Authored by Nick Giambruno via InternationalMan.com,
The Iran war could claim a casualty far more consequential than a missile battery, an air base, or an oil tanker: the petrodollar system.
For more than 50 years, US protection of the Gulf monarchies has helped support global demand for dollars and US government debt. That bargain may now be coming under strain.
The concept is straightforward.
The US provides military protection to countries such as Saudi Arabia, Kuwait, the United Arab Emirates, Bahrain, and Qatar.
In return, these countries price much of their oil in US dollars and recycle large amounts of their oil revenue into US financial assets, including Treasuries.
Call it an alliance.
Call it a strategic partnership.
I prefer to call it a protection racket.
Whatever name you choose, the arrangement has provided enormous support for the dollar since Nixon severed its last link to gold in 1971.
Oil sits at the center of the global economy. Every industrial economy needs it. If countries need dollars to participate in the global oil trade, they have a powerful reason to hold dollars.
That creates demand for the currency that has nothing to do with buying American goods or services.
It also creates demand for US financial assets.
Oil exporters earn dollars. They need somewhere to put them. For decades, a large portion flowed back into US banks and Treasury securities.
That helpe
