Threats to the Petrodollar: Ukraine War & BRICS

“Foreign Affairs” semi-openly admits to “Petrodollar” defense

Foreign-Affairs-The Dollar Still Dominates


What is the Petrodollar?

  • The Petrodollar system is based on buyers paying for oil in US dollars. 1
  • Petrodollar recycling is when oil producers lend their suplus dollars back the the US, financing the US debt or buying US assets. 2 3
  • In the Russia/Ukraine war, Russia required “unfriendly” buyers to pay for their energy in rubles, creating a “petroruble“.
  • In a break from the past, Saudi Arabia is now considering selling oil to China in Chinese yuan. 4

Why this “Foreign Affairs” article is interesting:

I’m not surprised by the content of Carla Norrlöf’s recent “Foreign Affairs” article.  I’ve seen most of this material before from less credentialed sources on the internet (and in books), but I think it is outside of the Overton window for television. If a guest on a network like CNBC started talking about the Petrodollar, I think the producer would cut to commercial break.

Her 2010 book America’s Global Advantage: US Hegemony and International Cooperation argues that US hegemony is durable because of its dominance in currency, trade and security.[3][4] She also argues that the US does not buttress the international system out of altruism, but rather because it derives considerable concrete benefits in being the world’s reserve currency, dominant military power, and primary supporter of international markets.

Key points:

  1. The establishment understands how the Petrodollar is key to preserving their power, and
  2. They are consciously acting to “defend” the Petrodollar privilege, even at extreme cost 6

Working Hypothesis:

I suspect the Russia/Ukraine war is part of a larger military/financial conflict involving the Petrodollar.

BRICS spur interest in Dollar Alternative:

BRICS leaders
Leaders of the BRICS: Brazil, Russia, India, China, South Africa
(Osaka – Japan, 28/06/2019)
Photo: Alan Santos / PR


  • The Petrodollar is part of a system that  benefits the US at the expense of others, and for which
  • The  BRICS countries are trying to find an alternative.7
  • One should not underestimate how difficult it will be to provide a dollar alternative.  The most likely short-term possibility is that BRICS+ countries would exchange national currencies via the BRIC bank, reducing the demand for dollars.

More about the BRICS:

  1. The core BRICS countries are:
    • Brazil, Russia, India, China, South Africa.
  2. Other countries have joined the BRICS bank:
    • Egypt, United Arab Emirates, Uruguay, and Bangladesh:
  3. Other countries expressed interest:
    • Turkey, Argentina, Algeria, Bahrain, Indonesia, Pakistan, Sudan, Syria
  4. I’ve also heard that significant oil producers are also interested in joining BRICS+:
    • Saudi Arabia, Nigeria, and Iran, (plus Russia)

Iceberg: what’s beneath the surface of the Ukraine conflict? #

I’ll compare the dynamic that is playing out in Russia/Ukraine with an Iceberg.  
  • The public sees the part of the iceberg that is above the water ( Russia/Ukraine war)
  • But most Americans do not see the portion of the iceberg underneath the water:
    • The BRICS are pursing an alternative/s to the dollar.
    • Conversely, the Foreign affairs article argues that another Cold War (this time with China) would be good for the dollar.

Isn’t that twisted? The US may be incentivized to

  • pursue a Cold War with China and also to
  • sabotage efforts to combat climate change due to its decision to tie its economic well-being (finance the debt, etc) to the continued use of oil.

Threat: Putin’s “Financial Warfare” Strategy:

  • Putin’s war in Ukraine is putting pressure on the US, with the potential to damage the dollar.
  • Early on, seemingly out of recognition of the high stakes, the US responded to Russia’s invasion with an unprecedented move to seize Russia’s foreign dollars reserves. The act of punishing Russia has short term benefits, but also has the consequence of increasing other countries’ desire for an alternative international currency.
  • One theory about why the US was willing to take such extreme action was described by Luke Gromen:

(Luke Gromen, March 3, 2022)

Creating a Debt Crisis: How Russia’s actions could function as an attack on the dollar:

