The Israel-Iran conflict shakes the foundation: The turning point of the petrodollar may accelerate | Every Market Hot Commentary

On February 28, 2026, the United States and Israel suddenly launched military strikes against Iran. This was a conflict that should not have occurred, as both sides were still in negotiations. Following the outbreak of hostilities, the Strait of Hormuz experienced, as expected, the most severe “blockade” in history, with the global oil “valve” nearly completely shut off, causing a significant impact on the global economy and people’s livelihoods. Now, nearly a month into this military conflict, although there have been proposals for negotiations, these talks have yet to begin, and there are no clear signs of an end to hostilities.

Since February 28, the U.S. dollar index has strengthened significantly, rising from 97.6460 to a peak of 100.5400. Although it has since retreated, it remains at a relatively high level of 99.6000. The strength of the dollar is contrary to the trend of global risk assets; at this time, the dollar still plays a role as a safe-haven asset. However, hostilities will eventually come to an end. The dollar’s strength in March is merely a market reaction, and in the longer term, this military conflict will have a tremendous impact on the four foundations of the petrodollar, significantly weakening the logic that allows the petrodollar to function, and the international status of the dollar will inevitably be further diminished.

The petrodollar is fundamentally built on oil. In the era of internal combustion engines, oil is the “blood” of the economy. However, now with the Strait of Hormuz shipping lanes nearly cut off, countries such as the Philippines, Thailand, Vietnam, and Japan and South Korea, which overly depend on Middle Eastern oil, are struggling to cope with crude oil shortages. The Philippines even faces the risk of running out of fuel and grounding flights. For countries that still have a reliable supply of crude oil, the significant rise in oil prices has also led to noticeable cost-of-living pressures, further highlighting the economic benefits of electric vehicles. According to the Daily Economic News, from Bangkok to Hanoi to Melbourne, whether from Chinese or Vietnamese brands, inquiries about purchasing electric vehicles have significantly increased recently. The performance of the capital markets is even more convincing; in March (as of the 25th), the stock prices of CATL and BYD have outperformed those of PetroChina, CNOOC, and ExxonMobil.

It is foreseeable that more countries will strategically reduce their dependence on fossil fuels. For example, on March 20, Vietnam announced it would accelerate the transition to electric vehicles and build charging infrastructure; on March 25, former Finnish Prime Minister Aho mentioned at the Boao Forum for Asia that geopolitical conflicts could accelerate the energy crisis, but crises also present opportunities for energy transition. From national to grassroots levels, the combination of these two forces will accelerate the trend of global new energy transition. The faster the development of new energy, the sooner the peak of global oil consumption will arrive, and the scale of the petrodollar built on this foundation will gradually shrink.

On the other end of the petrodollar is the U.S. dollar, meaning dollar-denominated settlements. Due to the Russia-Ukraine conflict, Russia has been excluded from the dollar settlement system. Once the dollar settlement system is officially used as a financial weapon, a more diverse range of global settlement currencies will become a common call around the world. This is also the most crucial narrative behind the current bull market in gold. According to a Deutsche Bank report, most oil from the Middle East is sold to Asia rather than the United States, and the sanctioned oil from Russia and Iran is no longer traded in dollars. Saudi Arabia has been attempting to implement a non-dollar payment infrastructure project called “mBridge.” When the U.S. instigates a military conflict that should not have occurred, the dollar, which represents its national credit, is inevitably impacted, and reducing dependence on dollars in the settlement phase will become a very natural choice.

Military security guarantees are an important institutional arrangement for the functioning of the petrodollar. In 1974, Saudi Arabia reached an agreement with the U.S. on the petrodollar, pricing oil in dollars and investing surpluses in dollar assets in exchange for U.S. security guarantees. However, today, the U.S. has lost control over the Strait of Hormuz shipping lanes and has failed to effectively protect the security of Gulf oil-producing countries such as Saudi Arabia. Before the outbreak of hostilities, the U.S. did not communicate with Gulf countries diplomatically in advance, leaving them in a passive position. All of this severely undermines the existing security trust, forcing Gulf countries to face a more turbulent geopolitical landscape and rely more on themselves rather than the U.S. for protection; for instance, Saudi Arabia is actively promoting domestic defense localization. As reliance on U.S. military security guarantees decreases, Gulf countries’ dependence on the dollar will also correspondingly decrease.

The return of petrodollars to the U.S. to achieve a closed loop is the financial foundation for the long-term survival of the petrodollar. Gulf countries need to find good investment opportunities for their substantial oil trade surpluses, while the U.S. requires foreign investment inflows to balance its long-standing massive international trade deficit, making both parties complementary. However, this military conflict has severely impacted the economies of Gulf countries; for instance, Qatar has lost nearly 20% of its liquefied natural gas export capacity due to attacks on its energy facilities, corresponding to a revenue loss of approximately $20 billion per year, with repairs potentially taking five years.

To address domestic losses, Gulf countries will have to withdraw some overseas investments for domestic economic recovery and construction. More seriously, the open and secure international image that Gulf countries have built over the past 30 years has been completely shattered by this war, and the inflow of international personnel and capital may likely turn into an outflow. To make up for these losses, domestic capital will also be needed. The reversal of capital flows may even impact the development of AI (artificial intelligence) in the U.S. because Gulf countries are not only direct investors in U.S. AI giants but also significant consumers of U.S. AI chips and other products. As Gulf countries withdraw from the petrodollar and slow down their domestic AI investments due to security risks, this will inevitably affect U.S. AI investments as well.

When will the turning point for the petrodollar occur? No one can predict. However, a military conflict that should not have happened may accelerate the arrival of this turning point.