The US attack on Iran has once again triggered a wave of discussions regarding the decline of the dollar. Iran blocked the Strait of Hormuz and began levying a toll on tankers - payable in Chinese yuan and stablecoins. In private negotiations with the US Treasury, the UAE warned that they might switch oil settlements to the yuan. This sounds like a financial apocalypse for the dollar. However, as is often the case, the truth is much more complex.
October 1973. Egypt and Syria attack Israel on Yom Kippur - the Day of Atonement. The US urgently airlifts weapons to the Israeli army. In response, Arab members of OPEC declare an oil embargo against Washington and its allies. Within months, the price per barrel skyrockets from 3 to 12 dollars - a 300% increase. In the US, gas station lines form, industry is in turmoil, and confidence in the postwar financial architecture - already undermined by Nixon closing the "gold window" in August 1971 - falls to zero. It is at this point of maximum vulnerability for American power that a system is born which would define the structure of global finance for the next half-century.
In June 1974, Secretary of State Henry Kissinger arrives in Riyadh. On the other side of the table are Crown Prince Fahd and Finance Minister Abdulaziz Al-Qasimi, acting on behalf of King Faisal. Specific details of the agreement remain partially classified to this day - Bloomberg only revealed a series of documents in 2016, more than forty years after the signing - but its architecture is well-known. Saudi Arabia commits to selling oil exclusively for US dollars and reinvesting oil revenues ("petrodollars") into US Treasury bonds. In exchange, Washington guarantees the kingdom military protection, arms supplies, and political cover. In September of that same year, similar agreements are finalized with the remaining members of OPEC. The petrodollar system becomes the foundation of what economists would later call the "exorbitant privilege" of the American currency.
The mechanism functioned with mathematical elegance. Any country wishing to buy oil - and everyone needs oil - must first acquire dollars. This creates a constant, structural, never-ending demand for the American currency worldwide. The United States gains the ability to finance budget and trade deficits simply by printing money that the entire world is obliged to accept, because without it, purchasing energy is impossible. This is neither a metaphor nor a conspiracy theory - it is basic macroeconomics. The Fed issues dollars, they go abroad in exchange for oil, then they return to US Treasuries - and the circle closes. This is why the US has maintained a trade deficit for decades that would have bankrupted any other country: in 2024, it amounted to approximately 918 billion dollars, yet the dollar remains the world's reserve currency.
Fifty years later, the figures speak for themselves. According to estimates by the Bank for International Settlements and several independent think tanks, the dollar's share of global trade in oil and petroleum products holds steady at 80–85% and has remained virtually unchanged since the mid-1970s. This persists despite the fact that during this period, the global economy survived the collapse of the USSR, the creation of the Eurozone, the rise of China to the status of the world’s second-largest economy, several global financial crises, and relentless attempts by alternative powers to rewrite the rules of the game. None of these attempts have achieved any significant success in oil trade.
The picture regarding reserves is slightly more nuanced but generally confirms the same logic. According to IMF data for the third quarter of 2025, the dollar's share of official global reserves stood at 56.92%. This is notably lower than the peak of 71.19% recorded in 1999, when the Euro had just been born and had not yet taken its place. The Euro now controls 20.33% of reserves, the Japanese yen 5.82%, the British pound about 4.7%, and the Swiss franc around 2.7%. Meanwhile, the yuan, despite Beijing's colossal political and diplomatic efforts, accounts for only 1.93% - and this figure, included in the IMF basket back in 2016, has effectively stagnated over the past few years. Furthermore, the total volume of global reserves by that same period grew to a record 13 trillion dollars, meaning the absolute volume of dollar reserves in the world is immense even with a decreased relative share.
A crucial caveat is necessary here, without which the interpretation of the data would be incorrect. A significant portion of the nominal decline in the dollar’s share of reserves is a statistical artifact caused by exchange rate dynamics, rather than a real shift by central banks into other currencies. The DXY Index, reflecting the dollar's value against a basket of six leading currencies, fell by more than 10% in the first half of 2025 - the largest semi-annual drop since 1973, the birth of the petrodollar system itself. The distortion mechanism is simple: when the Euro appreciates against the dollar, the value of European reserves in dollar terms automatically increases, and the dollar's share of the total pie falls - even if not a single central bank sold a single dollar or bought a single Euro. The IMF performs special calculations adjusted for exchange rate fluctuations, and they provide a radically different picture: in that same third quarter of 2025, the adjusted decrease in the dollar's share was only 0.12 percentage points. This is not a collapse of reserve status - it is statistical noise.
