Attack On Venezuela Is Not Just About Petrodollars | The Reason Why
This is not a story about the petrodollar. It is more than that – about the politics of control in a world where financial and military power is being contested.
Whenever oil, geopolitics, and the US appear in the same sentence, one word inevitably resurfaces: 'petrodollar'. After recent incidents in Venezuela, many commentators have again argued that Washington is trying to “defend” the petrodollar system, pointing to past examples like Iraq or Libya.
A closer look suggests that this episode has far less to do with petrodollars in their classical sense, and far more to do with sanctions, payment mechanisms, and geopolitical signalling.
How The Petrodollar System Actually Worked
The petrodollar system started in the 1970s when the US and Saudi Arabia agreed that oil would be sold only in US dollars. In exchange, the US promised security and access to its financial markets. Pretty soon, other Gulf countries joined in.
These countries run current account surpluses – they earn more dollars by selling oil to the world than they spend on their imports. For instance, Saudi Arabia’s current account balance reached 50% of GDP in 1974, and down to over 20% in the 2000s.
This means they started piling up huge amounts of dollars. Most of them ended up in US Treasury bonds, on which the Gulf countries earned interest. Thus, the foundation of the petrodollar system is dollars recycling back to the US, rather than being used for payments.
This setup made it easier for the US to run persistent fiscal deficits. It boosted US financial markets, strengthened the dollar, and lowered interest rates — about 75 basis points, according to the IMF. The whole thing worked well as long as Gulf states had stable governments, dollar surpluses, and operated within the Western financial ecosystem.
Why Petrodollars Have Been Losing Importance
Over the past 15–20 years, their current account surpluses have dropped and become more volatile. For instance, 2025 IMF estimates are: Saudi Arabia = -2.1% and Oman = -1% of GDP, mainly due to higher domestic spending, population growth, diversification initiatives, and lower oil prices. As a result, fewer surplus dollars are available for recycling.
Meanwhile, Gulf sovereign wealth funds have shifted investments away from US Treasuries to international and domestic assets, reducing their recycling of dollars into US government debt.
This suggests that the US can no longer depend on petrodollars as before, and only major oil players can restore them by reinvesting dollars in the US.
Venezuela’s Real Weight in Global Oil Markets
Venezuela is a small player in this scheme of things. Yes, it has the world’s largest oil reserves, but today it produces roughly 0.8 to 1.1 million barrels per day, accounting for 1% of global supply.
Similarly, stopping Venezuelan crude exports to China will not threaten China’s energy security as they account for 3–4% of China’s oil imports.
Historically, Venezuela has not been a key petrodollar recycler. It runs fiscal and current-account deficits and lacks funds for both domestic spending and overseas investment. Oil revenues mostly cover internal expenses and debt.
A few decades ago, it used to produce over 3 million barrels a day. Experts believe that extracting more oil through its current infrastructure is not possible, and it may take decades and billions of dollars to regain its lost competence. Thus, by taking more oil from Venezuela will not help revive the classic petrodollar system in the medium term.
De-Dollarisation Efforts In Venezuela
Recent reports have found that Venezuela circumvented the US sanctions by using cryptocurrency such as USDT (a dollar-pegged stablecoin) and Chinese yuan-denominated oil contracts. It has also shown interest in joining the BRICS group.
The US views these changes as a threat to the dollar, even if their impact so far has been limited.
What The Venezuela Action Actually Signals
While oil is still primarily sold in dollars, attempts to diversify away from the dollar-based ecosystem have increased recently, although not completely successfully.
Thus, many of the actions appear more as a warning than a defence of the petrodollar.
From the economic point of view, the message is clear: the US will not entertain any parallel trade and settlement systems such as crypto payments, yuan trade, and shadow shipping, at least in the Western Hemisphere. While they might not be large at the individual level, together they set a trend of bypassing US financial networks.
Also, it is aimed less at Venezuela itself and more at others watching: Latin American governments, sanctioned states, and financial intermediaries exploring workarounds.
Final Take
This episode reflects a broader effort to maintain control over global trade settlement, compliance, and financial oversight in an increasingly fragmented world.
This is not a story about the petrodollar. It is more than that – about the politics of control in a world where financial and military power is being contested. And Venezuela, in that sense, is just a test case.
