America’s War for International Dollar Supremacy Backfires

Kian Nolan-landwehr

There’s a political cartoon from 1975 that has recently resurfaced and popped up across multiple social media platforms. A shadow of an American bomber looms over a field dotted with craters. Two farmers look up at the sky and say, “They’re having problems with their economy again”.

The United States initiated this war against Iran without a serious public debate about its economics nor extensive foresight on the consequences. The justifications of war were familiar. Inconsistent claims of Iranian weapons of mass destruction, which supposedly had been obliterated months before, national security, and pre-emptive “defensive” strikes were given with little supporting evidence. The condition of the US economy and what the war would do to it, seemed to be given little consideration in comparison to the inconsistent goals of US military action in Iran.

Recent revised economic data for 2025 painted an unsatisfactory picture of the economy the administration took to war. GDP grew modestly by 2.2% in 2025, masking a deteriorating final quarter in which annualized growth fell to just 1.4%. The labor market issued a stronger warning signal as 2025 experienced virtually no job growth with only 181,000 jobs for the entire year, the weakest since the pandemic in 2020. 

But curiously, stock markets boomed, and consumer spending remained relatively high, giving the economy a falsely positive surface. The economy could be described as a K-shaped economy, where the wealthy, who own assets, were doing well and propping up aggregate spending, but middle and lower-income households struggled with rising costs. It was with these problems in mind that the administration went to war. War, which has historically offered a convenient distraction from real problems at home.

Central to understanding this conflict is a financial system that could be a significant reason for American intervention. Since 1974, oil has been priced and traded in U.S. dollars around the world. This system creates permanent international demand for US dollars, as oil exporters recycle those petrodollar revenues into US assets. These foreign purchases of US assets essentially underwrite the Treasury’s ability to borrow cheaply and projects financial power that the domestic economy couldn’t support on its own. The Gulf oil producers, which are huge participants in the petrodollar system, were not coerced into this system but agreed to price oil in dollars with a guarantee of US military protection in the Gulf. For fifty years, it’s been a mutually beneficial arrangement, with subsequent explosive growth and prosperity in the Gulf nations.

A historical pattern emerges when looking at US military interventions, not a universal rule, but a few too many coincidences which suggest the persistence of a pattern. In 2000, Iraq’s oil sales under Saddam Hussein switched to Euros and three years later was invaded by US forces prompting a swift reversal back to dollar denominated oil. In 2011 shortly after Muammar Gaddafi proposed a gold backed African dinar for oil trade, NATO removed Gaddafi from power. More recently, Nicolas Maduro explicitly pursued yuan denominated oil deals and strengthened security ties with China and Russia. He was captured earlier this year. Correlation is not causation, but perhaps the petrodollar story played a part in all these interventions.

Iran’s situation is slightly more nuanced. By 2025, Iran was already operating primarily outside of the dollar-based oil system, forced outside by decades of sanctions. Iran already sells about 90% of its oil to China, which is paid in yuan or exchange deals. Iran wasn’t threatening to leave the petrodollar system, it had already proved it could survive without it. The real threat from Iran was not a new departure from the petrodollar system, but the proof of concept it has demonstrated. Tehran showed other oil producers that it was possible to export oil, finance imports, and sustain operations, all outside of US financial infrastructure. Each country that learns this becomes harder to sanction, harder to pressure, and harder to bring into an American dominated world order.

However, rather than introducing a remedy for this issue, the war has amplified Tehran’s threat to the petrodollar system. Iran has used the Strait of Hormuz as a chokepoint for the global economy, where a fifth of the world’s oil supply passes through, with terms of passage being set in Chinese yuan. Chinese vessels have since transited openly, India has secured exceptions, and Iran is in negotiations with several non-Western nations over passage rights.

The US has been unable to deploy protective convoys for stranded tankers in the Strait. Such action would be highly militarily costly and risky for US servicemembers, likely leaving diplomatic solutions as the only way back to normal shipping volumes. In striking irony, Iran has taken control over the terms on which a fifth of global oil supply reaches the market, terms which are increasingly not denominated in dollars, nor given lightly to US allies.

The US spent 11.3 billion dollars on the first 6 days of the war with Iran and is sustaining costs of roughly a billion dollars a day. Oil price shocks are feeding inflation, with fuel prices up to their highest since 2022. As one of the world's most important commodities, oil flows through nearly every supply chain, squeezing the same consumers who were already facing rising costs and stagnating wages. The US went to war to defend its global financial grip but it is straining its own finances and giving the rest of the world a roadmap for de-dollarization.

It’s no question that the US has strategic interests in Middle Eastern stability. The petrodollar system has been partly responsible for sustained American prosperity for over half a century and is a system worth defending. However, those who direct their citizens to war should make clear the reasons for doing so. If they believe that military intervention is necessary to maintain a global petrodollar system, then they should make the case openly and accept public judgement. Justifications for war should not be made lightly, nor inconsistently, nor without evidence. The farmers in the cartoon recognized the real pattern of American intervention. A democracy should be able to do the same and hold the commanders of war responsible.