Attempts to undermine the petrodollar system have been made repeatedly, consistently, and with increasing intensity; however, the results have remained invariably modest. Russia, accelerating after 2014 and sharply after 2022, shifted a significant portion of its trade with China, India, and other partners into rubles and yuan. Iran, due to sanctions, has been forced to seek alternative settlement mechanisms since the 1990s. Venezuela, under Maduro, attempts to move away from the dollar in oil settlements. China launched yuan-denominated oil futures on the Shanghai International Energy Exchange in 2018 - the so-called "petroyuan" - and allowed them to be converted into gold, creating a tool many analysts called a threat to dollar hegemony. Nevertheless, by 2025, Shanghai yuan futures account for only about 8–10% of the trading volume of London's ICE and America's NYMEX. The yuan has failed to become a significant oil currency on a global scale.
The reasons for the system's resilience are rooted not in politics or US military might - though both play a role - but in structural economics. First is liquidity. The US government bond market is the largest and most liquid in the world, with a volume exceeding 27 trillion dollars. No other instrument allows a central bank to instantly deploy or withdraw tens of billions without significant price movement. Second is the network effect. Since most market participants already conduct settlements in dollars, it is rational for every new participant to do the same - the costs of switching to an alternative currency fall on the one who moves first. Third is the lack of a real alternative. The Euro is backed by a politically fragmented Eurozone that lacks unified bonds in sufficient volume. The yuan is a non-convertible currency with capital controls; Beijing deliberately does not open its capital account for fear of volatility, but this is precisely what makes the yuan unsuitable as a reserve currency in the full sense of the word.
This does not mean the system is invulnerable. It has genuine, rather than imagined, vulnerabilities. The use of the dollar as a weapon of sanctions - the freezing of Russian reserves amounting to approximately 300 billion dollars in 2022 was an unprecedented event - has forced many central banks to consider diversification. According to the World Gold Council, central banks in 2022–2024 purchased gold at record rates: more than 1,000 tons annually, with the largest buyers being China, India, Turkey, and several Middle Eastern countries. This is real reserve diversification - but into gold, not alternative currencies. Geopolitical fragmentation, which the IMF describes as "geoeconomic fragmentation," creates parallel financial chains that gradually reduce the share of dollar settlements in specific bilateral trade flows.
However, there is a chasm between weakening and collapse. The system created by Kissinger and Faisal in 1974 survived the oil shock of 1979, the developing world debt crisis of the 1980s, the Asian crisis of 1997, the dot-com crash, the 2008 mortgage crisis, and the 2020 pandemic. Paradoxically, each of these crises strengthened the dollar: in moments of maximum uncertainty, capital from all over the world flees to US Treasuries - the "flight to quality" that economists observe again and once more. The petrodollar is not merely a political agreement. It is a self-sustaining system with built-in incentives for all its participants to continue playing by the established rules. And that is precisely why, fifty years after the handshake in Riyadh, 80–85% of world oil is still traded for dollars.
The Dollar Fell All Year - Then Trump Struck Iran
Over 2025, the US dollar lost about 8% of its value. At the beginning of 2026, the decline continued. The world began talking about a "Sell America" strategy - an unprecedented flight of capital from American assets amid a trade war with the rest of the world, attacks on allies, and Washington's readiness to use financial power as a political weapon.
But as soon as the bombing of Iran began, the picture changed instantly. The dollar broke its fall and rose by approximately 2%. The reason is simple and has been constant for decades: at the moment of any geopolitical crisis, investors worldwide exit risky assets and move into dollar-denominated ones - as they are the most liquid and the most reliable. The influx of foreign money into American stocks and bonds during this period turned out to be a record for the last 25 years.
The Strait of Hormuz Held Hostage: 20% of Global Oil at Risk
The Strait of Hormuz, measuring just 33 kilometers at its narrowest point, is far more than a geographical landmark on the Persian Gulf map. It is the bottleneck through which a significant portion of global energy flows - and with it, the entire architecture of the global financial order established by the United States after 1973. Approximately 21 million barrels of oil and petroleum products pass through the strait daily; according to US Energy Information Administration (EIA) data for 2023–2024, this represents about 20–21% of global consumption and nearly 25% of all seaborne oil trade. By comparison, the Suez Canal handles about 12% of global oil transit, and the Strait of Malacca roughly 16%. No other maritime corridor concentrates such a critical energy burden. This is precisely why any change in the rules of the game in this region - be it military escalation, the introduction of new payment mechanisms, or a shift in settlement currencies - reverberates immediately throughout the global financial system.
