The hegemony of the dollar behind the attacks and threats against Venezuela and Iran

The world in focus | Analysis column

Renowned US historian Alfred McCoy believes that President Trump’s threats against Iran, Venezuela, Mexico, Greenland, and other countries are expressions of “an empire in decline” that, as it loses power and influence on the world stage, follows a predictable pattern of militarism abroad and political instability at home. “US policy is becoming increasingly twisted and irrational,” says McCoy, adding that this decline “will continue for another decade or two, until US power finally fades away.”

This diagnosis explains the imperial, warmongering, and anti-democratic policy of the US ruling power. President Donald Trump expressed it in his histrionic and undiplomatic manner in his speech at the Davos Economic Forum on January. 21

Riddled with inaccuracies, his megalomaniacal speech masks an internal economic reality that threatens the country’s stability and its role as a global hegemon. It is not true that his administration’s economic growth figures are fantastic and the best in decades. Nor is it true that he has curbed inflation–inflation stood at 2.7% annualized in December, far exceeding the 2% target and driven by the tariffs imposed by Trump, which ultimately fall on the US consumer. Even less true is that the labor market has improved. The 584,000 jobs created in 2025 represent the worst figure since 2020 and contrast with the creation of over 2 million jobs created during 2024.

This is not even what worries the US government the most. The biggest challenge facing the United States is to halt the decline of the dollar’s role as a reserve asset and legal tender in international trade. However, that’s unlikely given the spiraling growth of its debt and the process of de-dollarization taking place around the world. After the collapse of the Bretton Woods system in 1971, oil replaced gold as the functional anchor of the monetary system and allowed the dollar to maintain its hegemony, but sanctions imposed on oil-producing countries (Venezuela, Iran, Russia) have led them to use other currencies in their oil sales, which has had a negative impact on the strength of the dollar.

In regional associations such as the Commonwealth of Independent States (CIS), the Association of Southeast Asian Nations (ASEAN), the African Union, and the Gulf Cooperation Council (GCC), countries are also using local currency to avoid the use of the dollar in their intra-regional trade, following the same logic as the BRICS countries.

The power of the dollar

The US government considers the supremacy of its currency to be an existential issue because it allows it to borrow massively to sustain its economy and finance its vast military apparatus. During the election campaign, Donald Trump said that losing that status would be equivalent to losing a war. Since his return to power, he has declared that any attempt by the BRICS group and other countries to forge an alternative to the dollar will face retaliation from the United States.

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During the first half of 2025, the dollar depreciated against a basket of currencies from the world’s six major economies to an extent not seen in the year-on-year comparison for the same period since 1973.

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According to an IMF report, the share of dollar-denominated assets in total central bank reserves worldwide fell from 72% in 2002 to 58.2% in 2025. Globally, China, India, and the United States, in particular, have increased their purchases of gold, which has had an unprecedented upward impact on its price. The days when US Treasury bonds were considered the safest asset in the world are a thing of the past. BlackRock, the world’s largest US asset manager, has warned that the US government’s growing debt could reduce investor interest in long-term Treasury bonds and the dollar and drive investors to seek investment opportunities outside the US.

This mistrust is rooted in the high level of US public debt (124% of GDP) in a context of declining economic momentum since the economic and financial crisis that erupted in 2008. The growing interest payments required to service that debt and a systemic fiscal deficit of around 6% of GDP deepen concern. Added to this is the uncertainty created by Donald Trump’s struggle with Federal Reserve Chairman Jerome Powell over monetary policy, the degrading treatment of migrants, the trampling of local and international institutions, and the chaos caused by Trump’s tariff policy imposed on almost all countries, including his allies. 

As a result, foreign economic agents and governments are divesting from US Treasury securities or are reluctant to purchase them, forcing the government to offer higher interest rates to make them attractive, which increases the cost of financing its debt service. The three agencies that assess the credit risk of debt issuers such as governments, companies, and banks (Moody’s, Fitch, and Standard & Poor’s) have downgraded the rating of US debt.

Sanctions and distancing from the dollar

Countries subject to economic sanctions by the United States, such as Iran, Russia, and Venezuela, among others, do not use the dollar in their international trade. Part of the sanctions against these oil-producing countries consists of prohibiting them from trading oil, thereby suffocating them financially. This forces them to use ghost ships with flag changes on the high seas and sell them at a steep discount to countries that defy the economic embargo, mainly China and India, and charge in local currencies and other forms of payment. As the dollar ceases to be indispensable for trade, demand for it declines, and with it its value. During the first half of 2025, the dollar depreciated against a basket of currencies from the world’s six major economies to an extent not seen in the year-on-year comparison for the same period since 1973.

The embargo on financial assets of these three countries deposited abroad (31 tons of gold from Venezuela in the Bank of England, $300 billion from Russia in banks in the United States and Europe, and an undetermined amount belonging to Iran) generates mistrust in other countries. This leads them to divest of their holdings in dollars and US debt securities. China, Japan, the United Kingdom, India, and, recently, Swedish and Danish pension funds have recently divested in response to Donald Trump’s threats to take over Greenland and impose tariffs on European countries that do not support him. These sales and the threats by Macron and other European leaders to do the same caused the market value of US Securities to plummet, prompting President Trump to leave Davos quietly backtracking on his annexation of Greenland and suspending the application of tariffs on European countries that did not support his project.

