'Hard to unseat the king': Iran's control of Hormuz may not be end of petrodollar

Keeping control of the Strait of Hormuz will be easier for Iran than unseating the dollar's dominance of the global oil trade, despite Tehran’s efforts to dent the greenback’s hegemony, experts say.

Iran’s control of the crucial strait has become the focal point of the war, with US President Donald Trump threatening Iran with total annihilation unless it cedes control of the “Fuckin' Strait”.

Because roughly 20 percent of the world’s energy passes through the Strait of Hormuz, some experts have said that Iran’s control jeopardises the petrodollar system - in which oil is priced and sold in the dollar by Arab energy producers.

Iran has established an elaborate “toll system” to control which vessels it allows to pass through the waterway, like those of Pakistan and China, Middle East Eye previously reported. Its move to price toll payments in Chinese yuan has fuelled speculation that there could be a shift away from oil priced in dollars.

“Iran has a huge interest in trying to break the dollar’s dominance in the oil trade,” Djavad Salehi-Isfahani, an expert on Iran’s economy at Virginia Tech, told MEE. “It has suffered because the US has a veto on bank accounts across the world in dollars.”

However, Saudi Arabia, Kuwait, Iraq, Bahrain, Qatar, and the UAE are unlikely to shift away from the petrodollar, despite the fact that Tehran will continue to exercise control over Hormuz, Steve Hanke, a professor at Johns Hopkins University and an expert on the dollar, told MEE.

The moneylenders

“The Strait of Hormuz was a freeway, and it's going to become a toll road. The Iranians will control it, but king dollar is still king dollar,” Hanke told MEE.

To understand the US dollar’s grip on oil sales, you have to go back to 1974, when US Secretary of State Henry Kissinger cut a deal with Saudi Arabia to price its oil in the greenback and invest the surpluses in American assets - predominantly US Treasury bonds.

That deal had two key impacts: it led to the eurodollar boom of the late 1970s and helped shore up the dollar after its position as the world’s dominant currency was threatened by President Richard Nixon.

'The Strait of Hormuz was a freeway, and it's going to become a toll road. The Iranians will control it'

- Steve Hanke, Johns Hopkins University

Eurodollars are effectively US dollars deposited in foreign, mainly European banks, which are available for global lending. That banking boom has faded from memory, but was famously covered by the journalist Anthony Sampson in his 1981 book, The Money Lenders: Bankers and a World in Turmoil.

Just as consequential, Saudi Arabia’s decision helped the US keep the dollar dominant as it underwent a sweeping devaluation following Nixon’s 1971 decision to end the greenback’s convertibility into gold.

After WWII, the Bretton Woods system was established, pegging all major currencies to the dollar. Underwriting this system was the ability of foreign governments to redeem dollars for gold at a fixed rate of $35 per ounce.

Saudi Arabia’s decision led the way for other Gulf states to adopt the petrodollar. By the mid-1970s, the Gulf was the largest source of new US lending via treasuries.

David M Wight, author of Oil Money: Middle East Petrodollars and the Transformation of US Empire, told MEE that the petrodollar has been “remarkably resilient” over the last half-century.

While it's sometimes framed as the US exploiting the Gulf, Wight said that both sides had an interest in the deal. “It was more wooing and less strong-arming.”

Ties between Saudi Arabia and the US were tested by the 1973 Arab-Israeli war and Arab oil embargo, which the kingdom pursued in support for the Palestinians. This contributed to the inflationary crisis roiling the US after Nixon’s “gold shock”.

“Coming out of 1973, the Saudis and other Arabs were worried the US would take punitive actions against them,” Wight said. “They wanted assurance of US security guarantees.”

The security component of the petrodollar story is one reason many experts have said that Iran’s control of the Strait of Hormuz could upend the system.

Petro-equities

President Trump has vacillated between destroying Iran’s "civilisation" or simply walking away from the war and letting Iran control the Strait of Hormuz. “Go get your own oil!” Trump told US allies last week.