Iranian threats to close the Strait of Hormuz are not new; they have sounded with the regularity of a metronome since the early 1980s. During the first "Tanker War" of 1984–1988, Iran attacked over 200 vessels, causing insurance premiums for tankers to skyrocket and global oil prices to react with volatile spikes. After 2018, when the Trump administration restored sanctions pressure, the threats became more concrete: Iranian military forces conducted provocative exercises in the strait, seized tankers (well-documented incidents include the British tanker Stena Impero in 2019 and several other vessels in 2021–2023), and deployed mines. Now, however, the situation has qualitatively shifted: it is no longer merely military blackmail, but the integration of new financial instruments into regional transport logistics. Reports that Iran is levying tolls on certain tankers in yuan and stablecoins - essentially creating a parallel transit fee - mark the first institutional introduction of alternative currencies into settlements for Hormuz traffic. This is a precedent whose significance is difficult to overstate.
To understand why signals from the UAE produced such an effect on the US Treasury, one must return to the fundamental mechanics of the petrodollar system. After Nixon dismantled the Bretton Woods Agreement in 1971 by decoupling the dollar from gold, Washington faced the task of securing a new source of demand for the American currency. The 1973–1974 agreements with Saudi Arabia, commonly referred to as the "petrodollar pact," solved this problem elegantly: oil is sold exclusively in dollars, and the resulting proceeds return to the American financial system through the purchase of Treasury bonds and investments in US assets - a process known as "petrodollar recycling." According to the IMF and various academic studies (notably the work of Gourinchas & Rey published in the NBER), this system allowed the US to finance a chronic current account deficit on terms unavailable to any other nation: on average, the US Treasury attracted financing roughly 50–100 basis points cheaper than would have been possible without the dollar’s status as a reserve currency. By various estimates, "petrodollar rent" provided the American economy with an annual benefit ranging from 100 to 700 billion dollars, depending on calculation methodology and market conditions.
The figure of 80 million dollars in daily "leakage" from the petrodollar recycling system regarding the UAE requires clarification. The UAE exports approximately 2.5–2.7 million barrels of oil and petroleum products per day. About 35% of this flow, roughly 875,000–950,000 barrels per day, goes to China, according to Kpler and S&P Global Commodity Insights data for 2024–2025. At an average price for Murban crude (the Emirati benchmark) of 80–85 dollars per barrel, the daily value of the Chinese direction is approximately 70–80 million dollars. If these transactions shift to the yuan, the corresponding volume of dollars ceases to be generated, meaning it no longer seeks employment in US government bonds. On a daily scale, this sounds modest. But on an annual scale, it totals about 25–30 billion dollars that do not enter the US debt market. And this is only the UAE. If similar logic were applied to Saudi Arabia, which exports 1.7–1.8 million barrels per day to China, or Iraq with its 1.2–1.4 million barrels to China, the figures increase by an order of magnitude.
Infrastructural readiness for such a transition is perhaps the most underestimated aspect of the entire discussion. It is often assumed that the de-dollarization of oil settlements is, at best, a distant prospect hindered by the lack of alternative clearing infrastructure. However, facts suggest otherwise. The mBridge platform (Multiple CBDC Bridge), developed under the coordinating role of the Bank for International Settlements (BIS) alongside the central banks of China, Hong Kong, Thailand, and the UAE, has passed its pilot phase and moved to the "Minimum Viable Product" (MVP) stage in 2024. According to the BIS itself, pilot transactions in 2022 saw about 22 million dollars in test settlements pass through the platform. While the amount is symbolic, the principle is critical: a mechanism for direct settlements between central bank digital currencies without using the dollar correspondence network was successfully verified. In 2024, the BIS announced its exit from the project as a coordinator, yet participant countries declared their intention to continue developing the platform independently - a telling signal in itself.
In parallel, China's CIPS (Cross-Border Interbank Payment System) - the yuan-based alternative to SWIFT launched in 2015 - is expanding. According to the system's own data, by the end of 2024, CIPS had more than 1,400 direct and indirect participants from over 100 countries. Transaction volume grew from 34.4 trillion yuan in 2020 to over 100 trillion yuan (about 14 trillion dollars) in 2023 - a nearly threefold increase in three years. While this remains incomparable to SWIFT, which processes approximately 5 trillion dollars in interbank messages daily, the growth rate of CIPS is fundamentally important: the system has proven its ability to scale. The presence of major Chinese state-owned banks - ICBC, Bank of China, China Construction Bank - in Abu Dhabi provides the necessary operational infrastructure on the ground: correspondent accounts, legal support, and documentary letters of credit in yuan.
