April 27, 2026
The petrodollar never existed the way most people think it did. It is the single most repeated myth in finance, and it shapes bad thinking about dollar risk and reserve strategy. The FT recently ran “There’s no such thing as the petrodollar” as the Iran conflict pushed oil prices higher. They were right.
In June 1974, the US and Saudi Arabia signed the US-Saudi Joint Commission on Economic Cooperation. Saudi Arabia would price its oil in dollars and recycle surplus revenues into US Treasuries. Washington offered security guarantees and arms sales in return.
A bilateral arrangement between two states became “the petrodollar system” in popular finance, a sweeping mythology of dollar dominance anchored to oil. The term was coined in 1973 by Egyptian-American economist Ibrahim Oweiss. The 50-year pact expired in June 2024. Saudi Arabia chose not to renew it.
Oil is still quoted in dollars. The kingdom still takes dollars. Nothing broke.
That is the data point. The mechanism most people credit for dollar dominance ended. The dominance did not.
The dollar dominates global finance for reasons that have nothing to do with that deal.
Start with reserves. The dollar accounts for 58% of global foreign exchange reserves as of 2025/26, per the Atlantic Council’s Dollar Dominance Monitor. The euro sits at 20%. The yuan, despite years of BRICS rhetoric, is at 2.2% (IMF COFER). That figure has barely moved in a decade.
Trade invoicing tells the same story. Around 50% of global trade is invoiced in dollars. The US accounts for roughly 10 to 15% of global trade by volume. That gap is not explained by oil. It is explained by network effects: counterparties invoice in dollars because their counterparties do, because commodity contracts are in dollars, because dollar credit is universally available.
The BIS reports 88% of all FX transactions involve USD on one side. SWIFT data puts the dollar at around 42% of international payments by value.
The counter-examples are real but marginal. China-Russia bilateral trade settled in yuan hit roughly 90% in 2024. China has signed yuan-denominated LNG contracts with Gulf producers. The BIS mBridge project is processing cross-border transactions in local currencies. But the 2023 Johannesburg BRICS Summit produced no common currency. mBridge volume is a rounding error against dollar-settled global trade. And the yuan runs into one hard structural constraint: China’s capital account is closed. You cannot hold a reserve currency you cannot freely convert.
The real pillars have nothing to do with oil pricing.
Treasury market depth. The US Treasury market is the only truly liquid, large-scale safe-haven asset on the planet. Over $25 trillion in outstanding securities. When risk events hit, capital flows into Treasuries because there is nowhere else to put it at scale.
Network effects. The dollar is the settlement currency for trade, commodities, and capital flows because everyone else uses it. Breaking that cycle requires coordinated action across thousands of banks, counterparties, and regulators simultaneously. That is not happening.
Capital account openness. The US allows capital to move freely. China does not. The yuan cannot become a serious reserve currency until Beijing relaxes controls it has strong domestic reasons to keep.
Fed credibility. In 2008 the Fed opened dollar swap lines to 14 central banks to prevent a global dollar shortage from freezing trade finance. In 2020 it did it again, faster. No other central bank can backstop global dollar liquidity at that scale.
Sanctions infrastructure. Dollar-denominated transactions clear in New York, under US law, through correspondent banking networks. This is why secondary sanctions work. Iran, Russia, and Venezuela, despite years of trying to escape it, still need dollars for third-party trade. The leverage is in the clearing rails. Not in oil.
The myth dying matters for how you read geopolitical risk. If you think the petrodollar is the primary mechanism of dollar dominance, Saudi Arabia’s ties with China or OPEC’s production decisions look existential. They are not.
We think the dollar’s reserve share will keep declining gradually. It has fallen from 71% in 2001 to 58% today, 13 percentage points over 25 years. That pace will likely continue. It is not a crisis.
The actual threat is US fiscal credibility. Debt-to-GDP has crossed 120%. The structural deficit is running above 6% of GDP. If markets begin pricing fiscal sustainability risk into Treasuries at scale, the entire architecture weakens: safe-haven status, reserve demand, the network effect that depends on Treasury liquidity. That is the threat worth watching.
Not Saudi Arabia. Not BRICS summits. Not yuan LNG contracts.
Stop letting the petrodollar myth drive your dollar positioning. The real risks are US fiscal policy and the long-run sustainability of the Treasury market. Watch the 10-year yield, the CBO’s deficit forecasts, and Fed credibility.
Position around the real mechanics. Not the myth.
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