly taken aback just by Iran firing missiles at so many of its neighbors, escalating a bilateral fight into a regional war. 

It also would require a Venezuela outcome for Iran. Basically, full U.S. influence and control over the next leader of Iran. So far this hasn’t materialized and doesn’t appear to be happening anytime soon as reports indicate that the Ayatollah’s regime is largely intact, with one of his sons as the likely successor of the Islamic state. 

Nevertheless, war may have forced investors to reassess their previously preferred strategy — “Sell America, Buy Asia.” The dollar once again is proving to function as a safe haven. The relatively isolated U.S. geography — far from the Middle East conflict — adds security for investors. 

But the U.S. is not operating entirely from a position of strength. There is tension in its domestic labor market and from rising inflation, as I noted in this video yesterday. A weak jobs report, rising unemployment, and higher inflation from soaring commodity prices is a recipe for stagflation — a nightmare scenario for any central bank. Interest rates and other monetary policy tools are largely ineffective against a contracting economy that’s experiencing higher prices. 

So while this conflict may bode well for dollar strength in the short term, longer term impacts could hurt dollar assets if the affordability problems worsen domestically in America. Yields on longer-dated U.S. Treasuries have risen by nearly one-quarter of a percentage point since the U.S. and Israel started dropping bombs on Iran.

Higher Treasury yields mean that life gets more expensive in America. Higher mortgages, credit card rates, interest rates on personal loans, etc. 

How the domestic pressures influence President Trump’s actions in Iran and abroad will be key to watch. If oil soars above $100/barrel or if U.S. Treasury yields continue their rise, he will likely seek more diplomatic and negotiating alternatives. 

One of the best negotiating alternatives is clogging Iran’s financial plumbing

For the sake of argument, let’s assume Trump wants to achieve two objectives: (i) end the fighting against Iran in a few weeks; and (ii) impose maximum pressure on Iran and China. 

President Trump previously sent his dealmaker on everything — Steve Witkoff — to negotiate with Iran through Oman as an intermediary. Witkoff signaled that the U.S. was open to a deal involving sanctions relief in exchange for nuclear concessions. 

But here’s the problem: that’s a dealmaking posture, not a maximum pressure posture. 

If the Trump administration were serious about applying maximum pressure on Iran, it would go after all of the Chinese banks and trading houses that facilitate Iranian oil purchase today. As mentioned above, China uses CIPS as an alternative to SWIFT to settle oil trades in their currency, the yuan. These operate outside the dollar system, but here’s the important part — almost all of these Chinese banks and trading houses have dollar-clearing relationships. 

It doesn’t matter if the trades in question avoid the dollar. What matters is if the Chinese banks and trading firms want to participate in the dollar system at all, which of course they do given its reserve currency status (that shows no signs of changing) 

Make participation in CIPS exceptionally painful, and it will not only clog Iran’s financial system, it may incentivize China to work with the U.S. more to end the conflict. Although it admittedly could have the opposite effect of making China feel cornered, but they arguably already do through the Beijing Blockade I described.

Might as well go the full way of applying maximum pressure. 

Oil markets are currently pricing in military action. They are not pricing in potential escalations in sanctions enforcement. This could prove to be the most consequential variable for sustained supply disruption. 

It would end the shadow fleet trade between Iran and China overnight. It would send a supply shock with a longer tail than the military action itself. 

The question comes down to what the U.S. wants to achieve. If the Trump administration truly wants regime change in Iran, then it must apply maximum pressure. It must enforce secondary sanctions more aggressively, targeting the shadow fleet tankers, the trading houses, the Chinese teapot refiners, and the Chinese banks and port operators with sanctions enforcement. 

Shut off the Iranian oil by clogging its financial plumbing, and you can shut off the regime’s staying power. 

But the bigger issue is that it’s very unclear what exactly the U.S. wants. The priorities appear at best inconsistent and at worst dangerously contradictory and vain. 

Under the most favorable interpretations, the U.S. wants to end Iran’s nuclear program once and for all and help liberate the Iranian people from decades of tyranny under the Ayatollah. But under the least favorable interpretations, this is all just a vanity project for President Trump as he enters his lame duck years and wants to do something big to distract from the Epstein Files and cement his place in history. 

Whatever your interpretation, the fact remains that uncertainty and instability will persist. And if there’s any lesson from Middle East interventions by external powers it’s that they never end quickly. No matter how much everyone from the Soviets to Donald Rumsfeld and Donald Trump wanted them to.