[News] A Primer on the Petrodollar and the War on Iran

[Anti-Imperialist News]

A Primer on the Petrodollar and the War on Iran: The Sixteenth 
Newsletter (2026)
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A Primer on the Petrodollar and the War on Iran: The Sixteenth 
Newsletter (2026)

The illegal US-Israeli war on Iran is exposing the Oil-Dollar-Wall 
Street complex that binds oil, financial markets, and dollar power, with 
consequences that reach far beyond the region.


Bahman Mohasses (Iran), /Untitled/, 1968.

Dear friends,

Greetings from the desk of Tricontinental: Institute for Social Research 
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As you and I worry about how war and inflation will impact our families 
and nations, bond traders are fixated on the numbers on their screens, 
calculating what might happen to seemingly arcane financial instruments. 
Their job is to protect the treasure of the wealthy. For the past fifty 
years, the relative stability of the US dollar – above all as embodied 
in US Treasury securities – has rested in part on what is called the 
‘petrodollar’ system.

When petroleum prices are relatively stable, the costs of production and 
transport are more predictable, inflation is easier to contain, and the 
prices of bonds and other financial assets are less likely to swing 
wildly. In such conditions, the wealthy can multiply their paper wealth 
with greater confidence. Despite the existence of the Organisation of 
the Petroleum Exporting Countries (OPEC) oil cartel since 1960, the 
United States continues to shape the terms on which much of the world’s 
petroleum is shipped, priced, and paid for through its monopoly on 
violence – by securing key chokepoints and client states with its bases 
and fleets, and by using sanctions to make oil sales involving targeted 
states or firms harder to insure, finance, transport, and settle 
financially. Coups and wars also serve to discipline states that seek 
too much control over their own resources or wish to move outside this 
dollar-centred order.

Inflation – a sustained increase in prices over a period of time – is 
the enemy of financial wealth, as it depreciates the purchasing power of 
financial assets. Since the world economy is dependent on energy derived 
from oil, a rise in oil prices leads to a rise in the price of all other 
commodities and the overall cost of production and transport, lowering 
the value of bonds and other financial assets that depend on low 
inflation. Holders of financial wealth therefore tend to favour policies 
that curb inflation through austerity, restrictive fiscal policy, and by 
keeping the prices of oil – and therefore costs of production, including 
wages – down. The wealthy prefer holding assets that are stable relative 
to the prices of commodities and wages, which is why the US dollar has 
been their currency of preference for holding wealth and denominating 
major debts and contracts. By offshoring production to poorer countries, 
the US has kept wage levels and inflation low at home and maintained the 
purchasing power of the US dollar. Although there have been moments of 
crisis, no other currency has come close to replacing the primacy of the 
US dollar, since no other state combines the military reach, sanctions 
power, alliance networks, and financial depth required to command the 
pricing of key commodities like oil.

Bond traders and their clients are now worried that Iran has already 
shown it can restrict passage through the Strait of Hormuz and thereby 
challenge Washington’s ability to police the movement of the oil that 
transits that chokepoint – more than a fifth of the world’s total. In 
2025, roughly 21 million barrels 
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a day transited the strait at an average price of $69 a barrel 
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totalling around $530 billion per year. The global oil market 
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is priced between $2–3 trillion per year. A significant share of this 
enormous hoard has traditionally been reinvested into US Treasury bonds 
and dollar-based financial assets. If Washington can no longer guarantee 
the terms under which that oil moves and, worse, if more of the proceeds 
are going to be held in non-dollar currencies (such as the Chinese yuan, 
which is the currency of settlement that Iran prefers), this will 
provoke great turbulence in the dollar-denominated bond market which is 
the heart of the global financial system.

Zhao Dewei / 赵德伟 (China), /Night Market/, 2013.

Those of you who are not specialists on the subject may be wondering: 
what exactly is ‘the bond market’? What is a ‘dollar-denominated bond’? 
What is the ‘petrodollar’, or indeed, the ‘petroyuan’? How does this 
entire system work? Financial markets are conceptually simple but 
operationally complex, often appearing opaque because they are laden 
with jargon and because specialised actors seem to be interpreting and 
acting on the basis of abstract expectations and relative prices.

This newsletter is a primer on some of the key concepts needed to 
understand the global financial system in the context of the illegal war 
waged by the United States and Israel against Iran. For the specialist, 
the answers to the questions that follow may be too simplistic while for 
the general reader, some conceptual questions may not be fully answered. 
That is the limit of any primer, so forgive us in advance.

Mohammad Ariyaei (Iran), /Garden of Angels/, 2023.

 1. *What are bonds?* Bonds are a category of debt security – a tradable
    financial instrument. A bond is best understood as a claim (or IOU)
    on a future stream of payments. When a bond is first issued, it is a
    loan made by an investor to a borrower, usually a government or
    corporation. In return, the borrower promises to pay interest at
    regular intervals (called coupons) and to repay the original sum
    (called the principal) at a set future date (called maturity). For
    example, if a government issues a 10-year bond for $1,000 at 4%
    interest, the buyer gives the government $1,000 upfront, receives
    $40 a year in interest, and gets the $1,000 back after ten years. If
    the bondholder does not want to wait until the end, they can sell
    the bond to someone else in a secondary market. Put simply: bonds
    are a form of interest-bearing or fictitious capital: legal claims
    on future profits or tax revenues rather than ownership of
    productive assets themselves. In contrast to bonds, stocks represent
    ownership shares in a company. Shareholders may receive dividends
    (which are not guaranteed), and the value of their shares may rise
    or fall according to the company’s performance, potentially becoming
    worthless. Bonds typically offer lower returns with lower risk than
    stocks, while stocks carry higher risk but greater potential returns.
 2. *What is the bond market?* The bond market is where governments and
    corporations issue and trade bonds. There is no single marketplace,
    since the bond market is decentralised. Most bonds are traded
    directly between banks, institutional investors, and individual
    investors through major financial centres such as New York, London,
    Tokyo, Hong Kong, and Frankfurt. The dollar bond market consists of
    bonds issued in US dollars – mainly US Treasuries and other
    dollar-denominated bonds issued by corporations and by governments
    outside the United States. US Treasuries are bonds issued by the US
    government. They include bills (short-term debt that mature in under
    a year), notes (medium-term debt that mature in two to ten years),
    and bonds (long-term debt that mature in twenty or thirty years).
    Central banks, commercial banks, pension funds, insurers,
    corporations, and other investors hold these bonds because they are
    among the most liquid and widely accepted financial assets in the
    world. A significant share of global dollar surpluses – including
    some oil-export surpluses, which we will get to – has historically
    been recycled into these bonds. This mechanism helps finance the US
    government’s debt (currently at almost
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    $39 trillion) through purchases of US Treasuries while reinforcing
    global demand for the US dollar as the world reserve currency – the
    most universally accepted currency for invoicing trade, settling
    payments, and holding reserves and wealth.

