Trump, Venezuela, Iran and the rise and rise, and ultimate fall, of the Petrodollar

 

It's been a busy year for Donald Trump and his Secretary for War, Pete Hegseth. Three days into January, and before many people in civilian life had actually returned to work after the annual Christmas and New Year holidays, the United States launched its military intervention in Venezuela. Among the principal reasons for the initiation of "Operation Absolute Resolve" was the apprehension of Nicolás Maduro, and his wife, Cilia Flores, in connection with their supposed role in a web of international conspiracy and intrigue related to narcoterrorism. The end result of this supposedly "punitive" expedition, however, had little or nothing to do with either drugs or terrorism. It was in fact firmly rooted in the fossil fuel economy, that Trump and his political sponsors have been trying to revive and retain, ever since his first election to Presidential office back in 2016.

In a series of statements and press conferences, immediately after the success of the military operation had been announced to the world's media, Trump, and various other key figures from within his now somewhat beleaguered administration, made it abundantly clear that direct access to Venezuelan oil was likewise a key motivation behind  the military action. Soon after, Trump gleefully announced a whopping 50-million-barrel oil supply deal, which had been brokered between the United States and surviving elements within the incumbent Venezuelan administration; who had escaped the purge to which Maduro and Flores had so recently been subjected. Although the United States has an extremely long track record of interference, intervention and regime change in Central and South America, the events that took place on the third of January of this year actually have their roots in a saga that began more than fifty years ago, thousands of miles away, amidst the desert sands of the Middle East.

In 1971, President Richard Nixon took the decision to cancel the fixed-rate convertibility of US dollars to gold. Then, after a series of meetings with the Saudi royal family, most notably King Faisal bin Abdulaziz Al Saud, the Saudis agreed that they would price their oil  purely in US dollars; to the exclusion of all other currencies. As a result of this, since the signing of the 1971 agreement and the 1973 agreement that succeeded it, the price of all oil directly marketed by OPEC affiliated countries is generally quoted in US dollars. And, in return for what amounts to the US dollar having become, up until now, the preferred reserve currency for the major oil producing nations, the US was to provide, and has continued to provide, military protection for that Saudi Arabian Oil fields. Or at least, that is what has been happening right up until the most recent political and strategic developments in the Middle East, which have effectively undermined the stability of the Gulf States for the foreseeable future.  

In the immediate run up to the US-Israeli attack on Iran on 28th February 2026, the petrodollar had been experiencing a series of short-term surges due to heightened geopolitical tensions, as the US Navy and Coastguard took to the High Seas in pursuit of the Venezuelan Shadow Fleet in an endeavour to cut off the supply of South American oil to Cuba. With the initiation of Operation Epic Fury, the US currency has remained dominant, driven by higher oil prices, which in turn provide a further boost to the US economy through its role as a net-exporter of much needed oil. With the distinct possibility that the US might pull out of the Gulf, leaving the strategic Straights of Hormuz firmly in the control of the Iranian Revolutionary Guards Corps,  however, US economic dominance in the oil rich Middle East may suddenly become a thing of the past, finally giving way to the long-term pressures that have manifested since the rise of the BRICS Bloc of trading nations and the decision of most European countries to initiate their own broad based energy transition, away from fossil fuels and towards a more broad based and greener economy.

One highly significant factor, in relation to ultimate BRICS dominance, is what happens to all the Iraqi oil, now that the Straights of Hormuz are effectively closed to Israel, the US, and their various allies across the region; including and especially the Gulf States. Following the 2003 Invasion of Iraq by a combined US and British task force, the United States effectively took control of Iraq's oil reserves. Indeed, on 22 May 2003 President George W. Bush signed Executive Order 13303 (EO13303), which was to result in all revenues from Iraq’s national and international oil sales being funnelled directly into an account at the Federal Reserve Bank of New York. This account effectively provides the principal financial source for the Development Fund for Iraq, or DFI, set up by President Bush to effectively control Iraq's entire economic base. Indeed, according to Reuters, this cash accounts for some 90% of the overall state budget. A fact which is of huge international significance in the light of recent developments in the Gulf. 

Up until the recent outbreak of hostilities between Iran and the US-Israeli Coalition, the bulk of Iraqi oil exports were made via the country's southern terminals in the Persian Gulf. These amounted to approximately 93% of exports according to Reuters. Since the initiation of Operation Epic Fury, however, and the successful Iranian blockade of the Strait of Hormuz, Iraq has been forced to curtail its exports from its terminals around Basra in the south, and open up its northern pipeline to the Turkish port of Ceyhan. One of the fundamental reasons for this is Washington's consistent policy of delay and reduction of DFI fund transfers. These take place whenever the bureaucracy within the US State Department seeks to make Iraq more compliant with its own policy agenda and regional goals. In the wake of a vote by the Iraqi Parliament to expel US troops, following the assassination of Iranian Quds Force General Qasem Soleimani and the Iranian backed Iraqi Popular Mobilization Units (PMU) Deputy Commander Abu Mahdi al-Muhandis, back in 2020, the previous Trump administration threatened to cut off DFI funding altogether.

More recently, in July 2025, the Iraqi Central Bank was forced to curtail all foreign transactions in Chinese Yuan, direct pressure from the US Federal Reserve caused the immediate reversal of this recently implemented policy. The shutdown followed a brief period during which Baghdad had allowed merchants to trade in Yuan, primarily as a means of bypassing excessive US restrictions on Iraq’s access to US dollars, and its some would say excessive attempts to control the Iraqi economy. Interestingly enough, United States Security Council Resolution 1483 specifically directed that the DFI should “be held by the Central Bank of Iraq.” A stipulation unilaterally countermanded by what was then the Coalition Provisional Authority for Iraq, led by Paul Bremer, which decided unilaterally to hold the DFI account at the Federal Reserve Bank of New York.

According to a recently published article, that appeared in Fortune magazine a week or so ago, "Iran is already charging a toll, in Yuan, for oil sold through the Strait of Hormuz as American ground troops prepare to enter". In view of the fact that the vast majority of Iranian oil exports find their way to China, which purchases in excess of 80 percent of its seaborne exports, it is easy to see how, if the Trump administration decides to pull American troops out of the region over the course of the next few months, Iraq's oil may soon start to trickle out of the Straights of Hormuz and in the general direction of China. A fact which is likely to see the global dominance of the Petrodollar brought to an end once and for all, after a period of over fifty years. As to whether or not this will actually happen though, at present, remains to be seen.