This is an article from the 2026 Civitas Examiner (Volume 3, No. 2) and was written by one of our students, Minha. The opinions expressed herein do not reflect those of Civitas other than respect for the value of open dialogue. To read more Civitas Examiner stories or to submit your own, click here.
The petrodollar or the system of pricing oil in USD, is considered a cornerstone of the United States’ economic and geopolitical dominance. Without the petrodollar, the dollar’s influence would be significantly lower. And unfortunately for the United States, that exact situation is happening right now.
This system has been in place since 1974, when Nixon offered military support to Saudi Arabia if it priced oil in dollars and promised to purchase U.S. bonds. And from that moment on, the demand for USD and U.S. debt grew significantly. Eventually, this system of the petrodollar was extended to the Organization of Petroleum Exporting Countries(OPEC), further increasing U.S. power and influence.
But is this age of U.S. global dominance through the petrodollar coming to an end? Not quite, but recent policies and actions from other countries have signaled that the dollar could fall from its position as the global currency.
The decline of the petrodollar is largely determined by the Kingdom of Saudi Arabia, as they are the largest foreign buyer of U.S. treasury bonds, have the 2nd largest amount of oil reserves and of course, started the petrodollar system decades ago. However, in recent years, Saudi Arabia has vocalized their openness to pricing oil in currencies other than the dollar. Specifically, openness toward the BRICS nations, which include Russia, China, the United Arab Emirates, Iran and many others. In 2023, the Saudi Minister of Finance announced, “There are no issues with discussing how we settle out trade agreements, whether it is in the U.S. dollar, whether it’s in the Euro, whether it’s in the Saudi Riyal.” This statement also signals the potential of pricing oil in currencies that aren’t the dollar, which can be threatening to U.S. authority as ties with Saudi Arabia have historically given the United States power within the Persian Gulf and Strait of Hormuz. If Saudi Arabia accelerates this economic shift toward the BRICS countries and away from the United States, the decline of the petrodollar is inevitable.
The decline of the petrodollar has become an even more prevalent topic in the midst of the Iran conflict. For some time, Iran has shown interest in pricing oil in the Chinese Yuan in opposition to the dollar. Recently, as the USA can no longer police oil transit through the Strait of Hormuz, Iran has been collecting Yuan as the biggest customers for Iranian oil lay in the East. The use of the petroyuan would go hand in hand with China’s challenge to using the dollar as a global reserve currency. As Mallika Sachdeva of Deutsche Bank states, the Iran conflict “could be the catalyst for erosion in petrodollar dominance and the beginnings of the petroyuan.” The number of countries that wish to trade oil without using the dollar is large and now that Iran’s biggest customers are in the East, Iran could easily use the current situation to boost the use of the petroyuan. Having a competitor like the petroyuan would harm the petrodollar and this would spark harm to the dollar-denominated bond market.
And that raises another question: how much would a shift away from the petrodollar harm the U.S. economy? While the petrodollar is only one part of the dollar-based global economy, with the decline of the petrodollar, countries that trade oil will have fewer USD reserves. This means foreign countries will have less incentive to buy U.S. bonds and without many countries servicing our debt, our $39.31 trillion of debt becomes a much more urgent issue that doesn’t have appealing solutions. The first one is that the central bank could monetize the debt by printing dollars to cover it. But this will lead to high inflation, especially given our large amount of debt. Or, taxes could be raised to cover our debt, but of course, this would be faced with heavy backlash and increased difficulty for the U.S. government to fund programs.
Another reason why the petrodollar is so critical to the U.S. economy is that it gives the dollar large amounts of demand. Without the petrodollar, the demand and value of the dollar would decrease. This depreciation of the dollar would give U.S. citizens much less global purchasing power, so the decline of the petrodollar and the rise of the petroyuan are crucial to Americans.
As global patterns are signaling the decline of the petrodollar and U.S. debt is at an all time high, the importance of trading oil with dollars is more prevalent than ever. But the looming issues of weaker ties with Saudi Arabia and the rise of the Petroyuan may lead to the end of an economic empire.
