Petrodollar protection 2
The Real Reason for War
Articles
In Strait of Hormuz, Iran and China take aim at US dollar hegemony
Project mBridge: connecting economies through CBDC
Beijing’s Hidden Oil Pipeline to Tehran - A $8.4 Billion Sanctions Workaround
In Petrodollar Protection Part 1, I laid out how the US invasion of Venezuela was, beneath the layers, an operation to neutralise barrels being priced outside the dollar. Maduro had ordered PDVSA to price in euros and yuan. The US intervened. Phase 1 complete.
Phase 2 is Iran. And the evidence is now considerably stronger.
What follows is not a prediction. It’s a data trail. Five charts, four arguments, one thesis: the war against Iran is, at its core, a defence of the petrodollar. And if you understand that, you understand the oil market and what drives American adventurism.
TLDR:
The US dollar’s share of global FX reserves has fallen from 71% to 57% in 24 years. Not a collapse but a slow bleed.
$100 held in dollars since January 2020 now buys $79 worth of stuff. Gold buys $303 worth. Even crude oil held its value better than the currency it’s priced in.
An estimated 20mb/d of crude oil is now settled outside the dollar. Lifting rapidly after Russia sanctions and through Iran-China bilateral flows.
China has built the plumbing. CIPS (Cross-Border Interbank Payment System)- their SWIFT alternative - tripled in volume since 2020 to $28 trillion. Iran’s Hormuz gambit isn’t a bluff. The settlement infrastructure is already live.
The World’s Reserve Currency
Let’s start with what the dollar actually is, because most people confuse familiarity with permanence.
The US dollar became the global reserve currency in 1944, when 44 countries signed the Bretton Woods Agreement and pegged their currencies to the greenback. At the time, America held 50% of the world’s economic output. The dollar was backed by gold. It made sense.
In 1971, Nixon killed the gold standard. The dollar was no longer backed by anything tangible - just the full faith and credit of the US government. What replaced the gold backing was something arguably more powerful: oil.
In 1974, the US struck a deal with Saudi Arabia. Washington would provide military protection. Riyadh would price all oil sales in dollars and recycle surplus revenues into US Treasury bonds. Every other OPEC member followed. Overnight, every country on earth importing oil - which is basically every country on earth - needed dollars to do it. This created a permanent structural bid for the dollar that had nothing to do with American productivity, innovation, or fiscal responsibility. It was a toll booth. You want energy, you pay in dollars. Full stop. This is the petrodollar system.
And it is the single most important pillar of American financial power. It allows the US to run persistent trade deficits, fund its military, and issue debt at rates that would bankrupt any other country on the planet. It is, as Valéry Giscard d’Estaing called it, America’s “exorbitant privilege.” The chart below shows what’s happening to that privilege.
The dollar’s share of global foreign exchange reserves has fallen from 71% in 2001 to 57% in Q3 2025. That’s 14 percentage points gone. Meanwhile, everything outside the dollar, euro, yen, and pound has grown steadily. Central banks are diversifying. Quietly, deliberately, and without fanfare.
And look at the gold line. Gold’s share of total reserve assets has more than doubled since 2015, from under 10% to over 23%. China alone added more than 350 tonnes between 2020 and 2025. That’s not portfolio rebalancing. That’s a country preparing for a world where the dollar is no longer the only game in town.
Now, the IMF will tell you - and they’re not wrong - that a lot of the recent dollar share decline is down to exchange rate effects. When the euro rises against the dollar, euro-denominated reserves are worth more in dollar terms, and the dollar’s share drops mechanically. Fair point. But the 24-year trend is not an exchange rate effect. It’s structural. The dollar isn’t collapsing. It’s being diluted. Death by a thousand central bank cuts.
Here is the price of houses relative to gold since 1990. To explain, if you were to buy gold with your pay cheque each month at the spot price, that would have ment house prices plummeted over the last 30-40years relative to the price of Gold. The general in and out spread on buying gold, then liquidating it back to dealer is usually around 5%. (4% above spot to buy, 1% to sell).
Purchasing Power Destroyed
Here’s where it gets personal. Forget reserve allocations for a second. What does your dollar actually buy?
This chart indexes everything to January 2020 at a base of 100. It answers a simple question: if you had $100 in January 2020, what would each asset be worth today in real terms?
The dollar line is the grey one hugging the bottom. It’s at 79. Meaning $100 in cash has lost a fifth of its purchasing power in six years. That’s the CPI (inflation) doing its thing - the cumulative effect of the highest inflation spike in four decades. That $100 you put under the matress in 2020, it’s only got the power of $79 now. To avoid this, you must use your $100 bills to buy things that rise as inflation rises.
Now look at everything else. Gold is at 303. Silver is at 420. Bitcoin, love it or hate it, is at 930. Even a barrel of crude oil, the commodity that everyone says is dying, has outperformed the currency it’s priced in. Crude is at 175.
The euro? Roughly flat. Which tells you something. The euro isn’t a store of value, either. It’s just another piece of paper being printed by a central bank with its problems.
The message is stark. Every major alternative store of value - hard commodities, precious metals, crypto - has dramatically outperformed holding dollars. The people buying gold in Beijing and Mumbai and Riyadh are not conspiracy theorists. They’re looking at the same chart and drawing the obvious conclusion. This is the backdrop against which the petrodollar story is playing out. The dollar isn’t just losing its reserve share. It’s losing its ability to do the one thing a currency is supposed to do: hold value.
