Why Time Is on Iran, Russia and China's Side | Michael Hudson

Time is on the side of Iran, Russia, and China and increasingly works against the US and its allies. The longer the confrontation persists, the greater the pressure on highly indebted Western economies. As in Russia's past wars against Napoleon and Germany, the decisive advantage need not come from military strength alone, but from an external force that steadily erodes the enemy's capacity to sustain the conflict. Today, that force is the global financial and economic system.

"General Winter"—Russia's eternal ally against her enemies.

The US has contained the oil price shock by releasing oil from its strategic petroleum reserves and encouraging other countries to do the same, despite the major disruption to Persian Gulf exports. But this buys time, and only by depleting reserves and leaving less room for further intervention. The stakes are high because higher energy prices quickly feed into diesel, aviation fuel, fertilizer, transportation, and food costs. With the US midterm elections approaching, Washington is therefore racing the clock to contain prices as its economic buffers diminish.

Weaponizing Survival: Energy, Food, and Sovereign Debt Pressure

Iran's strategic advantage is to avoid escalation while letting economic pressure accumulate. A similar dynamic is developing around Russia and Ukraine, where disruptions to grain exports risk compounding the energy shock. About 27% of global grain trade moves through the Black Sea; Ukraine's harvest is coming in while warehouses are full, and Russian attacks on shipping and ports threaten both incoming supplies and outgoing grain. Much of Ukraine's grain normally goes to Europe, leaving Europe vulnerable to simultaneous fertilizer, food, and energy-price shocks.

 

Asymmetric warfare against Western full-spectrum aggression:

wrecking the enemy through food, energy, and debt.

The crisis need not involve major military escalation because the US and Europe are already too financially stretched to absorb a sustained increase in energy costs without wider economic damage. Higher fuel prices raise transportation, food distribution, and production costs; industries operating on thin margins can become unprofitable; and higher inflation puts upward pressure on interest rates. The resulting pressure spreads to agriculture, trucking, and the movement of crops, with particularly severe effects in the West, among US allies, and across developing economies in Asia and the Global South.

Base, Apex, and Anchor of Primakov's RIC Triangle 2.0.

 

Higher inflation and interest rates also raise the cost of servicing already-heavy debt burdens. Rising bond yields compound the problem in the US, Japan, and other highly indebted economies, while vulnerabilities associated with Japan's currency and carry trade expose the limits of available policy responses. The fundamental vulnerability is therefore debt: governments must increasingly choose between supporting households and industry and servicing accumulated debt.

Sanctions Threaten America's Financial Power

This pressure also threatens the financial system that has enabled the US to exercise global power for decades. Washington has relied not only on military force, but also on its control of the dollar, international payments, global banking, and the oil trade. By weaponizing sanctions against Iran and threatening Chinese, Asian, and other banks involved in Iranian oil transactions, the US is encouraging those same countries and institutions to reduce their dependence on the dollar. Financial coercion could therefore undermine one of America's principal instruments of power.

No more deals. The victor writes the rules.

 

The oil trade is particularly important because Persian Gulf and OPEC oil have long been key channels of US financial influence. Oil revenues recycled through US banks, dollar assets, and the American financial system have reinforced the dollar's central position. Driving oil producers, buyers, and financial institutions away from that system therefore risks undermining the very mechanism Washington has used as a global economic choke point.  

 

Iran's strategy exploits this contradiction. If its own oil exports are blocked by sanctions and trade restrictions, the implicit threat is that broader oil exports may also be disrupted, forcing other countries to choose between accepting higher energy costs and resisting the sanctions regime. Iran cannot defeat the US militarily, even though it can attack US bases in the Middle East; its leverage instead lies in imposing costs on the wider system and forcing other countries to decide how they will respond.

China and the Emerging Alternative

China is relatively well-positioned to withstand such pressure because of its large oil reserves, coal resources, and extensive investment in solar power and other energy alternatives. The broader question is how China, Russia, Iran, Asia, and the Global South will respond if continued US sanctions keep driving up energy and commodity prices. Their incentive will be to develop mechanisms that insulate their trade from unilateral US financial coercion. 

Zhou Xiaochuan, Governor of the People's Bank of China, presenting his
landmark 2009 proposal, "Reform the International Monetary System," 
to the Bank for International Settlements (BIS).

Gold provides one possible reserve asset outside the dollar system. Countries have increasingly added to their gold reserves while maintaining relatively stable dollar holdings; the European Union now holds more reserves in gold than in dollars. China and Russia have also developed alternatives to Western payment infrastructure. China's and Russia's independent clearing systems reduce their reliance on SWIFT, while Iran has experimented with cryptocurrency payments despite the US seizure of Iranian cryptocurrency assets.  

