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lediplomate.media – printed on 03/26/2026
By Giuseppe Gagliano, President of the Centro Studi Strategici Carlo De Cristoforis (Como, Italy)
From the end of the gold to the empire of the dollar
In 1971, Richard Nixon ended the convertibility of the dollar into gold. This choice, known in history as the “Nixon shock”, was not just a technical adjustment in monetary policy. It marked the end of the Bretton Woods order and the beginning of the era of fiat currency, a currency no longer backed by material wealth, but by trust, the power of the issuing state, and the political structure supporting it. For Washington, the immediate and formidable challenge was how to maintain the dominance of the dollar when it was no longer tied to gold.
The answer did not come from central banks or economic theories, but from geopolitics. In 1974, the United States signed a decisive agreement with Saudi Arabia. Riyadh agreed to price its oil almost exclusively in dollars and to recycle its financial surpluses into US Treasury bonds. In return, Washington guaranteed military protection, arms supplies, diplomatic support, and strategic cover. Within a few years, this model spread to most major oil producers, giving rise to the petrodollar system, a backbone of contemporary globalization.
A monetary mechanism in service of American hegemony
The strength of the system lies in its apparent simplicity and monumental effects. As long as oil, a central commodity in the global economy, is priced in dollars, any state wishing to import energy must first acquire American currency. This creates a structural, permanent, almost automatic global demand for dollars. It does not matter if the US economy is struggling or if Washington’s foreign policy evokes trust or hostility: the world needs dollars to run its factories, transportation, armies, and companies.
This extraordinary advantage allows the US to issue debt in quantities no other country could sustain without disaster. Dollars created by the Federal Reserve do not just stay in the domestic economy; they are absorbed by foreign central banks, energy markets, sovereign wealth funds, and global trade circuits. In other words, a critical part of American power is externalized. The rest of the world indirectly finances Washington’s budget deficits, supports its bond market, and contributes to the sustainability of its military superiority.
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Oil as an instrument of imperial sovereignty
Therefore, oil is not just an energy resource. Through the dollar, it has become a lever of systemic domination. The petrodollar has allowed the United States to turn its national currency into imperial currency. Thanks to this, Washington has been able to combine chronic deficits, high consumption, global military projection, and financial centrality. Few empires in history have had such an efficient mechanism: having their power financed by the very entities that depend on the order they impose.
This mechanism has also produced an international hierarchy. Countries able to access the dollar market benefit from integration into the system; those seeking to break free face higher transaction costs, less liquidity, increased financial vulnerabilities, and often political pressure or sanctions. The dollar is not just a currency for exchange; it is an economic weapon.
The stress test of the monetary order
Today, this system is facing increasing tension. The de facto closure of the Strait of Hormuz by Iran, following American and Israeli strikes, demonstrates how closely tied the energy issue is to the monetary question. If a strategic actor can disrupt a corridor through which a crucial part of global oil flows and, at the same time, encourage settlements in yuan rather than dollars, the entire system architecture is put to the test.
Saudi Arabia has already started accepting settlements in yuan in some cases. Russia and China are developing bilateral exchanges in their own currencies to bypass Western sanctions. Brazil and Argentina are also exploring alternative solutions. Yet, despite these cracks, the petrodollar has not collapsed. And this is due to one fundamental reason: monetary dominance rests not only on a political decision but also on network effects.
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Why the dollar persists
The global financial system operates as an infrastructure of accumulated dependencies. Decades of contracts, insurance policies, derivative products, hedging mechanisms, reference prices, and currency reserves have been built around the dollar. Exiting this system entails more than just changing the unit of account. It requires renegotiating entire chains of legal obligations, recalibrating financial instruments, rebuilding liquid markets, and convincing a critical mass of actors to shift to another currency.
This is precisely what the yuan lacks today. Beijing can promote its internationalization, increase bilateral agreements, and push for dedollarization, but the Chinese currency does not yet possess the depth, transparency, convertibility, and systemic trust that characterize the dollar. America may be criticized, its hegemony challenged, its centrality questioned, but when it comes to moving massive capital volumes within hours without causing panic, the dollar remains unrivaled.
A slow erosion, not a collapse
The petrodollar is weakening, but it is not collapsing. What is emerging is not a sudden fall but a gradual wearing down. The US-dominated order is beginning to be challenged at its margins by revisionist powers, sanctioned states, and regional coalitions seeking more autonomy. However, contesting the dollar is not enough. An alternative architecture capable of absorbing global flows without causing chaos must be offered.
This is where the strategic crux of the problem lies. The petrodollar is not just a legacy of the Cold War or a product of the American-Saudi pact. It has become the fundamental structure of international finance. Replacing it would require almost rebuilding the entire global monetary order from its foundations. Yet, for now, no one has found a way to solve this equation without bringing down the entire edifice.
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