Credit: U.S. Navy photo, Wikimedia Commons
March 30, 2026
Geopolitical Monitor
By Zachary Fillingham
The global order has long rested on two pillars. The first is the taboo of territorial acquisition by military force, enshrined in the UN Charter following an apocalyptic World War. Second is the post-Bretton Woods petrodollar system, where oil flows from the Middle East are priced exclusively in US dollars, enabling a system of global trade that runs through US financial circuits.
The first pillar has already been toppled, as testified by recent events in Ukraine, Armenia, northern Syria, and perhaps soon Afghanistan and southern Lebanon. And now with the advent of the Iran war, the second pillar – the petrodollar – is coming under increased strain.
March 30, 2026
Geopolitical Monitor
By Zachary Fillingham
The global order has long rested on two pillars. The first is the taboo of territorial acquisition by military force, enshrined in the UN Charter following an apocalyptic World War. Second is the post-Bretton Woods petrodollar system, where oil flows from the Middle East are priced exclusively in US dollars, enabling a system of global trade that runs through US financial circuits.
The first pillar has already been toppled, as testified by recent events in Ukraine, Armenia, northern Syria, and perhaps soon Afghanistan and southern Lebanon. And now with the advent of the Iran war, the second pillar – the petrodollar – is coming under increased strain.
Weaponizing The Strait of Hormuz
The Iran war has laid bare the strategic value of the Strait of Hormuz in no uncertain terms. Tehran has leveraged its long coastline and decentralized offensive capacity to menace energy supply chains, imposing wide-ranging economic costs and boosting its own negotiating leverage. That the Abraham Lincoln Carrier Strike Group is operating somewhere in the Arabian Sea signals the enduring risk of Iranian mines, missiles, fast boats, and drones in and around Hormuz, and this is unlikely to change any time soon. Many of these factors are known quantities, having been gamed out and pored over by officials and analysts before the war broke out.
A more novel development can be found in Iran’s negotiating position, specifically Tehran’s ceasefire proposal which includes a demand for exclusive sovereignty over the Strait of Hormuz. It comes amid reports that the Iranians are drafting a law to permanently introduce tolls on ships transiting the Strait. The law would formalize a status quo already materializing for ships transiting in wartime, with some vessels paying transit fees in yuan and others securing safe passage via diplomatic channels, as per Lloyd’s List. The traffic represents a trickle of the normal volume, with just one pre-war day’s worth passing through the Strait since March 2.
A toll on a strategic chokepoint is not without precedent. Egypt generated approximately $10.3 billion in revenues from tolls on the Suez Canal in 2023, and Turkey charges a per-tonnage rate to transit the Bosphorus and Dardanelles. Both are exceptions under international maritime law, as UNCLOS prohibits coastal states from imposing tolls, due to their falling under international conventions predating the United Nations. Strictly speaking, in a legal sense the Strait of Hormuz would fall under UNCLOS’ jurisdiction under international law. However, since we’re not exactly living in a golden age of liberal internationalism, facts on the ground tend to eclipse the letter of the law. Iran is now doing what it can to make sure these facts serve its long-term interests.
Sanctions are another consideration, since ships currently traversing the Strait are technically paying tolls to the IRGC, a sanctioned entity. Yuan-denominated tolls dovetail on other longstanding efforts to establish alternative payment methods for Iranian oil, all with a shared goal of placing these financial flows outside the purview of US surveillance and enforcement. Zoom out further and they can be situated in the broader BRICS effort to push toward the de-dollarization of global trade.
A Breakdown of Bitter Lake?
The security of Gulf states is another crucial determining variable in the future of the petrodollar. This was the core of the original pledge at Great Bitter Lake in 1945 – oil for security – a promise that was later renewed and expanded on amid the oil crisis in 1974. The resulting diplomatic infrastructure undergirds the petrodollar system that has endured to this day.
But all of this hinges on the United States’ ability to ensure the security of its Gulf partners, and the Iran war is openly calling this ability into question.
It’s clear that the wellbeing of Gulf states did not figure prominently in the design or execution of US-Israeli war planning. Gulf leaders were not notified before the February 28 strikes, and the operation ultimately produced the very wave of retaliatory strikes that had long been predicted by both Gulf and US domestic intelligence organs. Gulf economies are now the frontline in a war they did not start: Kuwait and Qatar could suffer 14% drops to annual GDP should the war last through April, and Saudi Arabia and the UAE also face 5% and 3% drops respectively. Moreover, these projections from Goldman Sachs cannot account for the more intangible and long-term economic impacts of shifting perceptions, from ultra-modern desert mirage to dangerous geopolitical flashpoint. Finally, despite having played the tragic part of Cassandra, Gulf leaders are still being sidelined in diplomatic efforts to reach a ceasefire, with the current (abortive) effort running through Pakistan instead.
It’s safe to say that the current configuration is not serving the needs of Gulf states in an optimal way.
Over the short-term, Gulf capitals have few appealing options to stabilize their economies and domestic political orders. But the outlook gets more clouded when one considers the long-term. Here the tyranny of proximity is inescapable: Iran is close, the United States is far. During the era of unrivaled US hegemony, it was possible to bridge this gap. But that era is now coming to an end and Gulf capitals must hedge their bets for whatever comes next.
The outcome of the Iran war will go far in determining how these hedging strategies play out. The conflict is rhyming with recent history in illustrating the limits of what military power can achieve, but advances in asymmetric warfare also set it apart. Iran’s decentralized tactics and low-cost arsenal allow the regime to maintain a deterrent capacity and impose costs despite having already been ‘overwhelmingly destroyed,’ as per the US government. This doesn’t just allow the Iranian regime to remain on the chessboard longer and increase its negotiating leverage through economic carnage. It also strikes at the heart of the qualitative US military advantages that made the Bitter Lake pact possible in the first place. The costs of deterrence are spiking, buoyed by expensive interceptors and the downing of ‘untouchable’ F-35s by far less sophisticated systems. These costs then feed back into a US domestic context that is increasingly fiscally constrained, wary of new foreign interventions, and had previously been engaged in a long-term strategic pivot away from the Middle East. The result is a security guarantee being questioned on both sides of the equation.
Looking Ahead
The US dollar maintains a singular importance in the global economy, accounting for 56% of global foreign exchange reserves and 89% of all foreign exchange market trades. In other words, de-dollarization efforts have a long way to go before the greenback is displaced in any meaningful way.
Yet the Iran war strikes at the heart of the petrodollar system that global finance runs on. It calls into question the viability of US deterrence in the age of drone warfare, and it amplifies doubts that Washington can remain engaged long-term. Over time, Gulf leaders may conclude that their security needs are better served through accommodation with the enemy just beyond the horizon rather than reliance on the ally a world away.
This article was published by Geopolitical Monitor.com
Geopoliticalmonitor.com is an open-source intelligence collection and forecasting service, providing research, analysis and up to date coverage on situations and events that have a substantive impact on political, military and economic affairs.
Geopoliticalmonitor.com is an open-source intelligence collection and forecasting service, providing research, analysis and up to date coverage on situations and events that have a substantive impact on political, military and economic affairs.
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