Blog

Like most of America’s wars in West Asia, the current joint U.S.-Israel attack on the Islamic Republic of Iran is about securing control over the region’s energy resources and preserving oil currency policies; practices that have fueled its expansive economy since the end of the Second World War.

Ultimately, this conflict, which has sent shockwaves through the global economy, boils down to who will reign in West Asia, control the world’s energy lifeline, and dictate the rules of global finance.

Beneath the veneer of geopolitical diplomacy and rhetoric about global order, the true catalyst for U.S. wars in the Persian Gulf – from the 1990 invasion of Kuwait to the current Iran war – has always been monetary supremacy, “money.” They have been rooted in oil revenue, debt leverage, and the staggering economic stakes of global energy and currency dominance.

Washington’s hardline stance, economic strangulation and military interventions  have been designed to enforce compliance. Countries, like Iran, that resist U.S. hegemony face severe financial and military pressures, because their defiance challenges America’s regional security architecture and unipolar dominance over the global financial system.

Since the 1970s, the “petrodollar system” has been the invisible engine of American prosperity and power.  However, the economic scaffolding that has buoyed its global hegemony is fraying, as geopolitical shifts and de-dollarization trends gradually erode the U.S. dollar’s absolute grip on global energy markets.

To make sense of how we reached this point, it is important to consider how the U.S. dollar achieved its global dominance and shaped our current economic reality.

In June 1974, the United States and Saudi Arabia signed a landmark economic and military cooperation agreement, establishing what has come to be known as the “petrodollar system.”

This consequential bargain was born in an era of political and economic uncertainty – inflation, Vietnam War and the 1973 Arab oil embargo. With the U.S. economy in a nosedive, then-President Richard Nixon, anxious to maintain the global demand for dollars, persuaded the Saudi government to finance America’s debt with its petroleum wealth.  He convinced them to price their oil exclusively in U.S. dollars and to invest their surplus oil profits in U.S. Treasury bonds.  In exchange, Washington agreed to provide the Saudis with weapons and protection.  By 1975, all Organization of Petroleum Exporting Countries were pricing their oil in dollars.

The Saudi policy of pricing crude exclusively in U.S. dollars compelled all purchasing nations to convert their native currencies before making purchases.  Increased international demand for the dollar made it the world’s singular reserve currency and preferred medium of exchange.  To meet the increased need, Washington simply fired up the printing presses.

Over the years, Washington’s staunch support of the repressive Saudi regime has been driven by a strategic imperative: to ensure that its client state remains committed to the 1974 bargain.

This favorable pricing and trading arrangement has allowed Washington to entail massive deficits, to borrow and spend with abandon without triggering financial collapse. It has financed America’s numerous military adventures and provided the tools to wield economic sanctions and enforce its foreign policy.

Although a web of motives have fueled Washington’s interventions in West Asia, punishing currency dissenters was prominent in its past wars in Iraq and Libya.

Keep reading