Death of the Dollar Was “The News Before It Happens.” Now It Happens

The virtuous loop that has seen America underwrite stability in the Middle East in exchange for Gulf states recycling their dollar revenues into U.S. Treasuries has been broken.

The [petrodollar] understanding traces back to 1974, when Henry Kissinger struck one of the most consequential financial deals in modern history. Saudi Arabia would price its oil in dollars and park the surpluses in U.S. assets — Treasurys above all. Other Gulf states followed. In exchange, America provided security guarantees and a stable global order.

The arrangement was elegant in its circularity: Oil consumers paid dollars for energy, those dollars flowed to Riyadh and Abu Dhabi and from there back into Washington’s debt. For 50 years, this petrodollar loop quietly subsidized American borrowing costs and cemented the greenback’s role as the world’s reserve currency.

(“The Iran war just broke the petrodollar” —The Japan Times)

Those days that long floated the bloated US debt into something financeable, even if unsightly, are dying rapidly now thanks to the combined impacts of Trump’s War with Iran and Trump’s Tariff Wars. In fact, the dollar’s death has now been declared an accomplished fact—or, at least, something that has reached the point of being irreversible—by the Japanese press (The Japan Times being a Tokyo publication of record since 1897).

There just isn’t any love left for the dollar in this world nor much need for it, given so much less US trade requiring the use of Treasuries for dollar exchanges by central banks in both goods and oil. So, as reported in recent Daily Doom headlines, Central Banks have been turning toward gold, which can be used to cover major petrol transactions and all kinds of other transactions without shipping the gold just by earmarking who owns what gold that is stored in central banks and changing the designated owner as the transaction.

I must admit the dollar’s demise is not quite as confirmed as The Japan Times reports, but it does appear to be on its deathbed. It’s just that, along the lines of what Mark Twain famously said about his own obituary, the dollar’s obituary is a little premature. Still, it’s hard to avoid seeing the likelihood that the dollar’s vital statistics will continue to fall rapidly, making it a fait accompli.

The 10-year Treasury yield, rather than falling on safe-haven demand as it has in every major recent crisis, climbed from 3.9% at the end of February to above 4.4% within weeks. The rates desk at Bank of America offered a dry summary: “Foreign official sectors are selling U.S. Treasury bonds.”

So far, Treasury Secretary Scott Bessent’s words about Operation Twist, intended to reverse that rise in yields, haven’t put a dent in the decline of the dollar or the rise in yields as they were intended to; however, the actual operation has not commenced yet, but the very fact that he desperately needs to do it confirms the dynamics just stated in that last quote.

Here’s a little free summary of Bessent’s program for you, straight from his false lips:

Hopefully, fake-AI Bessent leaves you feeling more assured than the secretary, himself, left markets feeling several days back with his signature smarmy smile. (Sorry about his final clipped word.)

The mechanism is straightforward. Turkey, India, Thailand and other oil-importing nations are caught in a brutal arithmetic: Oil priced in dollars surged past $100 a barrel at one point while their currencies weakened against the greenback. To limit depreciation — which would push domestic oil prices even higher, forcing either fiscal subsidies or household pain — central banks intervene in currency markets. That requires dollars. The most liquid dollar asset any central bank holds is Treasurys. So they sell.

That need coupled with the fact that they hate dollars because the dollar has been weaponized and used as a blunt instrument to enforce global US hegemony against them for decades, is compounded now that the US has become an absolute tyrant in how it wields the power of the global currency it has long been entrusted with … even against its allies. Now that all of that power is in the hands of President Trump because congress has completely abrogated its responsibility to lay down the law on tariffs and to declare wars, US dominance is feeling like global tyranny even to former friends of the US.

Congress has allowed Trump a free hand to trounce all over everyone until the Supreme Court reels him in, which the Supremes have proven to be more than half-inclined NOT to do. So, the devolution of US foreign relations and global economics has been rapid and chaotic, as I said it would be at the start of last year, upping the amperage of my prediction for the dollar’s death, which I have said would be a slow death at first due to the massive lines of historic support the dollar had built in back when I first made the claim and then die more quickly as inertia gave way.

This is not without precedent. Foreign central banks sold a record $109 billion in Treasurys during the COVID-19 panic of March 2020. But that episode resolved quickly. The Fed deployed dollar swap lines, calm returned and the money flowed back within weeks. The flight-to-quality instinct was temporarily scrambled but structurally intact.

