The Petrodollar Enforcement Quagmire: Iraq, Libya, Venezuela, and Iran
Since the 1970s, American financial power has rested on one structural pillar: the hegemony of the US dollar. After Richard Nixon decoupled the dollar from gold in 1971, US officials—including Treasury Secretary William Simon and Secretary of State Henry Kissinger—brokered a series of agreements with Saudi Arabia. The United States helped the kingdom recycle its dollar revenues, including into US Treasuries, and offered security guarantees. In return, the monarchy agreed to price its oil in dollars. The aim was to anchor global oil trade in dollars, ensuring that the currency—despite losing its gold backing—remained the world’s dominant reserve currency.
The policy, known as the petrodollar system, had enormous consequences. Every nation that needed to buy oil had to hold dollars, generating permanent demand for the US currency and allowing Washington to run persistent deficits financed by the rest of the world. While this arrangement had to be constantly defended, the challenges to it have never stopped growing, and the enforcement has taken on an increasingly coercive character—with the recent strikes on Iran representing the most dramatic and legally consequential act of enforcement yet.
President Richard Nixon Meeting with Vice President-Designate Congressman Gerald Ford, Secretary of State Henry Kissinger, and Chief of Staff Alexander Haig, Jr., in the Oval Office, October 13, 1973, The Nixon Library, Public domain.
Iraq was the first major direct challenge. In 2000, Saddam Hussein announced that Iraq would switch its oil sales from dollars to euros under the UN Oil-for-Food program. The switch initially seemed foolish—the euro had been declining since its inception—but as the euro appreciated strongly from 2002 and Iraq’s revenues correspondingly gained purchasing power, the move appeared vindicated; with other countries considering similar switches, Washington now faced the prospect of a contagion that, combined with the dollar’s concurrent slide, turned a symbolic Iraqi gesture into a systemic threat. The Bush administration framed its intervention as a response to the attacks of September 2001 and as a measure against weapons of mass destruction (WMDs). None were ever found. Yet one of the first acts of the US-installed interim government was to reverse Iraq’s oil pricing back to dollars.
Libya followed a decade later, with a more radical challenge. Rather than switching to another Western currency, Gaddafi proposed bypassing Western financial architecture altogether. His government had accumulated 143 tons of gold and aimed to back a pan-African gold dinar, which would offer Francophone African countries an alternative to the French CFA franc. Gaddafi, as Chairperson of the African Union in 2009, called on African oil producers to sell their oil in gold dinars. Declassified emails to Hillary Clinton from adviser Sidney Blumenthal confirm that this plan was seen as a direct threat to French monetary dominance in Africa, and that it shaped President Sarkozy’s decision to lead the NATO intervention, while the public rationale was the Responsibility to Protect (R2P).
Venezuela and Iran represent the most recent chapter of the same story, updated for a world in which China is the principal challenger to dollar hegemony. The Maduro government was selling most of its heavy crude to China, traded in renminbi or repaying Chinese loans directly in barrels of oil: a glaring breach of the petrodollar regime, located in the Western hemisphere itself. Iran, under cascading US sanctions since 2018, had built a parallel oil economy flowing to Beijing and avoiding dollar channels. Trump’s military seizure of Maduro in January 2026 and the subsequent US-Israeli strikes on Iran aim to dismantle both nodes. The official pretexts this time have been narco-terrorism—a charge that should, however, be focused primarily on Mexico, not Venezuela—and nuclear proliferation.
The pattern is consistent. The official casus belli shifts—weapons of mass destruction, humanitarian intervention, narco-terrorism, nuclear proliferation—but the structural outcome is always the same: the removal of a government that had begun routing energy sales outside the dollar system, followed by the restoration of dollar-denominated transactions. Domestic politics, Israeli pressures, and security fears may play supporting roles, but the financial logic is the most important. It is the one that runs through every case, and the one that official narratives are most careful never to name.
Today, the stakes are categorically higher than in 2003 or 2011. The adversary is no longer a mid-sized oil state or an African regional leader. It is China—the world’s second-largest economy, the largest buyer of oil on the planet, the architect of an alternative payment system in renminbi, and a state with the political will and financial capacity to construct a genuine rival to the dollar order. The de-dollarization process China has been advancing for over a decade—through bilateral currency swaps, the CIPS payment system, yuan-denominated oil contracts, and strategic reserves in gold—represents a systemic challenge of a different magnitude altogether.
What the Trump administration has done in Venezuela and Iran does not merely follow the historical pattern—it dramatically escalates it. The capture of a sitting head of state by foreign special forces on his own soil, and the targeted killing of a country’s supreme leader before any formal military conflict had been declared: these are not the measured instruments of a hegemon managing its affairs. They signal that every subtler option—sanctions, covert pressure, diplomatic isolation—has been exhausted. Sanctions failed to bring Maduro down. Covert destabilization failed. Years of maximum pressure on Iran failed. When every conventional instrument has been exhausted, what remains is direct military force—applied, in both cases, in ways that strain the boundaries of international law.
The UN Charter prohibits the use of force against the territorial integrity or political independence of any state. The targeted killing of a foreign head of government—not in the course of declared combat but as a deliberate act of regime change—constitutes an unlawful act of aggression under international law. The killing of Iran’s Supreme Leader in a premeditated joint strike and the military seizure and extradition of a sitting president represent serious violations of the foundational rules of the international order.
In this course of action, the United States is most likely accelerating the very process it is trying to stop. Military coercion cannot reverse decades of structural change in the global economy. Every barrel of oil sold outside the dollar system, every bilateral currency swap, every CIPS transaction represents a market decision by states pursuing their own interests—not a conspiracy to be disrupted by force.
Three steps are worth considering. First, the US Congress should reassert its constitutional authority over the use of force and demand a formal legal basis for both the Venezuela operation and the strikes on Iran—actions taken without a declaration of war or an authorization for the use of military force. Second, Washington’s allies in Europe and Asia should make clear, through institutional channels, that the seizure of a sitting head of state and the killing of a supreme leader outside declared conflict set precedents they are unwilling to legitimize. Third, and most importantly, Washington should recognize that the dollar’s reserve status cannot be defended by force indefinitely. Acceptance of structural change offers the only durable alternative to a cycle of interventions that is, with each iteration, becoming more costly and less effective.