The Deal That Built Dollar Dominance
In 1974, a strategic understanding between Henry Kissinger and King Faisal reshaped the global financial system. Saudi Arabia agreed to price its oil exclusively in US dollars, while the United States committed to securing the Gulf.
This arrangement was never formalised in a treaty. It was built on mutual interest and strategic alignment. From that moment, every nation required dollars before it needed oil. This artificial demand underpinned US monetary dominance, allowing Washington to print currency, finance wars, and sustain deficits without bearing proportional consequences.
The Gulf was not merely exporting oil. It was reinforcing the foundation of American global supremacy. The critical question now is not whether this system collapses entirely, but whether it can be destabilised. Even a partial shift, such as pricing a portion of oil in alternative currencies, signals a structural challenge.
The original agreement relied on security guarantees. Today, that pillar is under visible strain. If Washington fails to uphold its commitments, the rationale for Gulf adherence weakens. When security erodes, trust follows. When trust declines, capital seeks alternatives.
A Fracture That Has Been Building Quietly
This is not speculative analysis. Structural shifts are already underway.
Saudi Arabia has begun loosening its exclusive alignment with the dollar. In 2023, it conducted oil transactions with China using the yuan. It also signed a $7 billion financial agreement with Beijing enabling direct yuan-based trade and joined a joint digital payments platform with China. These are not symbolic gestures. They represent operational financial infrastructure.
A recent report by Deutsche Bank confirms that the foundations of the petrodollar system were under pressure well before the current conflict. It also notes that the majority of Middle Eastern oil exports are now directed toward Asia rather than the United States. The current war has not created the fracture. It has exposed it.
A 94% Collapse and Capital Repositioning
The scale of disruption is measurable. Maritime traffic through the Strait of Hormuz has dropped by 94% since the onset of the conflict. Vessel movement declined from 1,229 ships in the first half of March last year to just 77 this year.
Marine insurance providers have withdrawn coverage. Premiums surged from 0.05% to 7.5% of vessel value, a 150-fold increase.
The implication is clear. Transit is no longer viable at scale, and risk is no longer insurable. The first pillar of the 1974 system, secure maritime routes, has effectively collapsed. Without security, confidence disappears. Without confidence, capital reallocates.
Market Warnings and Strategic Signals
Ray Dalio, founder of one of the world’s largest hedge funds, warned that the current conflict could act as a trigger for the decline of dollar dominance and potentially the broader US-led order.
At the same time, Lindsey Graham issued threats toward Gulf states, warning of consequences if they fail to align with US military objectives. In a televised interview, he stated that Iran’s collapse would unlock substantial financial gains and give the United States access to 31% of global oil reserves.
Iran Moves First on the Currency Front
Iran has already begun leveraging the currency dimension of this conflict.
Tehran has required yuan for transit through the Strait of Hormuz and allowed Chinese tankers to pass while restricting Western access. Since the beginning of the war until mid-March, shipments totalling 11.7 million barrels of Iranian oil reached Chinese refineries, all settled outside the dollar system. This volume alone could sustain an economy the size of France for over a month.
An analyst at Chatham House summarised the situation: the petrodollar did not collapse in March 2026. It had been under pressure since Saudi Arabia began financial integration with China in 2022. The Strait of Hormuz disruption simply removed life support.
Iran’s approach highlights a strategic reality. The most effective pressure on the United States is not military escalation but disruption of the financial system that sustains its global reach.
Strategic Imbalance: Security vs Political Calculations
The divergence in priorities is becoming increasingly visible.
While Gulf states face direct security threats, US decision-making remains influenced by domestic political considerations. Military actions are delayed based on financial market reactions, not regional instability.
Meanwhile, reporting by the Wall Street Journal indicates that Senator Graham engaged with Israeli intelligence prior to the war and encouraged escalation, urging Benjamin Netanyahu to persuade Washington toward confrontation.
These developments highlight a structural imbalance. Gulf security concerns are immediate and existential, while US responses are filtered through political and economic calculations.
A Narrow Window of Strategic Leverage
The Gulf’s position in the global system is not one of weakness. It is one of concentrated leverage.
China seeks its energy supply as the world’s largest importer. Europe is pursuing alternative gas sources amid ongoing shortages. India, as the third-largest economy, is expanding its strategic partnerships. The United States continues to rely on Gulf capital, influence, and stability.
This convergence creates a rare strategic moment. Control over energy reserves, sovereign wealth, and critical maritime routes places the Gulf at the centre of a global transition from a unipolar to a multipolar system.
However, leverage that is not exercised diminishes over time. Strategic windows do not remain open indefinitely.
The Defining Question: In Which Currency Is the Future Sold?
The Gulf has demonstrated its capacity to transform economies, build global assets, and deploy capital across continents. Yet its most powerful instrument remains underutilised: financial leverage.
At a time when Washington, Beijing, New Delhi, and London are all competing for access to its energy, capital, and alignment, a fundamental question emerges.
Will the Gulf continue operating within a single currency framework defined externally, or will it assert control over the terms under which it trades its resources, secures its future, and defines its geopolitical position?