For Greek economist Yanis Varoufakis, the US dollar’s privilege of being the sole currency governing the global monetary system will vanish within a maximum of ten years due to the decline of the United States’ weight in the global economy and trade. Major factors include the US’s failure of fiscal discipline; the appropriation of the foreign exchange reserves of Russia, Venezuela, Iran, and Afghanistan; and the fact that the US maintains a “primitive” interbank messaging service such as SWIFT.

Petrodollars: the reasons for military aggression against Venezuela and Iran

The United States’ military aggression and threats against Venezuela and Iran seek to regain the dominance of the petrodollar at a time when its hegemony is eroding. The collapse of the Bretton Woods system in 1971—caused by the United States continuing to issue dollars and failing to guarantee their conversion into gold, as agreed upon at its founding in 1944—should have meant the end of the US currency’s hegemony. The dollar became nothing more than paper without physical backing, but it was able to remain a global reserve asset thanks to the role played by petrodollars. The petrodollar system was a geopolitical decision that turned oil into the material support for US monetary hegemony.

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In 2000, Saddam Hussein announced that Iraq would sell its oil in euros. Three years later, the country was invaded. In 2009, Muammar Gaddafi proposed a pan-African currency, the dinar, for energy trade. In 2011, NATO led by the United States, intervened in the country and killed the Libyan leader.

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During the 1973 energy crisis, the US government agreed with Saudi Arabia that all Saudi oil would be sold exclusively in dollars and that a large part of this revenue would be invested in US Treasury bonds. In exchange, the United States would offer military protection and political support to the Saudi monarchy. This agreement was later extended to the other countries of the Organization of Petroleum Exporting Countries (OPEC), created in 1962, whose founding members included Venezuela and Iran. Any country in the world that wanted to buy oil had to have dollars in its reserves.

Thus, the petrodollars that flowed into oil-producing countries to purchase oil were largely directed to the United States to acquire US Treasury bonds that provided them with returns and security. In this way, the money from oil sales financed US spending under a mechanism known as “petrodollar recycling.” In 2000, Saddam Hussein announced that Iraq would sell its oil in euros. Three years later, the country was invaded and Iraqi crude oil was once again traded in dollars. In 2009, Muammar Gaddafi proposed a pan-African currency, the dinar, backed by gold, for energy trade. In 2011, NATO, led by the United States, intervened in the country and killed the Libyan leader.

Iran, Venezuela, and Russia (a member of OPEC+ created in 2016) are prohibited from trading their oil as part of economic sanctions, but they do so sidestepping the dollar, which leads to lower demand for that currency and devaluation and consequent loss of hegemony. A sanction that ends up being a boomerang for the US economy.

To get Venezuela and Iran to use the dollar again in their oil trade, the same playbook is used: a media campaign about the tyranny of the regime, the dispatch of warships and threats of invasion. In Venezuela, four cities were bombed, Nicolás Maduro and his wife Cilia Flores were kidnapped, and the US government took control of the sale of oil. Venezuelan oil is now sold in dollars and not in yuan or other currencies. Something similar is being sought in Iran. This is a struggle in global finance at a time of historic transition.

Drugs, democracy, lack of freedoms, or respect for institutions have nothing to do with it. The United States is not interested in that. The crisis between the United States and Venezuela reached the United Nations Security Council days before the invasion. There, the US ambassador to the UN, Mike Waltz, said that his country would impose “maximum” sanctions on Venezuela to deprive Maduro of the resources he uses to finance the so-called Cartel of the Suns, designated by the United States as a terrorist organization. After the invasion, the Department of Justice stated that no such organization exists.

On Thursday, President Trump announced that a “huge fleet” was advancing toward Iran, which, if true, would confirm repeated announcements about a possible intervention against Iran allegedly for the killing of protesters that the US promoted with the support of Israeli intelligence services. Iran’s supreme leader, Ayatollah Ali Khamenei, called Trump a “criminal” for “the victims, the damage and the slander” against his country. That same day, Trump described Khamenei as “a sick man who should govern his country properly and stop killing people,” adding that “it is time to look for new leadership in Iran.” On Tuesday, General Abolfazl Shekarchi, spokesman for Iran’s armed forces, warned Trump not to take any action against the country’s supreme leader, adding, “If any hand of aggression is extended toward our leader, we will not only cut off that hand, but we will also set his world on fire.”

In short, even if Trump were to succeed in defeating Iran’s theocratic regime and controlling oil management and trade, as he intends to do with Venezuela, the loss of the dollar’s hegemony is an irreversible process. Everything points to the institutionalization of a multipolar monetary system in which the dollar will share a predominant role with other currencies. The mechanism of “petrodollar recycling” that sustained the dollar’s hegemonic position in the early 1970s is no longer viable. The United States is approaching a “point of no return” with an unsustainable debt dynamic, which will cause financial markets to lose interest in purchasing bonds issued by the U.S. Treasury, accelerating the loss of the dollar’s hegemony.