The petrodollar: the biggest MYTH in geopolitics

TL;DR

The 1974 US-Saudi deal never required oil to be priced in dollars — it was about oil price stability, not dollar dominance.

Key Points

• 1.The 1974 US-Saudi agreement did not require dollar-only oil pricing. Declassified Bloomberg FOIA documents show the deal focused on recycling petrodollars and oil price stability — with zero mention of USD transaction exclusivity. The Saudis kept accepting British pounds well after signing.
• 2.The petrodollar myth likely arose because deal details were secret for decades. The Nixon-Faisal agreement established a joint economic commission, but its confidential nature allowed a distorted narrative — that the dollar's reserve status depended on oil pricing — to take hold.
• 3.The dollar was already the dominant reserve currency before the 1974 deal. By 1976, USD overwhelmingly dominated official central bank reserves globally; copper exporters in South America and industrialists in Europe and Japan were already invoicing in dollars, driven more by eurodollar markets than petrodollars.
• 4.Gulf states needed US markets more than the US needed petrodollars. Even at peak 1980s Saudi treasury holdings, Gulf countries held only a tiny fraction of US debt — far less than Japan, UK, India, or Ireland — because only US markets were liquid enough to absorb their oil revenues without destabilizing prices.
• 5.Oil's share of the global economy has shrunk dramatically, weakening the petrodollar argument further. Oil transactions were 13–15% of US GDP during the 1979 crisis but are only 5–7% today; East Asian manufacturing surpluses now dwarf Gulf oil surpluses as sources of dollar demand.
• 6.The entire oil market ($3 trillion/year) is dwarfed by foreign exchange markets ($9.6 trillion/day). Annual oil trade equals roughly 0.12% of annual forex volume (~$2,496 trillion), making the idea that oil pricing currency determines dollar dominance mathematically absurd. The US is also now a net oil exporter since 2020.