The Marginal barrel
In 2018, roughly 0.3mb/d of crude was changing hands outside the dollar - almost all of it Iran selling to China in yuan. A small, sanctioned, niche flow nobody paid attention to. Then Russia happened.
.
When Western sanctions hit in 2022, roughly 5mb/d of Russian crude had to find new settlement rails overnight. Russia’s own Energy Ministry, in its “Strategy 2050” document released last September, put the dollar share of oil export settlement at 5%. Yuan takes 67%. Ruble takes 24%. That isn’t the China slice. That’s the whole book - China, India, Turkey, Brazil, Africa, the residual European buyers who still want the molecules but not the legal exposure. India tried to pay in rupees. Russia refused and demanded yuan or UAE dirham instead. So now India, a US strategic partner, settles its Russian crude bill in Chinese currency. Let that sink in.
Add Iran’s 1.4mb/d to China in yuan. Add Venezuela’s 0.5mb/d in barter and yuan. Add the early Saudi and UAE pilot volumes through Shanghai INE and the Durham-denominated UAE-India crude framework. Stack the directly attributable bilateral flows and you reach roughly 9mb/d settling outside the dollar in 2025. That’s the floor.
The petrodollar doesn’t need every barrel priced in dollars to survive. It needs the marginal barrel to have no alternative. The moment alternatives exist - and work, reliably, at scale - the structural demand for dollars erodes. That erosion is no longer theoretical. It’s one barrel in five, and growing.
Hormuz toll maths
Oil tankers only: 10 VLCCs/day × $2M = $20M/day = $600M/month
Including LNG and other vessels: $800M/month
Annualised: $7.2-9.6 billion/year-roughly the same as Egypt’s Suez Canal.
In mid-March, Iran’s Revolutionary Guard formalised what had been an ad-hoc wartime shake down into something resembling permanent infrastructure - a toll booth. Ships submit cargo manifests and ownership records to the IRGC, get screened for ties to the US or Israel, and if they pass, they pay $2 million for a fully loaded VLCC. They receive a navy escort through a narrow corridor around Larak Island.
Iran’s parliament voted to codify the system into law at the end of March. Here’s the detail: the toll must be paid in Chinese yuan or cryptocurrency. Not dollars. Every ship that pays is a transaction that bypasses the US banking system entirely, cleared through CIPS, settled in yuan, invisible to SWIFT. The toll booth itself is a de-dollarisation mechanism.
The Stage is Set
CIPS - China’s Cross-Border Interbank Payment System - is Beijing’s alternative to SWIFT. Launched in 2015, it clears and settles yuan transactions in real-time. Unlike SWIFT, which is just a messaging network, CIPS does the full job: message, clear, and settle. That makes it a genuine parallel rail for international payments that doesn’t touch the US banking system at any point in the chain.
Look at the volume growth. $3 trillion in 2018. $7 trillion in 2020. $24.5 trillion in 2024. An estimated $28 trillion in 2025. Tripled in five years. Over 1,600 institutions across 112 countries are now connected.
This is why Iran’s Hormuz gambit in March was not a bluff. When Tehran signalled that tankers could pass through the Strait if cargo was settled in yuan, they weren’t making a wish. They were activating infrastructure that already existed. The “Chuxin” mechanism - a covert financial channel designed specifically for yuan-denominated oil payments to Iran - was operational. CIPS was ready. The settlement cleared. 11.7 million barrels moved from Iranian ports to Chinese refineries in the first two weeks of March, every barrel outside the dollar.
And here’s the part that should concern anyone paying attention: it’s not just Iran. The BRICS payment network runs on CIPS. Project mBridge - a multi-central-bank digital currency platform involving China, UAE, Thailand, and Saudi Arabia - has processed $55 billion in transactions, 95% in digital yuan. The UAE’s First Abu Dhabi Bank joined CIPS as a direct participant. Saudi Arabia is a member of mBridge.
The infrastructure for a non-dollar energy market doesn’t need to be built. It’s built. The question now is whether enough volume flows through it to reach a tipping point - the point at which the structural bid for dollars from oil settlement meaningfully begins to decline.
That is my view, the real reason American jets are flying over Tehran.
Not weapons of mass destruction. Not human rights. Not democracy. Not terrorism. Not WMDs. They took our Madoro, The Ayatollah, Gaddafi, Saddam Hussein. What did all of these guys want to do? Trade their vast oil reserves outside of the DXY.
For me, continuing to hold assets in DXY is dangerous. DXY was down 10% Jan 25-Jan 26. Owning US assets therefore has an inbuilt hurdle rate. They must return at least 10% before I am treading water. Add another 2.6% (2025 average) for inflation, and you suddenly need to make 12.6% just to tread water. If you want to make 6% a year, this means your assets need to make 19%. The S&P 500 was up 16% last year. After currency and inflation, a non-US investor in an S&P tracker made roughly 3.4% on the year in real terms. THREE POINT FOUR PERCENT. So there is your American Exceptionalism.
The petrodollar is under threat. And the United States will defend it with everything it has. Like it or hate it, Daddy Dollar is fighting for its life.
Excellent piece. The world order is gradually shifting, as Ray Dalio explains