Every other major crisis since — Russia’s invasion of Ukraine, China’s saber-rattling against Taiwan in August 2022, the collapse of Silicon Valley Bank in March 2023 and the Oct. 7, 2023, Hamas attacks on Israel — sent money into Treasurys, not out of them. Yields fell. The playbook worked.

But those things worked because enough people/nations in the world still wanted them to work. Those that didn’t like the dollar still had to play with the reality of the petrodollar having deeply involved itself in their own sovereign wealth, underwriting the US debt. But now, with the oil market busting to pieces, and the value of existing US bonds consistently falling throughout the war inversely to rising yields, there is less reason to hold on.

With animosity toward the US for bringing this entire oily mess upon the world in a war that is proving hopeless for Trump to win, which will leave the world under the slop of its wreckage, there is more desire than ever before to ditch the dollar … to find opportunities in the war to sell Treasuries into. And, so Bessent’s little flip is likely to fail, and those opportunities to sell are plentiful because, you see …

This time, Gulf producers can’t get their oil out. The Strait of Hormuz closure has stranded their barrels along with everyone else’s.

No oil flow equals no dollar flow … right in the heart of the region that was the original core of the petrodollar’s existence.

The petrodollar loop requires two moving parts: dollars earned and dollars invested. Both have stopped.

That leaves central banks sitting on old US Treasuries that are rotting in value (if not held til term), adding reason to sell them before their value drops further. And, as more central banks sell them, the value drops faster, making the impetus to sell greater.

As more and more oil infrastructure is destroyed in the region with each new step in Iran’s escalation equation that I wrote about in my last Deeper Dive and in yesterday’s editorial, the duration of Treasury devaluation which central banks (and everyone else holding longterm Treasuries) will have to endure under diminished oil trade becomes more extended … by years, not just months.

The numbers on the exporting side make this concrete. Kuwait, Saudi Arabia and the UAE had a combined holding of about $300 billion in Treasurys as of January. These countries are now simultaneously earning less oil revenue, spending heavily on air defense and reviewing the investment pledges they made to Washington just months ago.

The dire needs of arming up for this war may also make those countries more willing to sell their existing Treasuries at a loss to raise emergency cash for their own much more important national defense, given how US defenses are failing them all too often. US defenses haven’t quite turned out to be the iron-clad dome US allies hoped them to be under Iran’s heavy bombardment.

There is a longer structural story that the war is accelerating rather than creating. The share of Treasurys held by foreign investors had already fallen to around 32%, down from half in the early 2010s. Central banks became net sellers in early 2025. [When the Trump Tariff Wars hit.] For the first time since 1996, global central banks now hold more gold in aggregate than U.S. government bonds. These were slow-moving trends, easy to dismiss as noise. The Iran war is making them look like signal.

Most financial publications dismissed it entirely. I kept pointing out why it was important because of why it was happening—tariffs stripping down the need for trade dollars. Then came the Iran war, and that problem escalated as oil trade also got taken down.

This is the prediction I’ve made to paying subscribers as being the number-one thing to watch for from Trump’s Tariff Wars, noting that I had NEVER predicted death of the dollar before the Trump Tariff Wars. I amplified that prediction when Trump’s War with Iran began because that is an even more direct path to death of the dollar for the reasons given above. The oil trade strikes right to the heart of the global trade currency.

Of course, the US Supreme Court eliminated a major part of the tariff wars at the start of this year, and Trump has been trying to backfill all of that; but the war with Iran more than makes up for that elimination. You can easily see, though, how Trump’s Tariff wars are angering nations that he keeps toying with by using tariffs to threaten them over everything he doesn’t like—even things having nothing to do with trade, such as trying to strong-arm them into ceding their lands to the USA! The United States has become a TOXIC relationship—the kind of former friendship you try to insulate yourself from once your friend has turned psychotic and starts threatening to move into your house or burn it down if he can’t. That has only been getting worse with every passing month.

The flight-to-quality trade has always rested on a political premise: That in a global crisis, the United States is a stabilizer or bystander, not a combatant. But the calculus changes when the U.S. itself is the belligerent; when the conflict is partly America’s war, driving the oil shock, straining Gulf relationships and generating the fiscal pressure that has bond investors worried about U.S. budget deficits. Not completely. Not permanently. But enough.

