Twenty‑six years ago, the late Iraqi president Saddam Hussein made a decision that resonated far beyond Baghdad. He moved to price Iraq’s oil exports in euros instead of US dollars – a step interpreted by many observers at the time as both symbolic defiance and a practical attempt to loosen the financial constraints imposed by Washington’s sanctions regime.
By Suleyman Karan
While the shift alone did not determine Iraq’s fate, it fed into a wider confrontation with the US over sovereignty, regional power, and control of energy markets.
What followed is well known. After the 9/11 attacks, Iraq was invaded under the pretext of possessing chemical, biological, and nuclear weapons. Subsequent investigations found no active weapons of mass destruction programs, and key intelligence claims used to justify the war were later discredited or shown to be deeply flawed.
The occupation of Iraq – and Hussein’s eventual execution – sent a clear message across the region’s oil exporters: states that move to break the dollar’s grip on energy trade risk confronting overwhelming political and military pressure.
Yuan energy trade and the erosion of dollar discipline
For nearly two decades, that message held. But as emerging economies – above all China – expanded their weight in global production and trade, the structure of energy markets began to shift.
The Islamic Republic of Iran moved first. In 2021, Tehran signed a 25‑year strategic agreement with Beijing and soon began selling as much as 95 percent of its oil in yuan. Washington viewed this as a contained risk so long as the practice remained limited to Iran. It did not.
In 2023, an agreement between Saudi state energy giant Aramco and China’s Sinopec pushed as much as 65 percent of bilateral oil trade into yuan settlement. Increasingly, transactions were conducted using the digital yuan (e‑CNY) – widely seen as the currency most capable of weakening dollar dominance in global payment systems.
That same year, Qatar – one of the Persian Gulf’s most important natural gas exporters – signed a long‑term liquefied natural gas (LNG) deal with PetroChina. Again, the dollar was bypassed.
By 2025, a series of developments was unsettling Washington. Saudi Crown Prince Mohammed bin Salman (MbS) continued positioning the kingdom as a “swing state” between the White House and BRICS powers in an effort to secure leverage in a shifting world order.
The UAE emerged as a correspondent banking hub for Iran–China trade while simultaneously advancing toward BRICS membership. Riyadh itself waited at the organisation’s threshold.
Qatar followed a similar trajectory. Meanwhile, the Ankara–Doha axis deepened cooperation as both capitals sought greater regional influence. These shifts were mirrored in Gulf Cooperation Council (GCC) initiatives. Bahrain, the UAE, Kuwait, Qatar, Saudi Arabia, and Oman jointly convened with China and the Association of Southeast Asian Nations (ASEAN), signalling an expanding Eurasian economic horizon.
Washington’s energy containment strategy
For the US, a yellow alert was fast turning red. The latest National Security Strategy reflected increasingly neo‑mercantilist priorities. Venezuela became the first target. Through a combination of pressure and intervention, Washington sought to secure crude supply lines while reaffirming its claim to hemispheric primacy. In doing so, it also disrupted a key energy artery feeding China’s economy.
Iran, however, remained defiant. External pressure and attempts to ignite internal unrest failed to produce regime collapse.
On 28 February, the US and Israel launched attacks under the assumption that Iran would be subdued quickly. By the 25th day of the war, that expectation had already failed. The fighting continued and spread across the Persian Gulf.
Tehran’s strategy of widening the confrontation into the Persian Gulf has imposed mounting economic costs on Washington and its allies. The consequences extend beyond disruptions in crude supply chains. Shockwaves are now visible across global finance, trade, and industrial production.
Hormuz disruption and the backlash against US allies
Between 20 and 38 percent of global crude trade transits the Strait of Hormuz. Today, flows have slowed to a trickle even though Iran has not formally declared the waterway closed.
The scale of the disruption is stark. In 2025, roughly 20 million barrels per day (bpd) of crude and refined products passed through the strait. In 2024, nearly one‑fifth of global LNG shipments moved along the same route.
Analysts warn that severe disruption to Persian Gulf shipping could remove several million bpd from global supply, pushing output toward levels last seen during previous market shocks.
Partial recovery in US, Russian, and Kazakh output may offset some losses, but the imbalance remains acute.
The irony is that, from the earliest days of the operation launched by the alliance to topple the government in Iran, the greatest damage of the war has been inflicted on US allies – a sign of the White House’s poor calculations.
India, Japan, the Republic of Korea, Taiwan, and Thailand are among the most exposed. Japan imports around 90 percent of its crude from West Asia, much of it via Hormuz. South Korea sources roughly 70 percent from the region, with over 95 percent transiting the strait.
Indian Prime Minister Narendra Modi has faced domestic criticism following his pre‑war visit to Tel Aviv. Russia’s willingness to expand oil exports to India has eased some pressure. Without that lifeline, the situation could have deteriorated rapidly.
Japan convened an emergency monetary policy meeting as market turbulence deepened. Officials debated selling more than $600 billion in US assets to stabilise domestic markets.
Seoul confronts an equally daunting dilemma. Its export‑driven industrial base depends heavily on imported energy. Even major chaebol conglomerates now face uncertainty over sustaining production.
Scrambling for alternative routes and fragile supply fixes
Regional producers are attempting to contain the fallout. Saudi Arabia, the largest OPEC producer, has sought to redirect exports through Egypt’s SUMED Pipeline.
