For more than 50 years, US protection of the Gulf monarchies has helped support global demand for dollars and US government debt. That bargain may now be coming under strain.

The concept is straightforward.

The US provides military protection to countries such as Saudi Arabia, Kuwait, the United Arab Emirates, Bahrain, and Qatar.

In return, these countries price much of their oil in US dollars and recycle large amounts of their oil revenue into US financial assets, including Treasuries.

Call it an alliance.

Call it a strategic partnership.

I prefer to call it a protection racket.

Whatever name you choose, the arrangement has provided enormous support for the dollar since Nixon severed its last link to gold in 1971.

Oil sits at the center of the global economy. Every industrial economy needs it. If countries need dollars to participate in the global oil trade, they have a powerful reason to hold dollars.

That creates demand for the currency that has nothing to do with buying American goods or services.

It also creates demand for US financial assets.

Oil exporters earn dollars. They need somewhere to put them. For decades, a large portion flowed back into US banks and Treasury securities.

That helped deepen the Treasury market, support the dollar, suppress US borrowing costs, and finance deficits that no other country could sustain.

But every protection racket depends on one thing:

The protector must provide protection.

The Iran war threatens that premise.

If the Gulf monarchies conclude that the US cannot protect their oil infrastructure, shipping lanes, cities, and regimes from Iran, why should they continue upholding their side of the bargain?

That question could reshape the international monetary system.

And one man warned almost exactly 20 years ago about the signal that would tell us this shift had begun.