Did Trump's Solution to the Ending of Saudi Petrodollar in 2024 Agreement Backfire?
How a war strategy may have accelerated de-dollarization instead.
When the 50-year petrodollar agreement between the United States and Saudi Arabia expired on June 9, 2024, and Saudi Arabia chose not to renew it, the world braced for impact. Yet the market reaction was surprisingly muted.
Several factors explained the calm:
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The Saudi riyal remains pegged to the dollar — Saudi Arabia still needs dollar reserves to maintain that peg, limiting any immediate shift away from the currency.
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It was not an immediate operational shift — Saudi Arabia continued accepting dollars for oil purchases, but now had the freedom to diversify over time.
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Analysts viewed it as a long-term structural shift, not an immediate crisis — at the time, forecasts from institutions like Goldman Sachs and the IMF suggested it would take 8–12 months for any real impact to emerge.
But those forecasts raised a provocative question: If the Trump administration saw this long-term erosion coming, did it push Israel toward war to artificially create a dollar-safe-haven rally?
The Speculative Strategy: War as a Dollar-Boosting Tool
Historically, geopolitical conflict in the Gulf has driven investors into the US dollar. The pattern was predictable:
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Geopolitical crisis → dollar surges 2% or more
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Investors flee to dollar safety
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US Treasuries bought as the ultimate safe haven
If the administration believed the petrodollar's end would eventually weaken the dollar, a controlled conflict could, in theory, provide a short-term boost—buying time and reinforcing the dollar's status as the world's safe-haven currency.
But if that was the strategy, the market evidence suggests it spectacularly backfired.
The Backfire: June 2025 — The Rally That Never Happened
When Israel launched major strikes on Iranian nuclear facilities in June 2025, something unprecedented occurred: the dollar barely rallied.
| Historical Pattern | June 2025 Reality |
|---|---|
| Geopolitical crisis → dollar surges 2%+ | Dollar rose only ~0.25% |
| Investors flee to dollar safety | Gold surged past $3,400; oil soared 10%+ |
| Treasuries bought as safe haven | Treasuries saw weak demand |
As Reuters noted at the time:
"The dollar's weak response to this latest Middle East conflict supports the narrative that investors are now reassessing their high exposure to dollars."
Analysts pointed to "three cracks" in the dollar's safe-haven status:
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Trump's trade policies — eroding trust in US economic predictability
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Soaring US fiscal deficits — raising concerns about long-term debt sustainability
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Questions about America's global leadership — particularly after the administration's handling of alliances
The crisis hit at a moment when the dollar was already trading at 3.5-year lows. The bounce was anemic. If the goal was to boost the dollar through conflict, the strategy did not work as intended.
Short-Term vs. Long-Term: A Tale of Two Timelines
Given these conflicting forces, the dollar's future is likely defined by volatility rather than a simple up or down trajectory.
Short-Term (Next 6 Months)
Expect the dollar to remain strong and volatile. Its strength will largely depend on how the Iran conflict evolves. If the conflict de-escalates, the dollar's safe-haven premium will fade. If it intensifies, the dollar may see temporary support—though the June 2025 precedent suggests that support may be weaker than in past crises.
Medium to Long-Term (1–3 Years)
The structural pressure from de-dollarization is expected to reassert itself. Once the current crisis subsides and the Federal Reserve begins cutting interest rates—likely to counter slowing growth—most major financial institutions forecast a gradual weakening of the US dollar. The DXY (Dollar Index) is forecast to end 2026 in the low-to-mid 90s, down from its current level around 100.
System-Wide Changes
We are moving toward a more complex global financial system. Energy trade will likely be conducted in a basket of currencies rather than exclusively dollars. New payment systems—such as China's Cross-Border Interbank Payment System (CIPS) and the multilateral mBridge project—will increasingly compete with the US-dominated SWIFT system.
The Escalation: Hormuz 2026 — From Symbolic to Coercive
Just when it seemed the de-dollarization trend was moving gradually, March 2026 brought a critical turning point.
Iran announced it would allow tanker passage through the Strait of Hormuz only if the cargo was paid for in yuan. This represents an escalation from voluntary diversification to coercive de-dollarization.
What makes 2026 fundamentally different from 2024:
| 2024: Petrodollar Non-Renewal | 2026: Iran's Hormuz Condition |
|---|---|
| Saudi can sell in yuan if they choose | Iran forces yuan for Hormuz passage |
| Voluntary diversification | Coercive condition on 20% of global oil supply |
| Gradual, diplomatic shift | Weaponized geography against the dollar |
| Long-term structural pressure | Immediate, disruptive pressure |
The Strait of Hormuz carries 20 million barrels of oil per day—roughly 20% of global supply. (While Saudi Arabia can bypass Hormuz via its East-West Pipeline to the Red Sea port of Yanbu, the 20% of global supply that still transits the Strait is now directly targeted.)
If Iran enforces this condition, it creates a direct choice for buyers: use yuan or find alternative routes at enormous cost.
Analysts describe this as Iran "choking the financial architecture that underpins global energy markets"—using geography to force yuan adoption in a way that directly threatens the petrodollar system's survival.
The Converging Forces: BIMSTEC, BRICS, and mBridge
The Hormuz move is an immediate shock, but it does not stand alone. It is converging with other structural forces that collectively threaten the dollar's dominance.
BIMSTEC: The Sleeping Giant
BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) includes seven nations: Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka, and Thailand—a region of nearly 2 billion people.
The Trump administration reportedly opposed member countries joining or deepening BIMSTEC engagement. The reasons are clear:
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It represents regional economic integration outside US-led frameworks
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It could facilitate trade in local currencies, bypassing the dollar
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It strengthens India and China's regional influence
The potential blow to the dollar would come through:
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Local currency settlement — BIMSTEC members could trade directly in rupees, baht, taka, etc., reducing dollar demand
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Energy import coordination — several members are major energy importers who could collectively negotiate non-dollar oil purchases
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Alternative payment infrastructure — BIMSTEC could develop systems bypassing SWIFT, building on platforms like mBridge
While BIMSTEC's local currency framework is still in development, its 2 billion people represent a market larger than the European Union—making it a sleeping giant in the de-dollarization story.
The Broader Convergence
Iran's yuan-for-oil precedent, combined with:
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BRICS expansion — adding major energy producers and consumers
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mBridge — which Saudi Arabia has already joined
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BIMSTEC's regional integration
...represents a set of converging forces that could provide a genuine alternative to the dollar in global markets.
Did Trump's Solution to the 2024 Saudi Petrodollar Agreement Backfire?The Bottom Line
| Question | Answer |
|---|---|
| Did the 2024 agreement cause an immediate dollar drop? | No — it was a symbolic end with a gradual transition |
| Did Trump push war to help the dollar? | If yes, it backfired — the dollar barely rallied in June 2025 |
| Has the Hormuz development backfired into long-term weakening? | Yes — this is the most direct challenge yet |
| Will BIMSTEC deliver a bigger blow? | Possibly — structural de-dollarization across 2 billion people |
The dollar remains the world's primary reserve currency, still accounting for roughly 59% of global reserves. But the pillars are cracking.
What was once conventional wisdom—"the dollar always rallies in crisis"—no longer holds. The next 12 to 24 months will reveal whether we are witnessing a temporary revaluation or the beginning of a genuine multipolar currency era.
If the Trump administration's goal was to preserve dollar dominance, its actions may have achieved the opposite—awakening the very forces that will ultimately erode it.
Written by : Sanjaya GunasiriCopyright © 2023 Pragmatic Engineering. All rights reserved.
