Trump's oil war and the coming global depressionIn conversation with Professor Michael Hudson
Professor Michael Hudson joined me for a characteristically forensic discussion of the economic forces now being unleashed by the escalating conflict with Iran — and why the consequences could dwarf anything we have seen since the 1930s. Hudson begins by placing Trump’s current demands in a longer historical context. This is not a sudden improvisation. During his first term, Trump already dreamed of extracting tribute from the Gulf states — a US-imposed toll on the Strait of Hormuz — to force OPEC and American allies to cover the cost of a U.S. military presence which has always served US interests. It is, Hudson says, a classic landlord’s mentality: keep adding extra charges to the rent. The same logic now drives the pressure on Japan, South Korea and Europe to pay ever larger sums for their own “security.” The problem is that these demands are colliding with an oil shock that has not yet fully hit. Once the Strategic Petroleum Reserve is depleted and Iranian (and potentially wider Gulf) exports are disrupted, Asian economies that depend on Persian Gulf energy will face severe balance-of-payments crises. Japan’s promised $650 billion investment in the United States and South Korea’s $350 billion pledge will become impossible to fulfil. Countries will be forced either to sell U.S. bonds and stocks or to raise interest rates sharply — both of which threaten the dollar system itself. Hudson is blunt: we are looking at the real possibility of a depression on the scale of a hundred years ago. This time the crisis will combine a real-goods shortage (oil, gas, fertiliser, food) with already crushing levels of foreign-currency debt. The Federal Reserve’s response so far — printing money to buy bonds and absorb the U.S. budget deficit — has inflated financial assets while the real economy of production and wages remains under debt-deflation pressure. Home ownership in America has already fallen below 50 percent of families; higher mortgage rates will push it lower still. Temporary “swap” arrangements invented by Treasury Secretary Bessent with the UAE, Japan and others merely defer the pain. When those currencies weaken in the autumn, the cost of unwinding the swaps will fall on the foreign partners, not on Washington. Europe, already de-industrialising under the weight of expensive American LNG, will feel the squeeze particularly hard. The deeper issue, Hudson argues, is structural. The post-1945 system was designed as a pro-creditor, dollar-centred order. The coming wave of unpayable debts — national, corporate and household — will force the same conversation that Keynes tried (and failed) to have at Bretton Woods: how to write down debts and credits when structural imbalances become chronic. Without a new international architecture that restores genuine trade and financial sovereignty, countries will remain trapped in a system that no longer serves their interests. Russia’s experience after 2014 offers one cautionary lesson. Cut off from Western capital markets, it repatriated its surpluses and accelerated re-industrialisation. Other nations may soon face the same choice: continue submitting to a financial empire that extracts tribute, or begin constructing an alternative. The oil war has made the contradictions impossible to ignore. The only remaining question is how long the rest of the world will accept a system that prioritises one country’s financial dominance over everyone else’s economic survival. You can watch the full conversation here: If you find this kind of analysis useful, please subscribe to my YouTube channel and to my Substack. Wherever you are in the world, whatever your nationality and religion, I wish you much peace. You're currently a free subscriber to The Peacemonger. For the full experience, upgrade your subscription. |