Petrodollar Gangsterism (w/Richard Wolff)
On ambition, supply lines, and the decline of empire.
In my recent conversation with economist Richard Wolff he traced the arc of American fiscal supremacy, from the “petrodollar” arrangement that locked the world into dollar dependency to the slow unraveling now being accelerated by China’s rise, Iran’s leverage over the Strait of Hormuz, and the fundamental logic of capitalism itself.
This topic is becoming more timely and important than ever as the battle intensifies for control of the strait of Hormuz. For that reason, I’m excerpting that portion of our conversation and republishing it on a stand-alone basis.
Prof. Wolff helped me articulate something I’ve long believed: that the fragility of this system wasn’t accidental, butt was baked in by profit-maximizing logic that never had to account for the true costs of overextension. Together we explored how the same incentive structure which built the empire is now dismantling it—chokepoint by chokepoint, currency by currency, hour by deadly hour.
Key Quotes
“The petrodollar was a deal that’s best understood as if we were talking about gangsters—and maybe that’s what we are.”
—Richard Wolff
“I think we’re going to see a world that increasingly rebels against the oppressive nature of this financial system, severing these various arteries one by one.”
—Richard Eskow
“America never funds wars through taxation, because if the taxpayers had to foot the bill directly they would oppose them.”
—Richard Wolff
“A global system that is too dispersed is like an army that overextends its supply lines. It becomes fragile.”
—Richard Eskow
Transcript (lightly edited)
Richard Eskow: I think a lot of people have seen the word “petrodollar” in the news over the years without really understanding what it means. And this gets to the heart of something important. One of the ways I’d argue the current economic world order is essentially a spoil of war for the United States — perhaps going back to World War Two.
Correct me if I’m wrong, but you had Bretton Woods, you had the idea that the world’s currencies would be linked to the dollar, and you had this whole concept of petrodollars. Now, with the war involving Iran, we’re starting to hear the term “petroyuan” for the Chinese currency.
Could you take a minute and clear up any misconceptions about that?
Richard Wolff: Sure. You’re absolutely right. The petrodollar is in the process of disappearing. That’s really part of the broader decline of the dollar from its role as the world’s ultimate reserve currency — a role it held for most of the last 75 years, but which it has progressively shed. Now, less than half of the world’s reserves are held in dollars.
The petrodollar was a deal that’s best understood as if we were talking about gangsters — and maybe that’s what we are. The United States figured out right after World War II that the energy of the future was petroleum. A lot of people knew that even before the war, but by the time it ended, it was clear that industrialization everywhere in the world would require oil, and lots of it. In those days, oil was mostly coming from the Middle East. We had some in Texas, but it was already clear that would never be enough. The modern era of fracking was not yet imaginable.
So in the aftermath of World War II, a deal was cut — led by the United States and Britain — carving up the desert around Saudi Arabia into seven or eight little countries, with Saudi Arabia being the primary one sitting atop enormous oil reserves. And we created these countries out of nothing: Qatar, Bahrain, Kuwait, the United Arab Emirates, and others like them.
Here’s how the deal worked. In each case, a particular local family was told: “You can become billionaires. You will be the head of a country. We’ll set it up, we’ll draw the boundaries on a map” — exactly as European colonialists had been doing across Asia, Africa, and Latin America for the previous three centuries. And they were all for it.
“Each of you gets a cut of the oil. We — five American companies, two European companies, the Seven Sisters — will come and extract it. You can participate over time and take a nice cut off the top. A cut that will transform you overnight from a rural desert family into a sultan, an emir. You can buy châteaus in the south of France for your vacations. You will be among the richest people on the planet.”
And here’s the rest of the deal: “We, the Americans, are the world’s dominant buyers of oil because we’re the dominant economy. You’re going to sell oil to us, and we’re going to pay you in dollars. But we’re going to require you to demand payment in dollars from anyone in the world who buys oil from you. That’s the arrangement. You have to do that if you want us as your customer — and we’re the major buyer.”
And there was one more condition. All those dollars flowing in — from America and from every other country that buys your oil — you have to commit to investing them back in the United States. That means buying shares in American companies, though we won’t let you acquire controlling stakes. And the rest? You lend it to the United States government.
Americans know that when we run a budget deficit — currently over a trillion dollars a year — it’s because the government spends more than it collects in taxes. Did you ever wonder who lends Washington the money to do that? Well, as it turns out, one important group of lenders is the Gulf state rulers — the very gangsters in this arrangement — who send their oil dollars right back to us as loans.
So we send the dollars over there, they send the oil to us, and then they send the dollars back to us as loans. It’s a circular, gangster arrangement, paid for entirely by the money we all spend on oil. It is a racket that will be celebrated throughout history for the extraordinary way the American empire organized the global oil business to sustain itself.
Because when the Gulf states lend money to the United States, the United States uses it to fight wars — in Afghanistan, Vietnam, and now Iran. America never funds wars through taxation, because if the taxpayers had to foot the bill directly, they would oppose them. So wars have to be financed through borrowing, and that requires lenders. And a good chunk of that lending — not all of it, but a good chunk — flows from this gangster arrangement.
