Part 1 of Series: Petrodollars: How International Oil Sales and U.S. Currency are Interwoven

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The United States’ attacks on Venezuela and Iran bring to the forefront the long history of U.S. role in international petroleum and currency exchange. Part 1 of our “It’s About Oil” series will describe how international oil sales underpin the U.S. dollar system. Three concepts --“Petrodollars”, “Petrodollar Recycling”, and “De-dollarization” -- provide some background for evaluating longer term financial implications of the United States military attack on Venezuela and the war with Iran.

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The 1974 Secret Deal between the United States and Saudi Arabia that Ushered in the Age of the Petrodollar. Petrodollars are the result of a 1974 secret agreement between the Saudi Arabia and the United States. In the early 1970s, President Nixon removed the United States from the gold standard. About the same time, global oil shortages caused prices to soar. Henry Kissinger, Secretary of State, and William Simon, Secretary of Treasury made a secret deal with Saudi Arabia. Saudi Arabia agreed to price most of its oil in U.S. dollars. In exchange the United States promised Saudi Arabia military protection and access to technology. Once Saudi Arabia priced oil in U.S. dollars, most of the other major oil producing countries followed. (This agreement would remain secret almost 42 years until 2016 during the Obama administration.)

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Petrodollar Recycling: Circular Process Linking Solvency of U.S. Dollars to International Oil Trading. That agreement now underpins the world’s monetary systems -- and the value of the United States’ dollar as a world reserve currency. In 2023, 80% of the world’s oil trade was conducted in U.S. dollars. When oil producing countries only accept U.S. dollars in payment, countries have to find some way to get U.S. dollars. Oil producing companies that only accept U.S. dollars must find a way to spend or use those dollars. Countries like Saudi Arabia might buy U.S. Treasuries, invest in U.S. projects (like commercial real estate or hedge funds), or buy weapons. While this system supports the strength of U.S. currency, the United States becomes dependent on foreign investors to fund its internal debt. This circular process (“petrodollar recycling”) results in linking the solvency of United States to international oil sales. This process also creates economic risks for everyone in the system – especially when the United States implements policies (such as wars and economic sanctions) that destabilize economies around the world.

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Risks - Oil Buying Countries. If oil buying countries can not use their own currencies to purchase oil, they must somehow acquire dollars or convert their local currency. They can make goods and services for export to the U.S. or other dollar-heavy economies. When they receive dollars for their products, they can set aside a portion of those funds for buying oil. They can also borrow dollars from international banks, but will still need to repay the principal and interest in dollars. These strategies put pressure on making products for export – rather than developing local markets.

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Risks - Oil Exporting Countries. The major oil exporting countries (including companies and individuals) may not spend their dollar-based income in their own countries. They may use their dollars for imports. Many invest their dollars into U.S. Treasury securities and other dollar-based endeavors. Making investments outside their home countries limits development of their own internal markets. These investors also expect the U.S. to be a stable actor on the international stage.

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Risks - United States. The petrodollar agreements reinforce the dollar’s dominance in the world currency markets. The U.S. currency is in constant demand. Oil producing countries and companies invest in U.S. Treasuries as a “safe” place for their U.S. dollars. But this investment in U.S. debt also artificially “props up” the entire U.S. economy. The United States does not have to “make” anything or export anything to acquire dollars. Petrodollars allow the. U.S. to print money, funding the U.S. military, the deficit spending, and the social safety net. For this reason, a priority of U.S. foreign policy in the past has been keeping control of oil trading.

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De-dollarization – High Stakes Geopolitical Poker. De-dollarization is the term given to an oil producing country that decides to accept other (non-US) currencies in payment for oil shipments. Many countries outside the United States seek to disconnect from the dominant oil industry payment system. China, Russia, and Iran are leading the effort. In 2009, Brazil, Russia, Iran, and China formed the “BRIC” alliance (which now has11 members). This BRICS alliance is actively working on developing financial exchange systems to facilitate funds transfer alternatives to the petrodollar system. In 2018 China introduced its own “petroyuan” concept. In 2019 Russia started accepting other currencies. Saudi Arabia is also accepting other currencies.

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Economic Sanctions Starting to Backfire. When the United States has imposed economic sanctions on countries, a key element of the strategy is to ban those countries from the U.S. dominated currency markets. Several countries with sanctions have been oil producers –Iran, Russia, and Venezuela. All three of those had to accept other currencies in order to sell oil.