The context of the "petroyuan futures" is equally significant. In March 2018, the Shanghai International Energy Exchange (INE) launched trading in yuan-denominated oil futures - the first time a major oil exchange offered contracts in a currency other than the dollar. By 2023–2024, average daily trading volume on the INE reached 300,000–400,000 contracts, making it the third-largest oil exchange in the world after NYMEX and ICE. Russian oil supplied to China after 2022 is paid for predominantly in yuan and rubles: according to the Bank of Russia and Chinese customs, the yuan's share in Russia-China trade settlements exceeded 90% by the end of 2023. Iran, under years of sanctions, has long developed parallel settlement schemes; its experience serves as a laboratory for testing mechanisms that Gulf nations are now studying with interest.
The central question is how real the threat is and how quickly a hypothetical shift might materialize. Arguments for a gradual and partial transition are compelling: the yuan remains a non-convertible currency in the full sense, China strictly controls capital movement, and Gulf nations hold a significant portion of their sovereign reserves in dollar assets - the UAE, according to IMF data, keeps about 60–65% of its reserves in dollars. A reversal would mean the devaluation of their own assets. Furthermore, the American military "umbrella" over the region - with the US Fifth Fleet based in Bahrain and a key logistics hub in the UAE - remains a powerful argument. Nevertheless, signals from Abu Dhabi should not be dismissed as a bluff. This is the language of negotiation: Gulf nations are marking red lines and the price of their loyalty. In an environment where 2025 American trade policy has created unprecedented uncertainty and dollar liquidity in global markets faces periodic stress, Washington's room for maneuver is narrowing.
The structural transformation currently unfolding is not a single "explosion," but a gradual accumulation of a critical mass of alternative agreements. According to the IMF, the dollar's share of global currency reserves declined from about 71% in 1999 to approximately 58% in 2023 - a 13-percentage-point drop in a quarter-century, with a significant portion of this decline occurring in the last five years. Conversely, the yuan's share in global reserves grew from zero in 2015 to about 2.3% in 2023; a modest figure, but the vector of movement is telling. The Strait of Hormuz, mBridge, CIPS, yuan futures on the INE, Russia-China settlements, and the Iranian parallel transit fee - these are not isolated events, but elements of a single system slowly but consistently forming an alternative financial skeleton for global energy trade. How strong this skeleton becomes and when it reaches critical mass is the question upon which the shape of the global economy for the coming decades depends.
The Petroyuan: Breakthrough or Hype Bubble?
The idea of the petroyuan is not new. China launched yuan-denominated oil futures on the Shanghai International Energy Exchange (INE) in March 2018. Since then, Russia, Iran, Venezuela, Saudi Arabia, and the UAE have connected to the system. In October 2023, PetroChina International paid in digital yuan for 1 million barrels of oil for the first time. China and Saudi Arabia concluded a 7-billion-dollar currency swap agreement, allowing direct settlements between the yuan and the Saudi riyal.
However, the real numbers are sobering. As of mid-2025, the yuan's share of global oil settlements remains below 5%. The dollar still services 80–90% of global oil trade. Even in settlements between Russia and China, where the yuan is currently most active, its share in 2025 amounted to about 19 billion dollars - against a total bilateral trade turnover of 125 billion.
The fundamental problem with the yuan is its non-convertibility. China strictly controls capital movement: receiving yuan for oil is one thing, but freely investing it wherever one chooses is quite another. This is why Persian Gulf oil monarchies, while selling oil for yuan, often convert the proceeds into gold through the Shanghai Gold Exchange (SGEI). Saudi Arabia reportedly does this on a periodic basis to hedge against restrictions in the Chinese capital market.
For comparison: the dollar's share in global currency transactions is 89% (BIS data, April 2025); about 70% of the world’s foreign-currency-denominated debt is issued in dollars; and the dollar's share in cross-border liabilities is 48%. Replacing such an infrastructure over years or even decades is a task comparable to shifting international communication from English to Chinese.
Why the Petrodollar Is No Longer About Oil
The core misconception in the petrodollar debate is the very link "oil = dollar." In practice, physical oil deliveries constitute only a small fraction of the global oil market. The vast majority of transactions involve trading financial derivatives: futures, options, and swaps. This trading occurs primarily on American and British exchanges and is denominated in dollars. Even if the entire Persian Gulf were to switch to the yuan for physical deliveries tomorrow, the bulk of the market volume would remain dollar-based.
