Is the Iran war good for the petrodollar?
Diana Choyleva wrote an excellent editorial for the Wall Street Journal entitled “ The Iran War Is A Boon For The Petrodollar. .”
It opposes claims that the conflict in Iran is accelerating the demise of the petrodollar.
Instead, RealInvestmentAdvice.com points out that it claims the opposite: Between Iran and Venezuela, the U.S. is defending and strengthening the dollar’s dominance in the oil trade .
The 75-year-old petrodollar system is based on the fact that oil is priced and traded in dollars, keeping the dollar prominent in all world trade.
China is undermining the petrodollar through yuan settlement systems and by deepening its ties with some Arab countries.
Instead of Iran being a “perfect storm ” that weakens the petrodollar, as some claim, Choyleva sees U.S. military involvement in Iran as support for the dollar.
Simple: control the flow of oil, and you determine the currency in which it is traded .
Most Arab countries support the U.S. campaign against Iran. Importantly, “the security deployment was tested; it held up .”
This reinforced the security-for-oil-price agreement underlying the petrodollar system.
Removing Venezuelan President Maduro and influencing Venezuelan oil achieve similar goals.
If the U.S. controls the oil reserves of the Western Hemisphere, it would control more oil than OPEC combined, providing enormous leverage to keep oil in dollars.
The author sees two scenarios for how the war ends.
First, an agreement that gives the US influence over Iranian oil flows.
Second, American troops take the island of Kharg and guard the Strait of Hormuz.
In her words, controlling “the bottleneck through which a fifth of the world’s oil flows .”
Either way, both events lead to more dollar-based oil trading, not less.
She concludes that “ those who think the petrodollar is already in its death throes, read the chart upside down. The storm is real. The dollar is fighting back.”