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Venezuela, Sanctions, and U.S. Takeover. While several administrations had imposed sanctions on Venezuela for human rights violations, the first Trump Administration directly banned Venezuela’s oil industry from the dollar. Venezuela announced it would accept Chinese yuan and other currencies. The second Trump administration escalated a military blockade to prohibit movement of oil tankers. Then the U.S. essentially took over Venezuela’s oil industry. Now all sales are conducted through the U.S. Treasury. The United States is “holding” those dollars for Venezuela with a system for Venezuela to get access to some of those funds.

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World Reaction. While the U.S. dollar is still considered the world’s reserve currency, recent actions on tariffs, Venezuela, and Iran lead the rest of the world to question the United States’ committee to global economic stability. At the Davos World Economic Forum (January 2026), Mark Carney, the Canadian Prime Minister, laid out cogent rationale for Canada and other “middle power” states to walk away from the United States. He challenged the wisdom of economic sanctions imposed by rich countries on poor counties. Implied in his speech was a challenge to walk away from the dependence on the U.S. dollar.

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[To Be Continued] Part 2 of this series will look more closely at the U.S. colonization of Venezuela. Part 3 will examine how the U.S. administration’s focus on fossil fuels is harming its citizens by stifling innovation in other industries. Part 4 will look at oil and the Middle East crisis.

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Sources:

1. Wikipedia, Definitions of “Petrodollars” and “Petrodollar Recycling

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2. “Petrodollars and Their Impact on the U.S. Dollar and Global Economy”, Updated Nov 19, 2025 https://www.investopedia.com/articles/forex/072915/how-petrodollars-affect-us-dollar.asp

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3. Mision Verdad, “What does the Sale of Venezuelan Oil in Currencies Other than the US Dollar Mean?, Venezuela Analysis, September 29, 2017, [https://venezuelanalsusiscom/analysis/13405/ ], accessed January 22, 2026

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4. “Read Mark Carney’s full speech on middle powers navigating a rapidly changing world?”, CBS News- Canada, posted January 20, 2026. https://www.cbc.ca/news/politics/mark-carney-speech-davos-rules-based-order.

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Part 2 of Series: U.S. Takeover of Venezuela’s Oil Industry - A Cautionary Tale

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In January 2026, the United States Invaded Venezuela, Kidnapped its President, and Took Control of Venezuela’s Oil Industry. The United States initially said that its goal was to rid Venezuela of a corrupt leader. But after only a few days, the United States admitted that its goal was to “take over” the petroleum industry. Now four months in, the evidence is clear that the United States government is an active partner in a form of “extractive colonization” supporting with military power and financial controls the economic interests of extractive industries and a corrupt Venezuelan bureaucracy over the interests of the general Venezuelan public. Part 2 of our “It’s About Oil” series examines a brief history of Venezuela’s petroleum industry, including a detailed look at how the Trump administration has used sanctions and currency markets to solidify power.

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Venezuelan Oil is a Big Deal in Energy Geopolitics. Venezuela is oil rich. Venezuela’s reserves are the world’s largest, estimated at 18-20% of the world’s total oil reserves. Venezuelan “heavy crude” is like Canadian tar sands. Its dense viscosity increases costs of extraction, transportation, and refinement, as well as the likelihood of environmental degradation. Venezuela was once the world’s largest oil producer. In 2000, a peak production year, Venezuela produced 3.2 billion barrels of oil a day. By year-end 2025, Venezuela was producing only about 1 million barrels a day, the average wage was $13.60 a month, and the 2025 inflation rate was 251%. Corrupt management and political turmoil have combined with United States’ economic sanctions and military blockade to leave the petroleum industry and the Venezuelan economy in shambles.

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Early U.S. Investment Developed Venezuela’s Oil Industry. For over sixty years (1908 -1976), U.S. and European-based oil companies were the main developers of Venezuelan oil fields. They built the infrastructure for exploration, drilling, transport, refining, and marketing. Venezuelans were only hired as laborers. Foreign companies took the profits. By 1976, three American companies – Mobil, Exxon, and Gulf produced 70% of Venezuela’s crude oil. They also built refineries in Texas especially equipped to process the heavy crude.

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Reliance on Oil Contributes to Venezuelan Economic Instability. Venezuela became a textbook example of what economists call the Dutch Disease. As Venezuela became overly dependent on petroleum, the rest of its economy suffered from underinvestment, toxic contamination from oil spills, and systemic poverty. Corrupt public officials -- supported by the U.S. government -- allowed American extraction companies to operate with little oversight. Human exploitation, environmental degradation, and poverty were rampant. Corruption and human rights violations existed at multiple levels of government and business.

