Harsha Kakar
kakarharsha@gmail.com
The global economy runs on oil and gas. The US has exploited this by insisting that all trade in oil and gas be based on dollars. Thus emerged ‘petro-dollars.’ This implied that all countries must hold dollars to pay for oil procurement, subsidizing US debt and enhancing their global influence. SWIFT (Society for Worldwide Interbank Financial Telecommunication) used in oil trade, is a Belgium-based messaging network connecting financial institutions dealing in oil transactions.
Access to SWIFT signifies access to the global energy market. Removing a nation from SWIFT, like Russia and Iran, disrupted the country from engaging in oil trade and isolating its financial sector from the rest of the world. It compelled them to seek alternate methods for payment of oil exports, which were costly and less secure.
Nations which attempted to bypass the dollar system, Iraq and Libya, were attacked and leaders removed. US companies have taken over Iraq’s oil production, while Libya remains in a state of turmoil. The Syrian government, which did not trade in dollars was overthrown. Syria has recently recommenced oil exports after a gap of 14 years. Russia was sanctioned for its invasion of Ukraine, both the Nord Stream Pipelines destroyed and Europe compelled to procure oil and gas from the US, enhancing their control over them. All this was before Trump emerged on the scene.
In 2025, Trump released his National Security Strategy. It mentioned, ‘Restoring American energy dominance’ as a ‘top strategic priority.’ It adds, ‘Cheap and abundant energy will produce well-paying jobs in the US, reduce costs for American consumers and businesses, fuel reindustrialization, and help maintain our advantage in cutting-edge technologies such as AI,’ implying that energy, apart from being considered a weapon is also an element of national and geopolitical power.
Venezuela and Iran were both under sanctions and largely supplying oil to China, outside the dollar network. Iranian oil was being repaid by Chinese goods, technology and investments in infrastructure. In Mar 2021, China and Iran inked an agreement under which Beijing would invest USD 400 billion into energy and infrastructure over a period of 25 years in return for discounted Iranian oil. Venezuela was providing oil under the Chinese Cross-Border Interbank Payment System, supplemented by bilateral currency swap.
Venezuela is now under US dominance and would do its bidding, while the blockade of Hormuz is intended to stop flow of oil from Iran to China. The ultimate US aim is to bring back oil flows from both these countries into the dollar system. As global prices skyrocketed post US attack on Iran, Washington was forced to temporarily lift sanctions on Russian oil. Russia trades in Rubles, Yuan and Rupees. It is currently outside the dollar system. How long before the US re-imposes sanctions or re-integrates Russia into the dollar system is to be seen. Trump inviting Putin for the G7 summit in the US this year is an indicator of Russia being brought back into the main stream. Simultaneously, there has been an increase in strikes on Russian oil facilities by Ukraine. Whether these are happening on US prodding is unknown.
The past few weeks also witnessed a surge in fires and explosions on oil refineries and power plants in India, Australia, US, Europe and Russia. Investigations are underway in these incidents. There are doubts on whether these were coordinated or just isolated incidents.
The US is currently the world’s largest producer of oil. It produces more than Russia and Saudi Arabia combined. Similarly, it is producing more than the combined total of Russia, China and Iran in natural gas. In recent years it has turned from a net importer to exporter of oil and gas. With the double blockade of the Hormuz Straits, it is the US which is gaining financially. Trump posted on his Truth Social, ‘The United States is the largest Oil Producer in the World, by far, so when oil prices go up, we make a lot of money.’
Simultaneously, crude prices in the US are at their highest, impacted by global oil prices. This is hurting Trump and his popularity. His administration has been meeting with representatives of US oil companies. A White House official stated on the meeting, ‘They discussed the steps President Trump has taken to alleviate global oil markets and steps we could take to continue the current blockade for months if needed and minimize impact on American consumers.’ Whether US oil prices will reduce is to be seen.
Global oil and gas prices are impacted by wars and logistic issues in major production regions. Within a month of the Ukraine war, oil prices surged by almost 52-55% before dropping back to normal. Trump recently announced that the US’s naval blockade of Iran could last months. This means that possibly 12-15 million barrels of oil per day would not be available in the market, which would normally flow through the Hormuz Straits. With the double blockade of the Hormuz Straits, the possibility of prices receding to earlier levels is unlikely for some time. Even if peace is restored it would take time for prices to return to pre-war levels. A drop could happen in case the UAE, which has left OPEC, enhances oil production and exports.
While the blockade could push Iran into talks on US terms there is always the risk of it retaliating against its neighbours hitting the global economy in the long term. Pakistan has opened six land corridors for movement of containers stuck in its ports bound for Iran. However, this will not include export of oil. Nations, like India, which resisted increasing oil prices internally based on rising global prices, will have to reconsider its decision.
When the war is ultimately resolved with talks, Iran would be back on the table selling oil in US dollars, ensuring primacy of the dollar. This is one of the US’s primary post war objectives. The Chinese Yuan, which was seen by some as a replacement to the dollar, would no longer be on the table. Oil, in the future, will not be a commodity but a weapon in the hands of the US. Nations would have to reduce dependency on oil and gas while looking for alternatives including nuclear power and solar, amongst others.
The author is Major General (Retd)
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