In 1973, the United States made a deal with Saudi Arabia that quietly reshaped the global financial system for the next half century. Most Americans have never heard of it. Almost none were taught about it. And yet it has affected the price of everything they buy, the interest rates on every loan they carry, and the purchasing power of every dollar they earn.
Here is what happened.
After President Nixon ended the dollar's convertibility to gold in 1971, the dollar needed a new anchor — something that would give the rest of the world a reason to continue holding and using dollars rather than switching to alternatives. Secretary of State Henry Kissinger negotiated a solution with the Saudi government: the United States would provide military protection and security guarantees to Saudi Arabia. In return, Saudi Arabia would price its oil exclusively in U.S. dollars and invest its surplus oil revenues in U.S. Treasury bonds. The other OPEC members eventually followed.
The practical effect of this arrangement was significant and sustained. Because oil — the most traded commodity in the world — was priced in dollars, every country that needed to buy oil needed to acquire dollars first. This created a permanent global demand for dollars that had nothing to do with the strength of the U.S. economy. Countries held dollars in reserve not primarily because they trusted the U.S. government but because they needed dollars to buy the energy their economies ran on.
This arrangement gave the United States what French finance minister Valéry Giscard d'Estaing famously called an "exorbitant privilege" — the ability to run persistent trade deficits, borrow at lower interest rates than any other country, and expand its money supply without the full inflation penalty landing domestically. Some of the inflationary pressure from U.S. money creation got exported to the rest of the world because global dollar demand absorbed it. The U.S. has run a continuous goods trade deficit since 1975 — importing more than it exports every single year for fifty years — without the currency crisis that would have devastated any other economy doing the same thing.
That arrangement is now showing visible strain.
In 2018 China launched its own oil futures contract priced in Chinese yuan on the Shanghai International Energy Exchange. If you want to sell oil to China, you can now accept yuan instead of dollars. That contract is now one of the most actively traded oil contracts in the world. In January 2023, Saudi Arabia's finance minister stated publicly at the World Economic Forum that the kingdom was open to discussing oil settlement in currencies other than the dollar — a statement from the original architect of the petrodollar arrangement that would have been unthinkable a decade earlier.
Then there was 2022. When the United States and its allies froze approximately $300 billion in Russian central bank reserves following the invasion of Ukraine, the message to every other government holding dollar reserves was unmistakable: if your foreign policy conflicts with Washington's, your reserves can be taken away. Every government with significant dollar holdings — China, India, Brazil, Saudi Arabia — drew its own conclusions. The dollar's share of global foreign exchange reserves has declined from over 70% in the early 2000s to approximately 59% today. That is a slow and steady decline that has been running for two decades.
And in May 2026, the United Arab Emirates officially withdrew from OPEC — taking with it roughly 12% of the cartel's total oil output and raising open questions about whether other members may follow. An OPEC that cannot hold its members is an OPEC with considerably less power to enforce the dollar-pricing arrangement the petrodollar system was built around.
None of this means the dollar collapses next year. There is no currency currently positioned to replace it at the scale required. But the shock absorber that has cushioned American households from the full consequences of deficit spending and money creation for fifty years is showing signs of weakening. When a shock absorber weakens, the bumps it used to smooth out start reaching the passengers.
The consequences for American households are traceable: upward pressure on mortgage, auto, and credit card rates as foreign demand for Treasury bonds declines. Rising costs on imported goods as a weakening dollar makes overseas manufacturing more expensive in dollar terms. Inflation that used to get partially absorbed by global dollar demand instead staying home.
You have probably already felt early versions of some of these things.
Understanding the mechanism does not require a finance degree. It requires someone explaining it honestly — which is what Pathfinders: Money Decoded and Pathfinders: The Digital Money Revolution are built to do.
Welcome to the territory. Let's figure out where we're going.
— L.J. Casados