  • The world supply of cheap oil is limited. War would cause oil prices to spike.
  • The oil price spike would cause a recession in the US, which the US can’t afford, given its high debt levels.
  • The recession would lead to rising government costs (unemployment), while simultaneously reducing tax revenues.
  • This change in costs and revenue would increase the deficit, causing the US government to have to increase borrowing.
  • Creditors like China, Japan, etc are less willing to lend than in prior years, hence the Federal Reserve will have to “print money” to buy new US debt (monetize the debt)
  • This self-purchase of treasuries is sort of like the scenario where a restaurant runs out of customers and has to get the staff to purchase the restaurant’s own cooking.
  • Monetizing the debt would increase inflation and undermine the world’s faith in the dollar, especially given rising Social Security and Medicare/Medicare expenses.
  • Thus Russia’s war had the potential to also function as an attack on the dollar.
Although the BRICs do not currently pose a real alternate reserve currency, the strategy outlined by Luke Gromen could potentially explain some pretty extreme US responses.

Admitting the Petrodollar’s Role:

Petrodollar - MBS

Image Credit: Petrodollar article

The Foreign Affairs author recognizes the key role oil plays and how other countries are trying to buy oil in alternative currencies:

Dollars remain the currency of choice for governments, firms, and financial institutions to conduct trade and investment, but cross-border exchange in alternative currencies is progressing. Oil is one of the world’s leading export products. Using dollars to pay for oil is therefore seen as an important element in maintaining the dollar’s role as the default currency for international payments. China, Russia, and countries in the Middle East and South Asia are trying to move away from oil settlement in dollars. China and Russia are promoting their national currencies in oil trade. China and Saudi Arabia are drawing up plans to invoice oil in renminbi. Russia and India are exploring the use of the dirham, the currency of the United Arab Emirates (UAE), to settle oil deals among them. Russia and Iran are considering the use of a gold-backed stablecoin for international payments.

If oil producers insist on settling oil transactions in Chinese renminbi, Russian rubles, Indian rupees, the UAE’s dirham, or non-dollar-backed stablecoins, the dollar’s role will decline. The use of renminbi to trade oil among countries not involving China also stands to raise the significance of the renminbi as an international currency. Third-party use of the dirham will likewise raise its international role, although it is unlikely to become a major international currency. The rupee is a more likely contender as an international currency, but so far it is used only in bilateral trade. The ruble is also used in bilateral trade and highly unlikely to join the currency major league. Even if these currencies are primarily used for bilateral trade, the dollar will be used relatively less frequently, undermining its status.

US Opposes: Germany-Russia Alliance

I’ll have to find a source for this idea, but a basic argument I’ve heard is:
  • Since World War II, the US has always sought to prevent a close alliance between Germany and Russia because it would give German industry access to Russia’s resources and undermine American influence in Europe.

# TBTB: Too Bad to Believe?

The bombing of the Nord Stream pipeline may sound like an extreme step by the US/allies, but makes sense if there was a danger that Germany wouldn’t completely choose the American side, straying mid-winter under energy pressure.  Contemplating the possibility that US/Allies bombed Nord Stream is a possibility that I call TBTB – Too Bad to Believe,8 but isn’t out of step with past American actions. 9  One could compare the cost in lives in the pipeline bombing to the US decision to block former Israeli Prime Minister Naftali Bennet’s tentative peace settlement of the Russia/Ukrainian war.

Ukraine Peace Deal Blocked (Foreign Affairs) #

Here’s another article in Foreign Affairs which contains a buried admission by Fiona Hill of this peace deal (Fiona Hill is a former Trump official who testified as  Ukraine impeachment witness)

According to multiple former senior U.S. officials we spoke with, in April 2022, Russian and Ukrainian negotiators appeared to have tentatively agreed on the outlines of negotiated interim settlement: Russia would withdraw to its position on February 23, when it controlled part of the Donbas region and all of Crimea, and in exchange, Ukraine would promise not to seek NATO membership and instead receive security guarantees from a number of countries.

Although Fiona Hill admits a tentative peace deal, she does not also admit that Boris Johnson’s visit was part of US/Allies effort to stop/block the deal.

