Billionaire hedge fund manager Ray Dalio has warned the escalating conflict in the Middle East could spiral into a “world war” scenario, in an unsettling note to investors.
The founder of Bridgewater Associates said the situation in Iran should not be viewed in isolation, but as part of a much larger and more dangerous global alignment.
“I believe the conflict in Iran is just one part of a larger potential world war, with countries like China, Russia, and Iran on one side and the United States and countries with US military bases on the other,” Mr Dalio wrote this week.
“I wish it were not true, but I fear we are entering a world war.”
Mr Dalio, known for his sweeping macroeconomic analysis, said markets and observers were too focused on a short-term resolution to the Iran conflict and missing the bigger picture.
His note was published before Iran and the US entered high-stakes peace negotiations in Isalamabad, Pakistan on Saturday local time.
“Because most people tend to have this short-term perspective, they now expect, and the markets are pricing in, that this war won’t last long, and when it ends, that we will get back to ‘normal,’” he said.
“Virtually nobody is talking about the fact that we are in the early stages of a world war that isn’t going to end any time soon.”
He pointed to multiple active conflicts, including Russia’s invasion of Ukraine, the war in Gaza and fighting in Yemen, as signs of a broader, interconnected global struggle.
Past world wars, he argued, also began as a series of overlapping conflicts that escalated without clear starting points or formal declarations.
He identified 13 steps in a global cycle from stability to conflict – “a common pattern that has happened many times before” – and suggested the world was now at point nine in his list.
“I have many indicators suggesting that the monetary order, some domestic political orders, and the geopolitical world order are breaking down.
“These indicators suggest that we are in a transition stage from the pre-fighting stage to the fighting stage, which is roughly analogous to the 1913-14 and the 1938-39 periods,” he said, comparing the current environment to the periods leading into World War I and World War II.
“I’m not saying that things will definitely progress further to an all-out world war,” Mr Dalio added.
“I don’t know what’s going to happen. I still hope for a peaceful world built on win-win relationships rather than damaged by lose-lose ones.”
Ray Dalio’s steps to a world war
1. The economic and military strengths of the dominant world power(s) fall relative to those of the rising world power(s), leading them to become roughly comparable powers and to begin challenging each other in economic and military conflicts over their disagreements.
2. Big increases in economic wars take the form of economic sanctions and trade blockages.
3. Economic, military, and ideological alliances form.
4. Proxy wars increase.
5. Financial stress, deficits, and debts increase, especially for the leading powers that are most overextended financially.
6. Critical industries and supply chains are increasingly controlled by governments.
7. Trade chokepoints become weaponised.
8. Powerful new technologies for war are built.
9. Multi-theatre conflicts increasingly happen simultaneously.
10. Within countries, loyal support for the country’s leadership is demanded, and opposition to the war and other policies is squashed.
11. Direct military combat between major powers occurs.
12. There are big increases in taxes, debt issuance, money creation, FX controls, capital controls, and financial repression to finance the wars. In some cases, markets are shut down.
13. Eventually, one side beats the other and gains indisputable control of the new order, which is designed by the winning side.