Iraq, cut off from its primary export channel through Basra, halted output at the South Rumaila field. Iraqi Oil Minister Hayan Abdulghani announced on 12 March that up to 200,000 bpd could be rerouted via tanker shipments through Turkiye, Syria, and Jordan – potentially expanding northern export capacity by as much as 450,000 barrels daily.
Under mounting pressure, the Kurdistan Regional Government approved the plan. Yet the viability of these shipments depends heavily on whether Iranian missile and drone strikes target Iraqi energy infrastructure.
Financial markets wobble as Gulf economies brace for contraction
Markets reacted swiftly once it became clear the conflict could engulf the region. On 4 March, Asian equities plunged: Shanghai lost nearly one percent, Japan’s Nikkei fell more than three percent, Korea’s KOSPI dropped over 12 percent, and Hong Kong’s Hang Seng declined two percent. European bourses registered modest gains, while US markets initially opened higher.
Analysts have recently warned that equity losses still failed to reflect the scale of disruption in global energy supply – suggesting deeper corrections ahead.
In Gulf markets, Iranian drone strikes on a major oil terminal in Fujairah shook investor confidence. Although operations later resumed, uncertainty persisted. Dubai’s benchmark index slid 1.7 percent, weighed down by a sharp drop in Emaar Properties shares. Since hostilities began, the index has lost roughly one‑fifth of its market value.
Abu Dhabi’s market capitalisation shrank by more than $77 billion. Qatar’s main index also declined, with shares of regional banking giant QNB falling two percent.
Investment bank Goldman Sachs warns that prolonged closure of Hormuz could push Qatar and Kuwait into GDP contractions of up to 14 percent this year – their worst downturn since the early 1990s Gulf War. Saudi Arabia and the UAE may fare slightly better due to alternative export routes, but still face economic declines of three to five percent.
Energy winners emerge as prices surge beyond West Asia
A handful of producers stand to benefit. Russia tops the list. Restrictions on its energy exports are gradually loosening, while deeper ties with China and renewed Indian demand bolster revenues. Even the EU now debates how to work around its own embargoes.
Other potential beneficiaries include North Sea producers Norway and the UK, shale‑rich Canada, resource‑heavy Venezuela, and the US itself. Australia and Brunei could also see gains.
Oil prices have swung sharply. After an 11 percent drop on 23 March, fears of escalation pushed Brent crude back toward $104 per barrel – far above the $72 levels seen before the war. Producers outside West Asia are therefore positioned to reap windfall profits.
Petrodollars, debt, and the hidden engine of global finance
Gulf oil exporters do more than supply hydrocarbons. They generate the liquidity that lubricates global finance. Petrodollar recycling underpins bond markets from London and New York to Frankfurt and Tokyo.
This steady capital flow has allowed heavily indebted western economies to borrow with relative ease. US public debt alone has reached $39 trillion, with another $5 trillion in borrowing anticipated this year.
Market volatility since the outbreak of US–Iran hostilities reflects growing anxiety about whether this financial architecture can endure.
Market uncertainty defies safe‑haven logic
Typically, geopolitical crises push investors toward gold and other traditional havens. This time, the pattern has broken. During the first two weeks of fighting, the S&P 500 fell nearly four percent, the Nasdaq lost three percent, gold dropped 5.5 percent, and silver plunged more than 13 percent.
Part of the explanation lies in liquidity pressures. Rising oil prices have forced market participants to sell gold in order to cover energy costs. At the same time, uncertainty over how aggressively central banks – particularly the Federal Reserve – will tighten policy has weighed on precious metals.
A strengthening dollar index complicates matters further. For proponents of the “Make America Great Again” (MAGA) economic vision, which relies on low interest rates and a weaker dollar to sustain industrial revival and debt refinancing, the current trend is deeply unsettling.
The crisis extends far beyond energy markets. Hormuz has become a chokepoint in a tightly interlinked global commodity network. Even where shipping continues, higher insurance premiums and freight costs are rippling through supply chains.
War‑risk insurance has been repriced or withdrawn altogether. Maritime transport costs have surged. The impact is felt in both energy and non‑energy trade.
Unexpected vulnerabilities are now visible. Disruptions at Qatar’s Ras Laffan energy hub have halted roughly one‑third of global helium supply – a critical input for semiconductor manufacturing and medical imaging.
Fertilizer shortages pose an even more serious threat. The Persian Gulf is a major source of urea, ammonia, and sulfur. With exports curtailed, the global fertilizer supply chain has contracted by about one‑third, raising the specter of a wider food crisis.
Logistical bottlenecks have prevented nearly half of the 2.1 million tons of urea scheduled for export in recent weeks from reaching ships. Credit rating agency Fitch has already revised its price forecasts upward.
A strategic rupture that could reshape the monetary order
If Washington fails to secure its objectives, the Hormuz disruption could evolve into a classic “black swan” moment. The dollar’s share of global reserves has already declined from 71 percent to 59 percent. A prolonged energy shock could accelerate that trajectory.
The unprecedented data point of zero tanker traffic recorded on 12 March may mark the symbolic end of an era in which oil was inseparable from the greenback. Should the petrodollar system fracture, the geopolitical consequences would be profound.
The credibility of US military power would face renewed scrutiny. Its financial dominance could erode. And across Eurasia and the Global South, states would intensify their search for strategic autonomy within an emerging multipolar order.
Source: The Cradle
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