By the way, it’s falling apart. Because what the Iranians are teaching the Gulf states is this: having an American military base on your soil doesn’t protect you. It makes you a target. A target of whom? Of Iran. “Because the United States attacks us,” the Iranians say, “we are going to attack the United States — and you’ve welcomed them onto your soil. You’d better rethink that.”
And no matter what they say publicly, they are all rethinking it. Like Europe, in a different way, they now have to ask: whether aligning with the United States was betting on the wrong horse.
Richard Eskow: And this is where it gets particularly interesting in terms of current events — and correct me if I’m wrong — but my understanding is that the Iranians, by threatening to block the Strait of Hormuz, are effectively saying: “We won’t let your oil through unless it’s being purchased in something other than dollars.” If that’s correct, it means the world’s preeminent superpower could potentially lose this extraordinarily cushy arrangement because of the concentrated military leverage Iran holds over one region, one bottleneck — and they may be able to unravel the whole thing. Could I be right about that?
Richard Wolff: Absolutely. I’m not yet certain about the yuan specifically, but I wouldn’t be surprised. What we do know is that the Iranians have long told the Chinese — and as far as I can tell have consistently honored this — that ships registered to Chinese enterprises and carrying oil from Iran to China are allowed through the Strait of Hormuz without any interference. People should understand that Iran has long been a major oil supplier to China; that’s nothing new.
My guess is the Iranians will now be more than happy to accept payment in yuan — both because they want to undercut the dollar, and because of a much larger underlying phenomenon: China is now the world’s fastest-growing major economy and its second largest overall. They will surpass the United States by the end of this decade. We’re already in 2026, so I’m talking about the next four years. Within four years, China’s economy will be larger than America’s.
Why does that matter? Because it means the entire world has been doing for twenty years what it will only continue doing more: buying less from the United States and more from China. And so the world needs fewer dollars and more yuan, because that’s where the action is.
This is precisely how the dollar replaced the British pound. It didn’t happen in a single day — it was the gradual result of where economic gravity was shifting. The Germans had hoped the world would end up using the deutsche mark, and had they not lost World War I, they might have been right. But they lost, and then they lost again in World War II, which took them out of contention entirely. The only other competitor to Britain was the United States, and the U.S. became where everybody wanted to buy. After World War II, you couldn’t get much of anything anywhere else anyway, which cemented it immediately. And the Marshall Plan reinforced it: we gave Europe dollars on the condition they spend them here, ensuring that American companies captured all that postwar spending.
The next 75 years reproduced that dynamic through the Cold War and the entire structure of the American empire. Another sign that the empire is passing is that we’re having this very conversation — that the dollar matters less and less, and the yuan is playing the role the dollar once played. It’s all quite clear, except that we live in a country with a desperate need to deny everything I’ve just said. To pretend that each of these events is isolated, specific, and not part of a larger pattern of decline — because that is simply too frightening a thought to entertain.
Richard Eskow: I’d add something to that decline narrative. We decided we were going to be the captains of a global financial system — but a global system, like an army that overextends its supply lines, becomes fragile. The Bab el-Mandeb Strait closed by the Houthis — that was an overextended supply line. The Strait of Hormuz carries two and a half to three times the volume, and it’s another overextended supply line. I think we’re going to see a world that increasingly rebels against the oppressive nature of this financial system, severing these various arteries one by one. And I think it reveals that this empire is vulnerable not just to a rival power like China, but to its own overextension and internal fragility. Would you agree?
Richard Wolff: Absolutely — and I’d go one step further. For me, the root issue is profit. Over the last 75 years, we allowed the maximization of corporate profit to determine the global distribution of our entire economy. It was profitable to stop making automobiles in Detroit and make them in China instead. Fine — but that globalized the automobile industry in ways it had never been before. And you can multiply that across virtually every other industry.
Profit says: make more money over there. But the ecologist says: yes, you make more profit, but you’re fouling the ocean shipping that product back from China to the United States — and where is that cost accounted for? If you factor in what will happen to fisheries, to public health, to the oceans themselves, and you count what it will ultimately cost to repair the damage, that cost exceeds the extra profit you extracted. We would have been better off keeping those jobs in Detroit. But nobody did that calculation. Capitalism doesn’t work that way. Capitalism defines efficiency as profit maximization — and it has never been truly efficient. That’s a fetishism of the system that we ought to have outgrown long ago.
If you want to understand why we have these long, fragile supply lines, why their vulnerability was never properly accounted for, it’s because private capitalists never had to pay for that fragility. They didn’t have to worry about a choke point in a distant strait. They were too swept up in the logic of profit to think outside that frame. And that is a catastrophic mistake — one that is now bringing the system down.
I would argue that this systematic fetishization of the capitalist calculus is as fundamental as anything else in undermining this empire.
Richard Eskow: And I would argue — perhaps in closing — that even if everyone involved had fully understood decades ago that this would be the outcome, they would have done it anyway. Because the incentive structure of capitalism is quarterly and annual. If it’s going to blow up in 20, 30, or 40 years — who cares? We’ll be long gone by then.
Richard Wolff: So I will have moved on, having left this company to become the CEO of another. As Louis XV supposedly said: “Après moi, le déluge” — after me, the flood. But that mentality is shaped by the system itself, isn’t it?
Richard Eskow: “I’ve got my island retreat in New Zealand, so I’ll be fine.”