The Petro-Dollar Isn’t Dead — But the Center of Gravity Is Moving

If you want to understand power, don’t start with speeches — follow the dollars. There’s no purer expression of free-enterprise dynamism than the global energy market. And there’s no system more distorted by taxes, subsidies, sanctions, tariffs, quotas, export controls, and emergency stockpile releases. Both things can be true at once.

The “petro-dollar” order, oil priced and settled mostly in U.S. dollars, still underwrites American financial strength. But the currency of choice is evolving in real time. I wrote that more than a year ago; since then the trend has accelerated, not as headline theatrics, but as a slow, structural re-routing of payment pipes.

The market is free, until it isn’t. Governments shape this “free market” every day. Fossil-fuel consumption subsidies surged during the energy crisis and remain immense, blunting price signals and tilting competition; the International Energy Agency (IEA) tracks these in the hundreds of billions annually. Add sanction regimes and the G7 price cap on Russian crude, and you get a multi-tiered market where the same molecule trades at different prices depending on paperwork, insurers, and flags on the stern. This is why a “shadow fleet” and ship-to-ship transfers have become a business line, not a footnote.

Oil deals in non-dollar currencies are now normal, especially around Russia. Since sanctions, India has routinely paid for Russian crude in UAE dirhams via Dubai-based traders; some flows have settled in yuan, though Delhi has pushed back on making Renminbi (RMB) the default. A widely touted rupee mechanism never scaled. This isn’t theory anymore; it’s the operating handbook for Indian refiners buying discounted barrels. China, meanwhile, has shifted a large share of Russia-related commodity settlement into yuan, with bilateral trade hitting records even as banks tiptoe around U.S. secondary-sanctions risk.

These payment workarounds aren’t costless: routing through intermediaries, compliance friction, and periodic payment bottlenecks have even pushed some flows toward barter or crypto-facilitated conversions at the margins. But the direction of travel is unmistakable: less automatic dollar use in politically sensitive energy trades.

The reserve math is simple; the dollar still dominates, by a lot. Zoom out. If the petro-dollar were “over,” you’d see it first in reserves and payments. You don’t. The U.S. dollar still accounts for ~58% of disclosed global foreign exchange reserves; the euro ~20%; the RMB ~2–3%. In payments, RMB’s global share has hovered below 3% this summer; and in foreign exchange trading, the dollar sits on ~88% of all transactions — unchanged for decades.

Translation: the architecture still runs on dollars, even as workarounds spread at the edges.

Why does it matter for the U.S. economy? The dollar’s status confers an “exorbitant privilege”: global demand for dollar assets lowers U.S. borrowing costs and gives Washington unmatched sanctions leverage. That privilege isn’t binary; it’s a spread. If more oil trade clears in dirhams or yuan, and more central banks diversify incrementally, the spread can narrow. You feel that as marginally higher Treasury yields over time, less effortless financing of twin deficits, and a bit less bite when Treasury wields financial sanctions. None of that requires a “sudden death” of the petro-dollar — only a grind.

Free market vs. managed market; we must accept the paradox. Energy remains the world’s most global, liquid, and price-disciplined market. It is also the most politically managed. Sanctions, subsidies, and climate-policy incentives will keep fragmenting settlement channels even as benchmarks stay dollar-denominated. That’s the paradox executives must manage: price risk in dollars; settlement risk in a growing menu of currencies, banks, and jurisdictions.

What to watch next and why I’m still “following the dollars”:

India–UAE rails: If rupee–dirham direct settlement scales, expect more India-linked oil to clear without dollars. Watch Reserve Bank of India guidance and oil marketing companies behavior.

China–Russia mechanics: The yuan will remain the path of least resistance, but de-risking by Chinese banks keeps the plumbing fragile. Any U.S. sanctions tweak that threatens RMB clearing for Russia will ripple into oil.

Reserves and payments data: Currency Composition of Official Foreign Exchange Reserves (COFER) and Society for Worldwide Interbank Financial Telecommunication (SWIFT) will show whether diversification is creeping (it is) or surging (it isn’t). Small changes matter at the margin for Treasury demand.

Price-cap enforcement: The harder the cap is enforced, the more incentive for non-dollar routes and shadow capacity — until enforcement bites again. Expect oscillation, not resolution.

The bottom line is that there’s no cleaner lab for free markets than energy — and no messier arena once state power shows up. The dollar’s network effects remain overwhelming; it’s still the default for reserves, payments, and foreign exchange. But the edges are fraying in politically exposed barrels, and that’s exactly where tomorrow’s norms are born. If you care about strategy, risk, or policy, keep doing what I was taught in business: follow the dollars — and watch this space.