Marcos Grigorian (Iran), /Dizy Abqousht #3/ (Traditional Iranian Meal 
#3), 1979.

 3. *What is the petrodollar system?* As mentioned earlier, the world
    oil market amounts to about $2–3 trillion a year. So, where do the
    profits from all those oil sales go? After the 1973–1974 oil shock,
    and especially through the arrangements Washington built with Saudi
    Arabia and other Gulf monarchies, most global oil trade came to be
    invoiced and settled in dollars. This meant that oil-importing
    countries needed dollars to buy oil, while oil-exporting countries
    accumulated large dollar surpluses. Oil-exporting states, central
    banks, and sovereign funds then reinvested a significant share of
    those surpluses into dollar-denominated assets. This recycling of
    oil revenues into dollar-based financial instruments links energy
    markets to financial markets, sustains demand for dollar-denominated
    bonds, helps keep US borrowing costs lower than they would otherwise
    be, and reinforces the US dollar’s status as the world reserve
    currency. A key part of this process has been the Eurodollar market
    – the offshore market in US dollars, where dollars are deposited and
    lent outside the United States – which helps channel oil surpluses
    into global financial markets. This entire system could be called
    the Oil-Dollar-Wall Street complex.The United States has weaponised
    the petrodollar system to sanction countries that do not cooperate
    with US foreign policy on political grounds. The US Treasury
    Department has restricted targeted countries from accessing
    dollar-based finance, forcing compliance with US-dominated markets.
    Countries that resist, like Iran, have sought alternatives to the
    dollar oil trade; this is why Iran has said that countries that pay
    in Chinese yuan can travel safely through the Strait of Hormuz. The
    Oil-Dollar-Wall Street complex sustains US power (using sanctions)
    even as it pushes countries to pursue diversification, risk
    management, and alternative currency arrangements.

Zahra Zeinali (Iran), /Untitled #5/, 2024.

 4. *If oil profits are no longer held in dollars, would this impact the
    dollar bond market?* If oil revenues are no longer held in
    dollar-denominated assets, global demand for dollar assets –
    especially US Treasury bonds – could decline. This could reduce
    foreign purchases of US Treasuries, raise US borrowing costs,
    depreciate the value of the US dollar, and weaken the dollar’s role
    as world reserve currency. But this would not be a simple or
    immediate process. The overall impact of such a process would depend
    on how quickly, and widely, alternative currencies replace
    dollar-based oil trade. In the short term, there will be disruption
    rather than a smooth transition or an immediate collapse of dollar
    dominance.

Charles Hossein Zenderoudi (Iran), /Zamin Larzeh/ (Earthquake), 1971.

 5. *What is the petroyuan?* The petroyuan refers to oil trade that is
    priced in US dollars and settled in Chinese yuan. It emerged
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    in 2018, when the Shanghai International Energy Exchange launched
    its yuan-dominated crude oil futures market. The petroyuan is
    estimated to be a small share – no more than 5% – of global oil
    trade. Despite the emergence of the petroyuan, it cannot overtake
    the petrodollar because the yuan is not fully convertible. Due to
    Chinese government regulations, the yuan cannot be freely exchanged
    with other currencies at market rates, limiting its use in global
    transactions. US financial markets are more liquid – meaning dollar
    assets can easily be converted into cash – because of the large
    deficit that the US government runs to ensure the flow of dollars to
    the global economy. Entrenched financial systems, geopolitical
    alliances, and global institutions still favour the US dollar,
    making large-scale transition to a yuan-based oil trade slow and
    constrained. While many Belt and Road Initiative countries have
    adopted the yuan in their transactions, the Chinese government is
    primarily interested in using its currency to support domestic
    economic growth and facilitate trade. China is not interested in
    providing a stable and liquid store of wealth for international
    financiers, nor does it desire the deindustrialisation and domestic
    and international polarisation that full currency convertibility
    would entail.

Iran Darroudi (Iran), /Eshgh Khamoush Shodeh/ (Love Has Been Silenced), 
2008.

We hope the above primer has helped explain some of the more arcane 
parts of the present conjuncture. These concepts and processes are 
important to understand because Iran has linked yuan-denominated oil 
trade to safe passage through the Strait of Hormuz as a leverage against 
the United States. By controlling a chokepoint carrying major global oil 
flows, Iran can bypass sanctions, undermine the petrodollar system, and 
strengthen ties with China. While this may not in itself destroy the 
petrodollar system, it inflicts upon the US a significant cost for its 
unwillingness to come to a grand bargain and end an almost fifty-year 
conflict.

Warmly,

Vijay

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