The petrodollar as we know it is losing its dominance and global status as the go to currency. We have been covering its decline for some time now, and how it has been accelerated by the current conflict in the Middle East.
The Strait of Hormuz has effectively been turned into a toll booth by Iran, accepting payments for safe passage, with the exception of the US dollar. In fact, there has been growing demand for Bitcoin as a settlement method.
This weekend saw failed peace talks end without a deal. As a result, Donald Trump announced that the United States Navy will now move to block the already disrupted Strait of Hormuz.
Following this, oil jumped 10% on futures open, while risk assets and Bitcoin came under pressure. More interesting, however, was Trump’s response to the Iranian toll system, which included the following statement:
‘Navy to seek and interdict every vessel in international waters that has paid a toll to Iran. No one who pays an illegal toll will have safe passage on the high seas.’
An illegal toll, in this context, effectively refers to anything not settled in US dollars. What began as a geopolitical conflict is increasingly shifting towards control over not just the flow of one of the world’s most valuable resources, but also the currency in which it is settled.
Unfortunately for the US dollar and Trump, this shift may already be too far along to reverse. More nations and participants are actively exploring alternatives. This attempt to bring oil settlements back under the US dollar may provide a short term boost to what was once the dominant global system.
However, it increasingly looks like a delay of the inevitable. The current structure is becoming unsustainable and, over time, will be replaced. The alternative is already emerging, an exit from the traditional system into sovereign, decentralised assets such as Bitcoin.
The shift is no longer theoretical, it is happening in real time. The only question that matters now is where you stand when the system finally breaks.
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