Furthermore, the petrodollar itself has long lost its primary significance in maintaining the American currency's position. The total current account surplus of the oil and gas exporting countries of the Persian Gulf, plus Norway, amounted to about 200 billion dollars in 2024. This is negligible compared to the 1.5 trillion dollar aggregate surplus of China and other Southeast Asian nations.
In 2025, China's trade surplus reached a record 1.189 trillion dollars - comparable to the GDP of a major oil power. It is the Asian exporters of goods - not the Arab exporters of oil - who have become the primary buyers of dollar assets over the last 20–30 years. South Korea, Japan, Taiwan, Singapore, and China all hold foreign exchange reserves and conduct interventions in dollars because the very mechanism for maintaining the competitiveness of their economies is tied to the dollar exchange rate.
The US: The Largest Oil Producer in Human History
There is another factor that has radically altered the balance of power. America no longer purchases Middle Eastern oil in significant volumes. Thanks to the shale revolution, the United States has transformed into the largest oil producer in world history.
According to EIA (US Energy Information Administration) data for 2025, American production reached 13.58 million barrels per day - compared to 9.51 million for Saudi Arabia and 9.87 million for Russia. Together, these three countries accounted for 39% of global oil production. The US produced nearly as much oil as Canada, Iraq, and China combined.
This means that an energy crisis caused by a blockade of the Strait of Hormuz hits Europe, Asia, and the Persian Gulf countries themselves incomparably harder than it hits America. The US is structurally insulated from it - which is exactly why, in moments of crisis, money from around the world flows into dollar assets, not away from them.
Gold Instead of the Dollar? Central Banks Vote with Their Wallets
Parallel to the petroyuan discussions, another trend is unfolding - hidden, yet more substantial. Central banks of developing countries are buying gold en masse. According to J.P. Morgan, gold's share of official global reserves has roughly doubled over the last decade: from 4% to 9% for emerging markets, and up to 20% for developed ones. The main buyers are China, Russia, Turkey, and India. Gold prices, according to forecasts from several analysts, are moving toward the 4,000 dollars per ounce mark by mid-2026.
This is not a replacement for the dollar - it is insurance. Countries fearing sanctions or devaluation are diversifying their reserves into a neutral asset that depends neither on Washington nor on Beijing.
The Main Paradox: Enemies of the Dollar Keep Their Money in Dollars
The most telling fact about the dollar's strength is the behavior of its opponents. The countries calling most loudly for de-dollarization are, in practice, fighting not against the dollar, but for the removal of sanctions and a return to the dollar system. Iran, Russia, and Venezuela all suffer primarily because they are cut off from dollar settlements, not because they participate in them.
According to data from the Federal Reserve Bank of St. Louis, about three-quarters of foreign government investment in American securities belongs to countries with military or allied ties to the US. Geopolitical adversaries of Washington simply lack attractive dollar alternatives on the necessary scale - because the Euro belongs to US allies, the Yen does as well, and the Yuan remains non-convertible.
Foreign ownership in the US Treasury market declined from over 50% during the 2008 global financial crisis to about 30% in early 2025. This is a real trend. However, 30% of a 27 trillion dollar market is still a colossal sum. And Japan alone holds more than 1.1 trillion dollars in US Treasuries.
What Will Kill the Dollar - But Not Today or Tomorrow
The threat to the dollar exists. It is real. But it is slow, structural, and measured in decades - not in news cycles about an Iranian war.
The dollar's share of global reserves has fallen from 71% in 1999 to 57% today. This is a 14-percentage-point decline in a quarter-century. If the trend continues at the same pace, in 25 years the dollar's share will be about 43% - substantial, but no longer dominant.
The dollar is being destroyed not by its enemies, but by its allies - or rather, by the actions of America itself. Attacks on the independence of the Federal Reserve, pressure on the courts, trade wars with allies, and the use of the dollar system as a geopolitical weapon through sanctions - all of this undermines trust in the very institutions that make the dollar what it is: the rule of law, the free movement of capital, and the predictability of monetary policy.
As long as the war in Iran continues, the dollar will hold - crises always drive money to the most liquid haven. But once the shooting stops, the exchange rate will resume its decline. Oil monarchies will spend money on reconstruction rather than investing it in American securities. Asian oil importers will spend years overpaying for energy and restructuring their economies for the sake of energy independence.
For now, the most accurate answer to the question "When will the dollar collapse?" is this: everyone uses the dollar because everyone else uses it. This logic can be broken. But it is a task that will take more than one war or even a single presidential term.