Back on the road of war: what awaits the petrodollar
As the Iranian conflict developed, it gradually turned from conversations about the global energy crisis into discussions about the future of the petrodollar — or, in a general sense, about the prospects of the system that existed for several decades, built around the American currency, the US national debt and super profits from the sale of Middle Eastern oil. Some experts are talking about the beginning of the process of destruction of this mechanism, while others are talking about the acceleration of the negative trend that began 18 years ago. Details can be found in the Izvestia article.
The Kissinger Loop
The petrodollar system is a kind of "loop". The oil-producing countries of the Persian Gulf, mainly the United Arab Emirates and Saudi Arabia, sold the extracted resources for dollars, and placed the excess profits in US government bonds, thus participating in the repayment of the US national debt. In addition, the Gulf countries received technology and investment from the West for development, thereby gradually becoming a global financial and technological center.
The formation of this system continued from the end of World War II (the Quincy Pact of 1945 granted the United States a monopoly on the development of discovered Saudi deposits in exchange for guarantees of protection from external threats) to the end of the 1970s: after the "Nixon shock" (refusal to exchange dollars for gold), the Yom Kippur War and the global oil crisis, the adoption of the Jamaican monetary system, and also as a result of Henry Kissinger's Middle East policy. In June 1974, with his active participation, a security agreement was signed between the United States and Saudi Arabia, which obligated Riyadh to sell oil exclusively for dollars.
The then US Secretary of State himself called the structure a recycling of dollars. Global capital received a safe harbor, the security of which was ensured by American military power.
In exchange, the US national debt acquired the status of one of the safest assets and, at the same time, a self-sufficiency mechanism, which worked especially effectively at the expense of countries with large trade surpluses: excess foreign exchange earnings from sales, for example, resources, were invested in treasury debt securities.
The political switch
Another element of the system, which at first glance does not have a direct relationship to it, is the strategy of the United States (and in a general sense, the West) to eliminate geopolitical opponents, real and potential, through the creation and management of regional crises — sometimes directly, as in the case of Libya, sometimes indirectly (if the opponent is too dangerous in direct conflict), as, for example, with Russia. In the same way, global trade can be managed through logistics or resource control.
The trick was that since the mid-1970s, any oil shock in the Middle East led to higher prices, and hence demand for U.S. Treasury bonds. This, in turn, contributed to a decrease in the profitability of the securities.
Smoothness of the fall
The system worked well before the global crisis of 2008, and since then it has been slowly collapsing. More and more countries chose to diversify investments, and only the increasing burden of public debt occupied an increasing place in the American budget.
The first backstage discussions began in 2009. They were further accelerated by the expansion of the BRICS and the illegal seizure of Russian assets after the start of their activities. In March 2022, Riyadh announced its desire to sell oil to China for yuan and related negotiations with Beijing.
Meanwhile, the process of de-dollarization was still much slower than the skeptics expected, primarily due to the need to use American currency in oil transactions.
In June 2024, an inconspicuous, but in this context epochal event occurred — after 50 years from the moment of signing, Saudi Arabia refused to renew the security agreement. To a large extent, this was facilitated by the controversial policy of the administration of the then US President Joe Biden in the region.
The US-Israeli campaign against Iran has further accelerated the negative trend. This time, the mechanism worked in the opposite direction. The demand for securities fell, and their yield increased from 3.9% to 4.4%. While the oil tankers stood in the blocked Strait of Hormuz, the Arab monarchies, trying to cover the damage caused by the Iranian strikes, got rid of American bonds.
On April 6, the Financial Times, citing an unnamed representative of one of the Persian Gulf countries, reported that "several of the region's largest economies are studying the applicability of force majeure provisions to existing investment obligations, including to the United States."
In turn, Bloomberg commented on this news in an alarming article: "The sovereign wealth funds of the Persian Gulf are major investors in American assets. The 1974 Kissinger Agreement withstood the Cold War, the Gulf wars, the financial crisis, and the pandemic. But it didn't survive that. The petrodollar cycle has always been a political agreement disguised as a financial scheme. Now that politics has changed, finance is following suit."
The question of speed
Experts disagree on how quickly and consistently this trend will develop. China, admittedly, is not ready, and does not intend to offer a full-fledged alternative right now, and does not seek revolutionary changes.
On the other hand, it is not economic events that give them the most significant impetus today, but rather geopolitical events. For example, in 2019, only 14% of Russian exports were paid for in rubles, in 2025 it was already 53.7%. In China, this indicator has almost doubled from 2019 to 2024, from 15% to 28%. Since 2022, amid increasing sanctions pressure, the share of national currencies in oil and gas transactions between the two countries has grown at such a pace that 20 months later it displaced the dollar to the level of "technical" values.
At the same time, over the past seven years, especially sharply at the height of the trade war with the United States, China has reduced its investments in American treasuries by 36.9%, in February of this year, reducing them by another 9.6%, that is, to the level of 2009.
The reasons for such statistics are obvious. It is obvious that the processes launched or accelerated by the US-Israeli aggression against Iran have the same effect on the global energy market, only on a completely different scale. India, Brazil, and even the United Kingdom and Japan are diversifying assets. The latter, however, sells from a gigantic ($1.23 trillion) portfolio to solve its own problems.
On April 2, Iran proposed to Europe to conclude an agreement on the use of the Strait of Hormuz. This was stated by the head of the Information Council under the Government of the Islamic Republic, Elias Hazrati.
"Iran fully controls the Strait of Hormuz. <...> Today we have come to the conclusion that we may announce an agreement on the Strait of Hormuz. We will invite European, Asian and Arab countries that want to use the document to sign with us," the official told the ANA news agency.
The essence of the proposal is to set tariffs for oil transit through the Strait of Hormuz. If the Europeans, who are not in the strongest position, agree to pay for it in euros or yuan, the petrodollar will receive another sensitive blow.
Dedollarization?
Bloomberg notes that for the first time since 1996, the share of gold in the assets of regulators exceeded the share of dollar bonds.
This trend cannot be ignored, but it should not be overestimated either. Private American investors are still actively investing in the US government debt, however, the dynamics of aggregate investments in the official sector does not exceed negative values. Moreover, according to economists, such a shaky and stress-prone state of affairs will last no more than two or three years.
Treasuries are becoming a tactical tool rather than an investment driven by political loyalty. Ideological risks are being replaced by operational ones, and the era of the "automatic" absorption of the American national debt is coming to an end.
In other words, the weakening of the petrodollar, even if accelerated, does not mean an instant collapse of the dollar system. At the same time, everything points to the inevitability of the coming transformation.
Переведено сервисом «Яндекс Переводчик»