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As Part of World Wide “Nationalism” Trend, Venezuela Takes Over Foreign Assets. Around the world, countries with significant oil reserves also experienced negative impacts from foreign oil production. By 1970, eleven countries had taken over foreign assets and management of oil infrastructure. In 1976 Venezuela’s state oil company Petróleos de Venezuela S.A. (PDVSA) assumed control over all drilling, pipeline, and refining. Foreign companies left, taking their management expertise and their dollars. At that time, most companies anticipated nationalization. PDVSA was well-run. As a net importer of oil, the U.S. under Gerald Ford was more interested in maintaining Venezuela as a lower cost source of oil than engaging in retaliation.

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Venezuela Reopens for Foreign Investment, then Closes Again. In 1994 (twenty years later), the Caldera administration re-opened the petroleum industry. Foreign dollars came back. This time, more Venezuelans were hired into major management positions. Peak oil production occurred during these years. More Venezuelans thrived, but most of Venezuelans still lived in abject poverty. Hugo Chavez, an avowed socialist, came to power, promising to use oil profits to improve the lives of all Venezuelans. In 2007, Chavez nationalized the oil industry again. Foreign companies were given an option of staying as operators, not owners. Chevron accepted a contract. Others left. [Venezuela still owes compensation promised to companies that left.]

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The United States Imposes its First Economic Sanctions. In 2006, the Bush administration accused Chavez of being pro-terrorist. The U.S. ended all arms sales to Venezuela. The Obama administration placed financial sanctions on several individuals involved in brutal crackdowns on Venezuelans protesting an election. There is little doubt that Chavez and his successor, Maduro, contributed to a climate that made Venezuela one of the most corrupt countries in the world (178 out of 180 in a 2024 corruption index). The conditions in Venezuela were also the product of the long history of focusing policy on extraction industries at the expense of other development.

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First Trump Administration Escalates Sanctions. In 2017, the U.S. banned Venezuela’s Central Bank and the PDVSA national oil company from the United States’ financial markets (including the bond markets and currency markets). Venezuela is now in a catch-22. Its debts must be paid in U.S. dollars, but oil sales funds are barred from U.S. financial markets. Since PDVSA could no longer spend dollars in the United States, PDVSA tells its oil trading customers to set up payment plans in other currencies. The damage is done. In 2018, the Venezuelan currency collapsed. Hyperinflation hit over 65,000%. The very next year in 2019, the U.S imposed an embargo, ending all purchases of Venezuelan oil. All Venezuelan assets in the United States are frozen– including Citco Oil, its refineries and its 4000 retail gas stations. (The U.S. no longer needed Venezuela oil for its citizens. Fracking technology had enabled the U.S. to be a net energy exporter.)

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Biden Responds to Humanitarian Crisis. Venezuela’s infrastructure continued to deteriorate from years of underinvestment and corruption. The Venezuelan people suffered with massive food shortages, hyperinflation, and escalating human rights violations. In 2023 the Biden administration offered Temporary Protective Status (TPS) to over 600,000 Venezuelan citizens.

Second Trump Administration Prepares for Military Invasion. In his campaign, Trump begins to cast Venezuelan immigrants as “less than human, drug running, violent gang members”. Upon regaining office, Trump administration targeted Venezuelan immigrants for deportation to El Salvadorean prison camps. It also rescinded TPS (with Supreme Court approval). In Fall 2025, claiming the boats housed drug smuggling narco-terrorists, the U.S. attacked and sank at least 26 Venezuelan fishing boats with their crews. The U.S. Navy was then positioned in international waters near Venezuela. In December 2025 the U.S. Navy blockaded Venezuelan ports – stopping all oil shipments to Venezuela’s only customers in China and Cuba.

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U.S. Conducts Air Strike and Seizes Control of Venezuelan Oil. In January 2026, the U.S. attacked Caracas with 150 planes, kills around 100 people and kidnaps President Maduro. Trump announced that the United States would control the oil industry for the “benefit” of the American and Venezuelan people. Within days, Delcy Rodriquez, acting president, agreed to the U.S. demands. All pretense about caring about human rights violations and drug trafficking had disappeared.

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First U.S. Step after Takeover is to Make a Sale and get Venezuela Back into the Dollar System. Two international energy traders (and large Trump donors), Vitol and Trafalgura, were first in line to broker the first $500 million in oil sales under U.S. control. Those first funds were directed to accounts in Qatar. Select banks in Venezuela were invited to approach the Qatar banks to bid on buying the dollars. Those Venezuelan banks then opened up bidding for the dollars to approved business and government agencies. At that point, local currency could be used.