Former Israeli Prime Minister confirms: “They blocked it”:

Former Israeli Prime Minister Naftali Bennet, who was the middleman negotiating the deal, said in an interview with Israeli Channel 12:

(Indian article summary | Original Transcribed Interview Video with English subtitles)

“I think there was a legitimate decision by the West to keep striking [Russian President Vladimir] Putin… I mean the more aggressive approach,” he said, adding, “Basically, yes. They blocked it,” to a question if US and its allies ‘blocked’ the peace process between Moscow and Kyiv.
The key provision for Russia was that Ukraine would be a neutral country, meaning not allied with NATO and with no NATO missiles stationed there.  This is similar in a way to the US insistence that Cuba not station Russian missiles there.


It is surprising that an establishment publication like Foreign Affairs admits to the role of the “Petrodollar” in US hegemony, but on second thought the journal likely assumes that their discussions will remain outside of the mainstream press.

Combatting Climate Change

While I can’t prove it directly, the desire to retain the Petrodollar System could explain some of the potential motivation for extreme US/Allies’ decisions to:

  1. freeze Russian dollar reserves
  2. oppose an early Russia/Ukraine settlement and
  3. more likely than not, bomb the Nord Stream pipeline 10 11 12 .

Who Could Justify?

Were the Petrodollar system widely understood, who could justify:

Rust Belt region
Rust Belt: US manufacturing and working class


  • The way the Petrodollar system has stymied serious efforts to combat climate change.
  • The US and its allies’s apparent willingness to sacrifice hundreds of thousands of lives in Ukraine.13
  • A system that mostly benefits elites (whom critics call “cantillionaires”) at the expense within America of the working class and Rust-belt. 14


  1. The US made an agreement with Saudi Arabia in 1974 that it would require buyers to pay for oil in dollars. This increases demand for dollars, which increases demand for interest-bearing dollars (US Treasuries), which means more people are willing to finance US debt.

  2. After the US quadrupled its grain export prices shortly after the 1971 gold suspension, the oil-exporting countries quadrupled their oil prices. US diplomats had let Saudi Arabia and other Arab countries know that they could charge as much as they wanted for their oil, but that the US would treat it as an act of war not to keep their oil proceeds in US dollar assets.

  3. When countries hold dollars, they usually buy US treasury bonds (US debt), so as to get interest on their dollars. The more people that want US dollars, the easier it is for the US to run perpetual deficits and finance that debt.

  4. This decreases demand for US dollars, hence demand for US Treasuries (US debt)

  5. In the past, I’ve seen people deny that it matters whether oil is priced in dollars and whether the dollar is a dominant global reserve currency.  Professor Norrlöf ‘s article confirms that not all the critics are “delusional conspiracy theorists.”

  6. Consider how the US desire to maintain power through the Petrodollar has been an obstacle to combatting Climate change. How much more would have been invested in alternative energy if moving away from oil did not threaten US power and ability to finance the US debt.

  7. Article: “Creating a BRICS Reserve Currency: A Long-term Project Despite Russia’s De-dollarisation Strategy”

  8. TBTB – Too Bad to Believe: Many Americans don’t want to believe that their government would do something so bad. Contemplating this on network television is outside The Overton Window

  9. Should Germans expect better treatment by the US than the Yemenis or Guatemalans?

  10. See Seymour Hersh’s detailed account of the Nord Stream bombing on Substack and discussion on “Rising” (28 min).

  11. Seymour Hersh says that the mainstream outlets don’t want to handle a story like this, but that even though he is independent on Substack, he is using an editor from the London Review of Books and the same fact-checkers he used at the New Yorker.

  12. Seymour Hersh suggests that a reporter who doesn’t want to be called on in the near future should ask the US press secretary whether the US investigated the Nord Stream bombing, and if so, what an investigation discovered.

  13. Consider also, the contribution of the Petrodollar to US wars (and alliances) in the Middle East.

  14. Let alone the cost the rest of the world bears for the Petrodollar and past Oil-influenced Wars.