The War for the Dollar

The Iran war is not a war about nuclear weapons. It is a war for the petrodollar — and for the question of who controls the world economy of the 21st century. Europe is financing it without knowing it.

I. The Misunderstanding

The West sees a war against a nuclear-ambitious rogue state. The justification for the American-Israeli attacks on Iran sounds like 2003 — weapons of mass destruction, regional stability threats, humanitarian intervention in the guise of military necessity. The same language, the same logic, the same function: mobilising public opinion for a war whose real causes no one states aloud.

Michael Hudson — one of the few Western economists who has been analysing the petrodollar architecture for decades — describes the actual question: will oil-producing countries continue to price their oil and gas in dollars and recycle their export revenues into American government bonds? Or does the system end — the system that since 1974 has been the foundation of American world power?

That is the war. Not the bomb.

II. 1974 — The Birth of the Petrodollar

After the oil shock of 1973, Kissinger struck a deal with Saudi Arabia: the Saudis commit to pricing their oil exclusively in dollars and investing their dollar surpluses in American government bonds. In return, the United States provides military protection.

The result was a quiet revolution: every country in the world that wants to buy oil needs dollars. This generates a permanent global demand for the American currency — regardless of whether America itself produces anything of value. The Arab oil states recycle their export revenues into Treasuries and thereby finance American government debt. America prints dollars, buys oil, and the petrodollars flow back as purchases of American securities.

This system has worked for fifty years. It is the invisible infrastructure of American world power — more important than any military base, more important than any defence alliance. Whoever controls it controls the global financial architecture. Whoever attacks it attacks America at its most sensitive point.

III. Iran’s Three Steps

Iran has publicly formulated its strategic objective. It has three stages.

First: the removal of all American military bases from the Middle East. Iran has already largely destroyed radar and air defence systems in Jordan, Qatar, the United Arab Emirates and Bahrain. Any country that continues to give American forces access to its bases will be bombed. The logic is clear: without military presence, there is no enforcement mechanism for the petrodollar system.

Second: decoupling of the Arab monarchies from the American economy. An end to the cloud infrastructure of Amazon, Microsoft and Google — which Iran treats as military targets because they are used for American intelligence operations and regime-change programmes. An end to the close financial entanglements that make Arab economies de facto dependants of Washington.

Third: dedollarisation. The Arab Gulf states hold together approximately two trillion dollars in American government bonds. Iran demands that they liquidate these investments. An Iranian official told CNN: companies that buy American government debt are complicit in this war — and therefore constitute legitimate targets.

The three Iranian demands together would end what has been the invisible foundation of American world power since 1974: control over global oil trade and the forced recycling of export revenues into the dollar.

IV. What Is at Stake

The Strait of Hormuz is closed. Around 500 tankers are stuck. QatarEnergy has halted production following Iranian attacks on its liquefied gas facilities — Qatar is the world’s largest LNG exporter. Storage capacities are saturated; new production that can no longer be transported has been stopped.

The Gulf states are meeting to discuss the possible withdrawal of their two trillion dollars from American investments. This is not an abstract threat. It is the logical consequence of a situation in which the alliance with America costs them more each day: their refinery installations are bombed, their desalination plants are attacked, their LNG exports are stalled. An Emirati billionaire wrote in an open letter to Trump: “These countries have contributed billions for stability and development. They have the right to ask today: what did we pay for?”

If the Gulf states liquidate their dollar investments — even partially — pressure builds on the dollar and on American government bonds that directly affects American financing capacity. America has begun the longest and most expensive military operation in its history — and simultaneously the financial foundation of that operation could be crumbling.

V. Europe as Unwitting Financier

Europe understands the Iran war as an American adventure, which it comments on with regret and whose costs it tries to limit. That is the wrong framing.

Europe is directly involved in financing this war through the PURL programme. $750 million paid in by European NATO states for Ukraine is now being used to replenish American munitions stockpiles depleted in the Iran war. Europe is financing a war it was not asked about — and a war whose actual objective is to maintain the petrodollar system, of which Europe itself is a prisoner.

The petrodollar system does not benefit Europe. It forces Europe to pay for its energy imports in a foreign currency, keeps the dollar structurally strong and the euro structurally weak, and makes Europe dependent on a currency system designed exclusively according to American interests. Europe would be a beneficiary of dedollarisation — but it is currently financing its prevention.

VI. What Comes After

Hudson describes the Iran war as a possible starting point for a structural caesura — comparable to the end of the gold standard in 1971 or the oil shock of 1973. Not because a single decision would change everything, but because the conditions under which the petrodollar system has hitherto functioned are changing simultaneously.

China buys Iranian oil — in yuan. Russia sells gas to Asia — in rubles and yuan. India is negotiating with Saudi Arabia about payments in rupees. These are not revolutionary acts. They are pragmatic responses to a world in which the dollar no longer functions as a guarantee of neutrality, since America began using it as a sanctions instrument.

If Iran achieves its strategic objective even partially — withdrawal of American bases, loosening of petrodollar ties, liquidation of part of Arab dollar investments — a process begins that cannot be reversed. Not because anyone decided it, but because the mathematics of the system then no longer adds up.

The world that comes after is not a better one. It is a different one. One in which several currencies coexist, in which regional trading blocs gain in importance, in which America partially loses its global financing capacity. For Europe this is an opportunity — if it understands what is happening right now. And a catastrophe, if it continues as before: paying, dependent, and misinformed about what this war actually is.

The Iran war is the most expensive attempt to maintain a system that is dying anyway. The only question is who pays the bill. So far the answer is: Europe.