 

The issue therefore goes beyond creating a BRICS currency. What is required is an alternative international architecture for payments, reserves, and lending, capable of financing trade without depending on the dollar, SWIFT, the IMF, or other Western institutions. China, because of its enormous financial reserves, is uniquely positioned to provide the financial capacity that such a system would require. Russia and Iran could contribute oil, with Russia also contributing grain.

The Cost of Dedollarization

Such a system could fundamentally reshape the post-1945 financial order. Countries facing rising energy, food, fertilizer, and chemical costs would increasingly face a choice between supporting domestic industry and households and servicing dollar-denominated debt. As balance-of-payments pressures intensify, governments would have to decide whether scarce resources should go toward subsidizing industry, protecting families from higher heating and food costs, or continuing to pay foreign creditors. The incentive to prioritize domestic stability would accelerate dedollarization and weaken the financial mechanisms through which Washington has historically exercised global influence.

More sanctions, guns, butter, servicing debt, or collapse?

 

China, Russia, and Iran could therefore form the foundation of an alternative monetary system: Iran contributing oil, Russia oil and grain, and China financial reserves. Such a system could remove or weaken several of the instruments of influence established after World War II to structure global trade and finance in America's interest, including control over the dollar, oil, food, and seaborne trade. 

Keynes's Alternative to the Dollar System

The alternative need not be another dominant national currency at all. The argument instead returns to John Maynard Keynes's 1944 proposal for an international clearing institution based on a supranational unit of account called the bancor. Keynes proposed a system designed to manage persistent international surpluses and deficits rather than forcing debtor countries into destructive austerity. The institution would manage intergovernmental debts, allowing countries with temporary imbalances to obtain temporary liquidity while preserving their capacity to become economically self-sufficient.

 

Keynes maybe wasn't all wrong.

The critical difference is that surplus countries would also share responsibility for global imbalances. Keynes argued that the persistent accumulation of surpluses and claims by creditor countries necessarily creates corresponding deficits elsewhere. If debts become so large that repayment requires destroying a debtor’s economy, those debts should be written down—and the corresponding creditor claims written down as well. The US rejected this approach in 1944 because it was then the dominant creditor and had little incentive to accept a system that could reduce its accumulated claims.

 

Keynes's proposal was shaped by the German reparations and transfer debates of the 1920s. His central argument was that a debtor cannot repay indefinitely by suppressing wages, transferring resources abroad, and selling its assets without destroying its own productive economy. A loan made without regard to the borrower’s ability to repay ultimately becomes a bad loan. The same logic, he argued, applies internationally: forcing debtors into permanent austerity can produce depression rather than repayment.

 

The proposed international institution would create an accounting unit based on a combination of gold and member currencies rather than a conventional national currency. It would manage international surpluses and deficits and provide liquidity for temporary imbalances. When accumulated claims became impossible to service without undermining a country’s productive capacity, the system would permit debt reduction rather than compel economic destruction.

China's Potential Role

China could potentially build such an international payments system around productive investment rather than creditor extraction. Its investments in ports, railways, infrastructure, and the Belt and Road Initiative could increase borrowers' productive capacity and ability to earn foreign exchange, enabling them to repay principal and interest rather than forcing them into austerity and privatization. The argument is that, unlike Western financial systems, China has the capacity to structure such financing primarily on geopolitical and developmental grounds rather than purely for financial returns or capital gains.

 

The central question is whether China itself could avoid becoming another creditor power with the capacity to weaponize its currency. The historical lesson, however, is that other countries did not necessarily expect the US to weaponize the dollar in the 1950s and 1960s, yet it eventually did. The same concern could apply to the yuan. The proposed solution, however, is not simply to substitute one national currency for another, but to create an international clearing mechanism that limits any single country's ability to accumulate unlimited financial power.

The End of the Post-1945 Order

The broader conclusion is that the post-1945 financial order may be approaching a structural break. The present conflict is no longer simply a military conflict; it is increasingly a contest between competing economic systems: a creditor-driven and highly financialized model and an industrial, state-directed model represented by China and parts of Asia. The existing system may not contain mechanisms capable of managing this transition. Instead, the world could fracture into parallel financial and economic systems, with the struggle over the future economic order ultimately displacing the narrower conception of a military or civilizational conflict.

Reference:

Michael Hudson (August 20, 2026) - Why Time Is on Iran, Russia and China's Side.