The Petrodollar Pivot: A 50 Year Monopoly Under Fire

In 1974, newly appointed US Treasury secretary William Simon travelled to Saudi Arabia to negotiate a deal over the course of four days, which was crucial for the goal of neutralizing crude oil as the economic weapon that it was (Wong, 2016). This agreement resided on the basis that the United States would provide military support and protection to the Saudi Kingdom. In exchange, Saudi Arabia would price all of its oil exports in U.S dollars, and reinvest their surplus dollar revenues into U.S assets and treasury bonds. (Wong & Ma, 2026)

In economic terms, this agreement benefits the United States, essentially behaving as a large, low-interest loan. The logic behind this is that, as every nation that purchases oil from Saudi Arabia is forced to buy with U.S dollars,  the U.S gains a great global demand for the currency, keeping the value of the American dollar strong. Furthermore, as Saudi Arabia reinvests surplus dollar revenue back into treasury bonds, they are essentially lending this money back to the U.S government. This allows the U.S government to spend on services whilst keeping borrowing costs at a relatively low rate.

This crisis resulted in the birth of the “petrodollar” system, which provided the U.S with a consistent source of economic liquidity as the world consistently demanded U.S dollars to purchase oil.

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Geopolitical Influence and Exploitation

The petrodollar system gave the United States significant power and privilege. Because nations needed to maintain vast reserves of USD to ensure that they could purchase energy, the US was capable of exerting significant political pressure through financial sanctions. Essentially, by cutting a nation off, the US could effectively bar them from the global oil market. (Cogley, 2025)

Several resource-rich nations have also attempted to bypass the petrodollar system, an example of this was Iraq in the early 2000’s. Under the rule of Saddam Hussein, Iraq made the bold decision to dump “the currency of the enemy” (US dollar) in favour of the rivalling Euro, which critiqued to be economically suicidal at the time. However, the logic behind this was, as Iraq was considered a significant oil exporter, they possessed enough power to force buyers to use the Euro. This switch led Iraq to earn hundreds of millions of dollars in profit, as the rising Euro increased in value. (Islam, 2003)

The Rise of De-Dollariation 

Iraq’s switch to the Euro set a precedent that other major oil producers are beginning to follow. In 2023, for the first time in 48 years, Saudi Arabia has shown an openness to trading in other currencies other than the US dollar, specifically the Chinese Yuan (Blas, 2023). This represents a strategic effort from China to challenge the dominance of the US dollar in the energy market. China introduced the concept of the ’petroyuan’ in 2018, which has managed to gain traction over recent years. This system has been favoured by many as it gives countries an alternative for conduction oil trade, reducing the overall dependency on the US dollar. As of 2026, several countries utilize the petroyuan, including Russia, Iran, Venezuela, Saudi Arabia, etc.