There's now a 50% chance of world war as the Israel-Hamas conflict threatens to spread, hedge fund legend Ray Dalio says

Ray Dalio.

Eoin Noonan/Web Summit via Getty Images

• Ray Dalio warns the Israel-Hamas conflict is likely to trigger more clashes in other places.
• The risk of a world war that includes the US and China has risen to 50%, the elite investor says.
• The economic historian says these kinds of battles tend to be brutal and often spread.

The Israel-Hamas clash threatens to spark other bloody battles, meaning it's now a coin toss whether a world war breaks out that includes the US and China, Ray Dalio has warned.

"In my opinion, this war has a high risk of leading to several other conflicts of different types in a number of places, and it is likely to have harmful effects that will extend beyond those in Israel and Gaza," the veteran investor and financial historian wrote in a LinkedIn post on Thursday titled "Another Step Toward International War." 

"Primarily for those reasons, it appears to me that the odds of transitioning from the contained conflicts to a more uncontained hot world war that includes the major powers have risen from 35% to about 50% over the last two years," he said.

Dalio is the billionaire founder of Bridgewater Associates — the world's largest hedge fund — and the author of "Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail."

He's been sounding the alarm on rising tensions within and between countries for several years. In his latest missive, he cautioned the US and China are "at the brink" of a so-called hot war — and the spread of the Israel-Hamas conflict could lead to the nations crossing the line into military combat.

The expert in global power shifts and historical cycles said the Israel-Hamas and Russia-Ukraine conflicts are likely to be "brutal until the end," when one side emerges as the clear victory, and these types of fights are "more likely to spread than subside."

"If they spread to other countries, most importantly the major countries, there will be a much more horrific hot world war," he said. "It seems to me that the Israel-Hamas war is another classic, unfortunate step toward a more violent and encompassing international war."

Dalio framed the two wars as part of a greater power struggle that will define the new world order. The current tensions between the US and China are still manageable, and won't necessarily boil over into full-blown war, he said. But if direct combat breaks out and deaths start to mount, that would pave the way for a shift from "contained pre-hot-war conflicts to a brutal World War III," he added.

Bridgewater's retired boss, who now serves as an official mentor to the hedge fund's three co-chief investors, urged world leaders to exercise restraint, allies of the warring countries to resist being drawn into physical fighting, and governments to work together to prevent escalation.

Dalio said his "pipe dream" would be for everyone to recognize the horror of a world war and come together to avoid one. "My more attainable stretch goal would be for the US and China to jointly broker peace in Ukraine," he said.

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