Petrodollar System Under Stress as Dollar Reserve Share Falls

The Petrodollar System: A 50-Year Structure of Global Economics

In 1974, the US and Saudi Arabia signed a public agreement on military and economic cooperation. This marked the beginning of the petrodollar system, where global oil sales are priced and settled in US dollars.

Oil-importing countries hold dollars in reserve to buy oil, creating structural demand for the US currency. Oil-exporting nations accumulate dollar surpluses, which they invest back into US Treasury bonds and other dollar-denominated assets, known as petrodollar recycling.

This process created a self-reinforcing loop that sustained global demand for the dollar. The US could run persistent trade deficits without currency collapse due to artificially low interest rates.

However, several forces are weakening the system's foundation. The dollar's reserve share has fallen from 72% in 2001 to approximately 57% in 2025. Oil-exporting nations have less to recycle as Saudi Arabia ran a deficit of $33 billion in 2025.