They don’t mention the tariff wars’ impact on the dollar, which all financial writers have missed since I started pointing out that connection during Trump 1.0 as doing essentially the same thing the war with Iran is doing—hugely amplifying hostility with formerly friendly trade nations and diminishing need for trade dollars, which have always been the flip side to the petrodollar. Same coin, different side.

As with oil, diminished trade means diminished need for the global dollar, and you can see how that played out by how central banks became net sellers of US Treasuries for the first time, suddenly preferring ample holdings of gold, early in 2025. That was the key principle I laid out only for paying subscribers to start to keep a watch on during Trump 1.0 when he started his trade wars, which became far worse in 2.0. I noted that was the first time I had ever predicted the dollar’s demise during the decade I had been writing on the economy.

Kissinger’s 1974 deal held through the Cold War, the Gulf Wars, the financial crisis and a pandemic. It has not survived this. The petrodollar loop was always a political arrangement dressed in financial clothing. Now that the politics have changed, the finance is following.

I truly believe NO presidential administration has done as much international political damage and global economic and financial damage as the Trump administration. I say “believe,” rather than “know,” because you haven’t seen anything yet and neither have I of the extent of damage that is coming from all of this. I believe it because everything is flowing down all the byways and dark alleys I’ve said the Trump Tariff Wars and the Trump War with Iran will go. I don’t see anything now happening that is out of line with any of those predictions, especially the impact of current events on the dollar.

In fact, just look at the news headlines to see how many stories are continuing to flow in the directions I’ve warned this war and the economy would travel together. They are nowmoving at a faster pace than they were. I know this sounds like a lot of chest thumping, but I really mean it in the sense of saying 1) here is proof you should be paying attention to these warnings but, even more, 2) to make it clear who is to blame in advance by laying out the cause and effect of their actions now so you know I’m not making up the causes and effects when the day comes when it has all happened just to fit the blame to someone when the guilty parties are all denying it was their fault! Those days are coming. They are actually starting to happen all around you right now, and the blame dodging will become fierce. Saying in advance how it is going to go and why and by whom while underscoring all along the way how it does go that way for those reasons strongly establishes a trail back to whose fault this dawning catastrophe is.

Consider these little factoids from the rubble of recent news headlines:

• An internationally respected economist, who often speaks against the economic pack, and who was dead right in predicting the dot-com bust, lays out the reasons that he believes the AI bust will will be worse than the dot-com bust.

• The Dow is plunging and Treasury yields soaring to touch a high that was barely touched once during this war and otherwise HAS NOT BEEN SEEN SINCE 2007 in the face of oil prices that almost breached $100/bbl.

• Major US financial institution flips its declining oil price calls skyward to place Brent Crude at a coming $120+/bbl, saying it felt obliged to reverse direction and lift its price assumptions, which announcement comes at the cost of admitting its former major calls (once counter to my own) were wrong.

• Serious threats building of a multi-front war between Israel and Iran, regardless of what America does, that will see focused bombing by Iran on Tel Aviv.

• Another major refinery blitzed in the ME.

• More on Iran’s threat to blow up US destroyers and aircraft carriers if Trump doesn’t leave.

• Iran’s interception and confiscation of a high-tech US submarine.

• A report about Netanyahu ignoring warnings about the Oct 7 “surprise” attack by Gaza Palestinians on Jewish civilians.

• New strikes on Iran and its oil tankers by Donald Trump with nearly immediate retaliation by Iran, billed as the largest Iranian counterattack on US bases since Israel’s Operation Roaring Lion.

• Iran also warned all crew of all oil tankers connected with named nations to evacuate their ships immediately because bigger strikes are coming.

If you’ve been reading here, you know that most of those things are part of the list of things I’ve been saying to expect for months, and you’ll note Iran’s new escalation path I have been saying just since the start of the week you would see this week while explaining to paying subscribers in advance why you would see it.

Don’t miss the most important news: become a paying subscriber to The Daily Doom. When you do, you are underwriting the person who does his best to help you see what is coming and who tells you the facts as they are, whether you like them or not (and whether he likes them or not), despite what politicians in either party tell you or what the mainstream financial press has to say. It will be what it will be, but you are better off knowing what it will be, especially now that what was predicted is already happening.

Let me close by putting the usual Doomer Humor section up front for everyone to enjoy: