Posted:March 13, 2026
Categories: China, Commodities, Economy, Fiat Currency, Geopolitics, Gold, Inflation, US Dollar
War.
Webster’s 1828 Dictionary states, war is “A contest between nations or states, carried on by force, either for defense, or for revenging insults and redressing wrongs, for the extension of commerce, or acquisition of territory, or for obtaining and establishing the superiority and dominion of one over the other…” (Webster, 1828) ¹
We can all make a glancing study of history and see that war has existed throughout recorded time. In this article, I will attempt to connect some historical dots to what’s happening in Iran, China, and our global financial system as they relate to energy and war today.
The Petrodollar System
In 1974, US Treasury Secretary William Simon arrived in Jeddah, Saudi Arabia, on a highly confidential mission to save the floundering US dollar. He offered the Saudi Royal Family a strategic deal. America would provide absolute military protection, advanced weaponry, and the engineering expertise to modernize Saudi Arabia’s infrastructure. In exchange, Saudi Arabia agreed to two unshakeable conditions:
The Saudis agreed, and the petrodollar system was born. This deal helped save the US dollar following President Richard Nixon’s 1971 decision to unilaterally end the dollar’s convertibility into gold, turning the US currency into a fiat currency without backing and causing its value to plummet globally. While the US dollar remained a centralized, unbacked fiat currency, this new system meant that, given the size of the global oil market, the US dollar was functionally backed by oil.
I state in my book, Timeless,
“As the dollar remained the global reserve currency, the system supported its (the dollar’s) value, as any country needing to import oil was first required to acquire dollars. This requirement created a constant demand for dollars and, in turn, for US Treasury securities, where excess dollar reserves were invested, helping to finance US deficits.” ²
By 1975, the rest of the OPEC nations (an organized intergovernmental group that coordinates oil policies) had agreed to follow suit, cementing the US dollar as the global reserve currency and giving the US unimaginable power. Because oil is the world’s most essential commodity, pricing it exclusively in dollars created an enormous, permanent global demand for dollars. Any country that needed to import oil first had to acquire dollars to pay for it. Over time, as the system grew, this enabled larger budget deficits, lower interest rates, and cheaper financing for the US Treasury, corporations, and consumers.
Defending the Petrodollar
Ever since then, the US has fiercely defended the petrodollar system.
In November 2000, Saddam Hussein challenged the petrodollar system by demanding that Iraqi oil be priced and sold exclusively in the newly created euro currency rather than US dollars. He was ousted in 2003, after which Iraqi oil was once again priced in dollars.
In 2010, Libyan leader Muammar Gaddafi proposed creating a gold-backed African currency, the “gold dinar,” and encouraged other Arab and African nations to use it for their oil transactions instead of the US dollar. Following the revolution that ousted Gaddafi in 2011, Libya continued to sell its oil in US dollars.
In 2017, Venezuelan President Nicolas Maduro announced on national television that Venezuela would begin selling its oil in Chinese yuan, Russian rubles, and Indian rupees, stating that an economy “free from the US imperial system is possible.” By 2024, 80% of Venezuelan oil exports had shifted to China. Maduro was ousted in early 2026, and the US has taken over control of Venezuelan oil.
Similar to Venezuela, Iran was kicked out of the SWIFT (Society for Worldwide Interbank Financial Telecommunication) payment system in 2012 and spent over a decade bypassing the US dollar to sell its oil directly to countries like China. It now appears the playbook is shifting to Iran. The US is once again attempting to engineer a regime change in Iran. Ultimately, one of the goals of both operations is the same: to force the world to buy energy in US dollars and to prevent China from building a parallel, gold- or yuan-backed energy network.
China & Petrodollars
China’s rise in global prominence since the mid-1990s, while initially supercharging the petrodollar system, ultimately exacerbated its underlying flaws to the breaking point. China’s economic ascent, long-standing currency (yuan) manipulation, and massive money printing have amplified the system’s debt imbalances and have now culminated in a direct, calculated effort to dismantle the petrodollar altogether.
China is now seeking to create a monetary/trade system backed by gold. China is the world’s largest oil importer and has struck agreements with major oil producers, including Russia, Iran, and Saudi Arabia, to price and trade oil in Chinese yuan rather than US dollars. However, many nations refuse to hold yuan in vast quantities in reserve. This system works as follows:
Step 1: Selling Oil for Yuan
China negotiates with major oil suppliers to purchase oil using its own currency, the yuan (CNY), rather than US dollars.
