Source: Fortune
Summary
The ongoing conflict in the Gulf has exposed the weakness of the petrodollar, a system established in 1974 where Saudi Arabia agreed to sell oil only in U.S. dollars. The system has been eroding for years, with Gulf countries diversifying their trade partners and China positioning itself as a potential alternative. The U.S. and Israeli attacks on Iran have strengthened its ties to China, bolstering the yuan at the expense of the dollar. Economists warn that the dollar’s share of global foreign exchange reserves has reached a 25-year low.
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The announcement sounds familiar. The petrodollar’s weakness has been quietly exposed for years prior to Saudi Arabia’s currency swap with China. The U.S. imposed sanctions on Russia in the early 2010s, prompting Russia to de-dollarize its economy and agree to a currency swap with China. Iran has been selling oil to China for decades, strengthening their relationship after the U.S. reimposed sanctions in 2018 and 2019. China has positioned itself to capitalize on any cracks in confidence in the petrodollar, launching the Shanghai International Energy Exchange in 2018 and investing heavily in renewable energy sources.
The petrodollar’s fate is at an inflection point during the Iran war. If Iran is able to maintain resilience against U.S. and Israeli forces, it could signal to other countries that there is a viable currency architecture outside the petrodollar.
This is not the end of the petrodollar, but a new chapter in its story.
Author: Evan Null