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Venezuela Quickly Passes Legislation Opening Oil Fields to Private Investment. New laws opened up oil production to foreign companies. The Chinese are explicitly barred. The law states that Venezuela owns the actual resources. New investors will work under contract with the state oil company, PDSVA. All monetary transactions with PDSVA will go through the U.S. Treasury.

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How U.S. Control Works in May 2026. The United States is still enforcing economic sanctions on Venezuela. U.S. companies must get licenses from the U.S. Treasury. The United States is managing the cash flow of all petroleum sales. Dollars from petro sales are directly deposited into special accounts in the United States Treasury. The United States imposes royalty fees and can charge U.S. federal taxes. (These U.S. fees are on top of royalty fees and taxes that Venezuela government imposes.) The U.S. determines when and to whom funds are released to Venezuelan interests. The U.S. Departments of State, Energy, and Interior have roles as do the off-shore U.S. Navy ships.

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American Companies must Still be Persuaded to Upgrade Venezuela’s Antiquated Infrastructure. The oil producing and transmission infrastructure is old and unstable. Highly toxic oil spills or leaks are common. Venezuela releases more methane per barrel into the air than any other country. Heavy crude requires specialized equipment to keep the substance moving. Modernizing the infrastructure will require massive investment. American companies (who have been kicked out of Venezuela twice) want assurances of financial stability and security support.

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Venezuela Opens Territories for Gold and Other Minerals Mining. In March 2026, new laws opened parts of Venezuela (and the rainforest) to foreign mining companies. The U.S. Secretary of Interior brought fifty American mining executives to Caracas for dialog with Ms. Rodriquez; he brought back $100 million in gold to be refined in the U.S. The United States has already issued mining licenses for companies to work with Venezuela’s state mining company.

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Attacking Corruption and Human Rights Violations a Smokescreen for Regaining Access to the Oil, Gold, and Other Minerals. We now know that the U.S. economic sanctions were ultimately about gaining favored access to Venezuela’s natural resources. Venezuela’s two new natural resource laws affirm Venezuela’s “ownership” of all mineral rights and provide a structure for awarding contracts and collecting royalty fees and federal taxes. Both laws give lip service to environment and human rights concerns. However, there are few enforcement mechanisms. Corrupt officials are still in place. Deforestation, water contamination and rights of the indigenous peoples living in targeted areas for extraction still present grave concerns. The people in Venezuela are still experience food shortages, hyperinflation, and continued repression from the government.

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A Warming for the People of the United States. Part 1 examined how the United States has become dependent on the international petroleum markets conducting business with U.S. dollars. Part 2 has shown how the U.S. is exploiting the weaknesses of a country solely dependent on an extraction industry. Part 3 of this series will take a look at the extent to which extraction companies are influencing policy and hindering innovation here at home.

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Sources

1. Associated Press, “U.S. eases Venezuela oil sanctions as Trump seeks to boost oil supply during Iran war, “ March 18, 2026

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2. “Congressional Research Service, “Venezuela; Overview of U.S. Sanctions Policy, InFocus, updated January 16, 2026.

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3. “Corruption Perception Index - 2024”, Transparency International.

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4. Domínguez, “Trump Wants Venezuela’s Oil. He needs to Know My Family History”, Politico Magazine, February 20, 2026

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5. Ferre-Sadurni, “Venezuela Approves New to Open Mining to Foreign Investors, The New York Times, April 9, 2026.

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6. Gordon and Quinn, “Venezuela’s oil future is murky”, RMI Spark Newsletter. January 22, 2026

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7. Guttierrez, “US-Venezuela Timeline: From Sanctions to Military Action”, Le Monde, January 3, 2026

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8. Macovei, “How Venezuelan Oil, Hugo Chavez, and Geopolitics led to Maduro’s Capture,” Adrian’s Status, January 25, 2026.

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9. Palast, “Trump aims to drop oil to $50 a barrel; Chavez offered that years ago”, Greg Palast Investigates,January 14, 2026.

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10. Raji and Sands, “Trump says Venezuela stole U. S. oil, land, and assets. Here’s the History,” Washington Post Online, December 20, 2025, and Revised January 5, 2026.

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11. Slav, “U.S. to Redirect Venezuelan Oil Royalties into a Treasury-Controlled Fund”, Oilprice.com , February 19, 2026

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12. Snyder, “Venezuela: The Precedents and America: The Future”, Thinking about: (Substack, January 4, 2026)

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13. “Venezuela Wages”, wage.is. May 6, 2026. https://wage.is/venezuela/