Petrodollar warfare (Ofer Abarbanel online library)

The term petrodollar warfare refers to the alleged motivation of US military offensives as preserving by force the status of the United States dollar as the world’s dominant reserve currency and as the currency in which oil is priced. The term was coined by William R. Clark, who has written a book with the same title. The phrase oil currency war is sometimes used with the same meaning.

The hypothesis

The United States dollar remains de facto world currency.[1] Accordingly, almost all oil sales throughout the world are denominated in United States dollars (USD).[2] Because most countries rely on oil imports, they are forced to maintain large stockpiles of dollars in order to continue imports. This creates a consistent demand for USDs and ostensibly supports the USD’s value, regardless of economic conditions in the United States.

According to proponents of the petrodollar warfare hypothesis, this in turn allegedly allows the US government to gain revenues through seignorage and by issuing bonds at lower interest rates than supposedly they otherwise would be able to. As a result, the U.S. government, according to this theory, can run higher budget deficits at a more sustainable level than most other countries can. The theory points out that a stronger USD also means that goods imported into the United States are relatively cheap (although the country’s exports become relatively more expensive for the rest of the world).

Another component of the hypothesis is that the price of petroleum is more stable in the U.S. than anywhere else since importers do not need to worry about exchange rate fluctuations. Since the U.S. imports a great deal of oil, its markets are heavily reliant on oil and its derivative products (jet fuel, diesel fuel, gasoline, etc.) for their energy needs. As the price of oil can be an important political factor, U.S. administrations are quite sensitive to the price of oil.

Political competitors of the United States therefore have some interest in seeing oil denominated in euros or other currencies. The EU could also theoretically accrue the same benefits if the euro replaced the dollar.


The petrodollar system originated in the early 1970s in the wake of the Bretton Woods collapse. President Richard Nixon and his Secretary of State, Henry Kissinger, feared that the abandonment of the international gold standard under the Bretton Woods arrangement (combined with a growing US trade deficit, and massive debt associated with the ongoing Vietnam War) would cause a decline in the relative global demand of the U.S. dollar.[3] In a series of meetings, the United States — represented by then U.S. Secretary of State Henry Kissinger — and the Saudi royal family made an agreement. The United States would offer military protection for Saudi Arabia’s oil fields, and in return the Saudis would price their oil sales exclusively in United States dollars (in other words, the Saudis were to refuse all other currencies, except the U.S. dollar, as payment for their oil exports).

By 1975, all of the oil-producing nations of OPEC had agreed to price their oil in dollars and to invest surplus oil proceeds in U.S. government debt securities in exchange for similar offers by the U.S.[4]

Political events

In 2000, Iraq converted all its oil transactions under the Oil for Food program to euros,[5] even though the move was deemed by analysts to “fly in the face of financial logic”,[5] since it meant that Iraq would earn less interest on its oil revenues, which were held in a UN-monitored escrow account in New York. Also, the switch would create “cumbersome new administrative processes” because Baghdad decided to keep also its existing deposits in dollars, which meant that the oil-for-food program would maintain two accounts, one in dollars and one in euros.[5]

Several commentators writing contemporaneously with the buildup to the invasion[6][7][8] linked Iraq’s Nov 2000 re-denomination of oil from USD to euros and the possibility of more widespread adoption of the euro as an oil pricing standard to the risk that that would place on the post-Bretton Woods use of the USD as the international reserve currency and the impact that that would have on the US economy, and theorised that one of the fundamental purposes for war in Iraq would be to force Iraq to revert to pricing its oil in USD.

After the U.S. invaded Iraq in 2003, Iraq returned the denomination of its oil sales to the US dollar, despite the greenback’s then-fall in value.[9]

The Government of the Islamic Republic of Iran ostensibly takes this theory as fact. As retaliation to this policy, which is seen by Tehran as “neoimperialism”,[10] Iran made an effort to create its own bourse, which started selling oil in gold, euros, dollars, and Japanese yen.[11] In mid-2006 Venezuela indicated “support” of Iran’s decision to offer global oil trade in the euro currency.[12] Muammar Gaddafi of Libya had tried to implement the gold-for-oil plan in 2011[13] and the introduction of a Libyan gold dinar.

In 2005, William Roberts Clark, Professor and Faculty Associate, Political Science Department, Center for Political Studies, University of Michigan, Ann Arbor, published a work which claimed that a “petrodollar warfare” was under way between mainly the euro and the United States dollar waged in the field of world petroleum trade.[14]

Over the years, multiple scholars expressed the view that the Iraq War was conducted to re-assert the dollar hegemony in the wake of Saddam Hussein’s attempts to switch from petrodollar in the oil trade and to sell Iraqi oil in exchange for other currencies or commodities.[15][16][17]


  • Clark, William R. Petrodollar Warfare: Oil, Iraq and the Future of the Dollar, New Society Publishers, 2005, Canada, ISBN 0-86571-514-9


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