If the USA Loses The Iran War, Everything Changes

The headlines today are dominated by the conflict between the United States and Iran, with the critical Strait of Hormuz at risk of closure.

At first glance, this may seem like a distant geopolitical issue. It is not.

What is at stake goes far beyond oil supply. If the U.S. fails to achieve a decisive outcome, it could trigger a structural shift in the global financial system—with consequences reaching even Singapore.

US Loss- Decline of Petrodollar and the USD share in global reserves

Today, most global oil trade is denominated in U.S. dollars—the foundation of the “petrodollar” system.

• Gulf states rely heavily on USD for trade
• Transactions are largely routed through the SWIFT system

However, a perceived U.S. weakening could change incentives.

Countries may:

• Shift oil contracts into the Chinese yuan (RMB)
• Adopt China’s alternative payment system, Cross-Border Interbank Payment System

(Ironically CIPS is faster and cheaper than the West's SWIFT system, just that countries do not want to use it because it is China).

If more countries adopt RMB-based trade: Demand for USD falls, then its share in global reserves declines. Finally the US dollar faces sustained depreciation

This is not unprecedented.

The British Pound Sterling, once the world’s reserve currency, has lost roughly 65% of its value against a basket of currencies over time as it lost its status as the reserve currency.

How it Affects Singapore

Singapore is not insulated from this.

Currency mismatch risk

Singapore holds substantial USD-denominated assets, while most liabilities are in Singapore dollars (SGD)

This creates an asset-liability mismatch

If USD depreciates against SGD, the value of our national assets decline, while our liabilities remain unchanged. This erodes balance sheet strength.

As Singapore's government can issue SGD, default risk is low to none. But the trade-off is the potential increase in money supply. More money chasing the same amount of good results in persistent inflation in our country.

The U.S.–Iran conflict is not merely a geopolitical flashpoint—it is a potential inflection point in the global monetary order. Even a gradual shift away from U.S. dollar dominance could reshape trade flows, reprice financial assets, and transmit inflationary pressures across economies tied to the dollar system. For countries like Singapore, which hold substantial USD-denominated assets, the effects may not be immediate but could prove deeply consequential over time. What appears distant today may ultimately surface in more tangible ways—through higher costs of living for Singaporeans.