Step 2: The Problem for Oil Suppliers
Once the oil is sold, the foreign supplier is left holding massive amounts of Chinese yuan. Historically, this has been a major hurdle. The Chinese government restricts how money flows in and out of the country. Foreign nations do not want to be stuck holding a fiat currency, in this case, the yuan, that they cannot easily move, invest, or convert on a global scale.
Step 3: The Solution: The Gold Conversion Window
China allows these trade partners to take their accumulated offshore yuan and immediately convert it into physical gold through the Shanghai International Gold Exchange (SGEI) or in hubs like Hong Kong. Through this system, the same oil producer exchanges their yuan for gold. The oil supplier is happy, as gold is a universally accepted world currency and hard asset without counterparty risk.
By creating a mechanism that allows oil to be traded for yuan and yuan to be converted into gold, China has enabled the use of sound money in trade. This is a major reason they have been stockpiling gold in vast quantities. This system allows nations to circumvent the US dollar and banking system entirely, directly threatening the petrodollar arrangement that has underwritten American military and economic supremacy since the 1970s.
If the US were to gain control of Iran’s oil, this would be a major blow to the system China has created. This ongoing “capital war” is occurring alongside the actual war and will be a major theme in years to come.
Investment Implications
In the short term, war in the Middle East means higher oil prices, higher inflation, and increased volatility across all financial markets. It’s clear that the US has two objectives with regard to oil prices:
If oil falls below $60, many projects in the US would become unprofitable, which would be devastating for the broader global economy and would weaken a major pillar of support for the US dollar.
If oil goes above $85, higher energy prices fuel inflation, putting upward pressure on interest rates, which would weaken the US Treasury market and potentially cause stocks to fall and economic growth to weaken. As seen in Figure 1, the market is pricing oil above this $60-$85 range through August.
Figure 1: WTI Crude Oil Future Prices, Apr 2026 - Dec 2026
Source: CME Group (data as of 3/12/2026)
Ultimately, the US wants the petrodollar system to continue, in which oil is priced in dollars, funneling those dollars back into US debt, thereby suppressing interest rates, supporting the stock market, and economic growth. This would help to avoid the US economy slipping back towards a 1970s-style “stagflation.” Stagflation is a challenging environment for almost every asset class, and no matter where you fall on the socioeconomic ladder, it brings high inflation, rising interest rates, and low growth.
One way to track stagflation is to compare the stock market, as measured by the S&P 500, with oil prices. As long as the stock market rises faster than oil prices, we avoid recession and stagflation. According to Charles Gave,
“The economy is nothing but energy transformed. This means that energy is the input, while the output is goods and services sporting a higher value than the input.” ³
Visually, this is evident in the chart below. This red line shows the S&P 500, priced in barrels of oil, from 1900 through 2026. The black line is a long-term moving average of this ratio. Whenever the red line falls below the long-term moving average, the US is in danger of slipping into stagflation. As of this writing, the red line is almost exactly on the moving average, at around $70 per barrel of oil. A protracted fall in the stock market, combined with rising oil prices, would create a difficult outcome, as it did in the 1970s.
Figure 2: S&P 500 / Oil Prices
Source: TradingView
A Return to Sound Money and Peace
In Willem Middelkoop’s book, The Big Reset⁴, former US Congressman Ron Paul outlined his argument for a return to sound money and an end to the petrodollar system some 20 years ago. His wise words ring truer today than ever. He argued that the petrodollar system inherently drives global conflict and that a return to gold would dismantle the financial machinery of war.
According to Ron Paul, and as I’ve shown in this article, the petrodollar system allows the US to print endless amounts of fiat money to finance its extravagant consumption and militarism. To protect this system, the US uses military force and regime change against any nation that tries to bypass the dollar to sell its oil.
In his words, the true reset will occur when oil-producing nations demand gold rather than paper dollars or euros for their oil, restoring a system of honest exchange. The hope is that this would result in peace. If oil were traded in part for finite gold, the US would lose its “exorbitant privilege” to print money to fund foreign wars. Financially constraining US imperialism would remove the primary motivation for invading non-compliant nations, ultimately fostering global peace.
If the United States and China were to end this “capital war”, foster honest trade, and institute a sound monetary system with gold as its anchor, this would go a long way to suppressing actual wars. This may seem like an unattainable solution, given the massive buildup of debt in China, the United States, and around the world. However, given the steady rise of gold’s role in today’s monetary system compared with 2006, the possibility of financial equilibrium and, subsequently, peace, could be closer than we think.
References
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