Gulf states still peg their currencies to the US dollar, unlike the euro, which floats freely, and they hold a sizable portion of US debt. By the end of 2025, the Gulf held $315bn in US Treasuries.

'I think there is pressure from the US to keep these transactions in dollars'

- David M Wight, author 

But times have changed since the 1970s.

The US has become more addicted to debt, diluting the Gulf's overall importance, while the Gulf has become a more mature investor.

As Jess Hoversen, a former economist at the CIA now at Column Bank, wrote, Gulf holdings in Treasuries account for just two percent of US deficit spending now, compared to 10 percent during the Reagan administration.

US spending has ballooned, but the bigger shift is the fact that Gulf states have less cash to invest in treasuries. Instead, they are buying assets like US stocks, European football teams, and more recently, investing at home.

Saudi Arabia is running budget deficits as it looks to invest in domestic industries to reduce its reliance on oil. The Saudi kingdom issued $82bn of its own debt in 2025.

“Defining the petrodollar today has changed from decades ago,” Brad Setser, a former US Treasury economist who is now at the Council on Foreign Relations, told MEE. “The Gulf states are borrowers now and not as big buyers of treasuries”.

To be clear, Saudi Arabia still has sizable holdings of US debt, and if it decided to sell, it would hurt the US. In January 2026, its holdings stood at $134bn.

The US's vulnerabilities have been revealed in recent weeks. The Financial Times reported that some central banks have sold treasuries as a result of the US-Israeli war on Iran.

The selling has contributed to surging 10-year US Treasury yields, which have climbed from 3.9 percent before the war to around 4.4 percent. Higher yields make mortgages and other loans more expensive for Americans and increase the cost of borrowing money for the US government. 

The rising yields are unusual, experts say, because countries normally stock up on US Treasuries during times of crisis, as they are viewed as a safe-haven asset. Bond yields rise when prices fall. The latter is a sign of weak demand. 

'Long-term negative for' dollar

But the very fact that US Treasuries are so liquid, meaning they can be bought and sold quickly, helps explain why Gulf states are unlikely to shift away from selling oil in the greenback.

“All these things that the US is doing geopolitically are long-term negative for the king dollar. Sanctions, wars, and tariffs make it easier for challengers to the dollar,” Hanke, at Johns Hopkins University, told MEE.

“But the US is the biggest capital market in the world and the most liquid. That’s why oil will continue to be priced in dollars,” he added.

The dollar’s dominance has been dented. For example, Russia is now selling its oil and gas to China in yuan as a result of sanctions imposed after its 2022 invasion of Ukraine. Iran, which is under crippling US sanctions, also sells to China in yuan.

This bifurcation of the oil market means the dollar and US debt are not receiving the boost they normally would during times of war. The Gulf states are blocked from exporting oil through the Strait of Hormuz and are not reaping the rewards of higher prices. 

“We have a meaningful rise in the price of oil, but Gulf countries are not benefiting from it. So who are the big beneficiaries? One is Russia, which won’t save in dollars,” Setser said.

Despite some analysts downplaying the importance of the petrodollar to the US, Wight, the author of Oil Money, said that the system remains critical enough that the Gulf states would face pressure from the US if they decided to sell their oil, in say, euros or yuan.

“I think there is pressure from the US to keep these transactions in dollars, and thus far, the Gulf states have been happy to go along with it,” he said.

'Challenges at the margins'

Because the dollar is the medium of exchange for the world’s top commodity, it is embedded in global trade, which means countries across the globe have a demand for the dollar. This keeps the dollar’s price high compared to other countries, experts say.

China, which relies on exports, is helped by a weaker currency, as are European exporters and southern European holiday hubs.

Wight said Beijing and Brussels may not want to see the end of the petrodollar.

“There are some advantages to being a reserve currency, but also drawbacks, one of which is that it makes it harder for you to promote your own exports,” he said.

This mix of inertia, conflicting interests, and liquidity could keep the Gulf states using the petrodollar.

“There are these challenges at the margins, but it's hard to unseat the king,” Hanke said.