The Petrodollar War &

Malaysia’s Strategic Position

Why The US Launched War Against Iran

The Petrodollar System, Currency Hegemony, and Implications

For Malaysia’s Energy Security and Economy

Sources: Reuters, CNN, Al Jazeera, NBC News, CNBC, CBS News, NPR,

Fox News, PBS, Britannica, ACLED, Council on Foreign Relations, Dallas Federal Reserve,

IEA, Kpler, Middle East Monitor, Independent Institute, Foreign Affairs Forum,

Democracy Now!, European Business Magazine, Financial Times, FDD

Prepared by: Dr. Mohd Hanif Mohd Ramli

Eagle Attech Sdn Bhd | TXIO Fusion Solutions

21 March 2026

Ilahi anta maqsudi wa ridhaka matlubi,

a’tini mahabbataka wa ma’rifataka

Executive Summary

This policy brief analyses the thesis that the US-Israel war against Iran (launched 28 February 2026) is not primarily about nuclear weapons or regional security, but about preserving the petrodollar system — the arrangement requiring global oil to be traded in US dollars, thereby sustaining American currency hegemony.

The analysis draws from major credible news sources including Reuters, CNN, Al Jazeera, PBS, NPR, CNBC, CBS News, Britannica, and ACLED, as well as institutional analysis from the Council on Foreign Relations, Dallas Federal Reserve, IEA, Middle East Monitor, Independent Institute, Foreign Affairs Forum, and European Business Magazine.

Key findings:

• The petrodollar system — established in 1974 between the US and Saudi Arabia — created structural global demand for the dollar by tying oil (the world’s most important commodity) to the US currency.
• Every country that attempted to leave the dollar system for oil trade — Iraq (euros, 2000), Libya (gold dinar, 2011), Venezuela (yuan/ruble), Iran (yuan/euro) — has faced military action or regime change.
• The US attacked Iran one day before a nuclear deal was about to be finalised — the stated nuclear threat was already being resolved diplomatically.
• Iran has retaliated with the most dangerous weapon that is not a missile: conditioning passage through the Strait of Hormuz on trade in Chinese yuan, not US dollars.
• The financial infrastructure for the petroyuan already exists and is operational — the mBridge platform processed over US$55 billion in transactions by November 2025.
• Malaysia, as ASEAN Chair 2026, BRICS partner, energy exporter, and major trade partner of both the US and China, sits at the critical intersection of this systemic transition.

1. Understanding the Petrodollar System

1.1 Origins: From Gold to Oil

In 1971, US President Richard Nixon severed the dollar’s link to gold (the ‘Nixon Shock’), ending the Bretton Woods system that had stabilised global finance since 1944. The US dollar lost its anchor — it was no longer backed by anything tangible.

In 1974, Washington and Saudi Arabia reached a pivotal understanding: Saudi oil exports would be priced exclusively in dollars, and the kingdom’s surplus oil revenues would be recycled into US financial markets, particularly Treasury securities. Other oil exporters soon followed suit.

[Source: Middle East Monitor, 14 March 2026; Independent Institute, 27 Feb 2026]

This arrangement created a powerful financial feedback loop:

1. Oil — the world’s most indispensable commodity — became structurally tied to the dollar.
2. Countries importing energy needed dollar reserves, ensuring persistent global demand for the currency.
3. Oil-exporting states accumulated vast dollar surpluses that flowed back into American banks and capital markets.
4. This allowed the US to finance massive fiscal deficits, issue debt in its own currency, and impose sanctions on any nation that deviated.

In simpler terms: the US dollar is strong not because the American economy is productive enough to justify it, but because every country on earth must buy dollars to buy oil. This is what economists call the ‘exorbitant privilege.’

1.2 The Three Pillars of the System

All three pillars are cracking simultaneously. This has never happened in the petrodollar’s 52-year history.

[Source: Middle East Monitor, 14 March 2026]

2. The Pattern: Every Country That Left the Dollar Faced Military Action

The Petrodollar War Theory — advanced by scholars and analysts at the Independent Institute, Geopolitical Economy Report, and others — posits that the US intervenes abroad not primarily for national security or humanitarian reasons, nor even to seize oil directly, but to preserve the dollar’s role as the world’s energy-trading currency.

[Source: Independent Institute, 27 Feb 2026; Eurasia Review, 3 March 2026]

Four countries. Four attempts to leave the dollar system. Four military actions or regime changes.

[Source: Independent Institute, 27 Feb 2026; Eurasia Review, 3 March 2026]

2.1 The Timing Question: Why Now?

A nuclear deal with Iran was within reach. On 27 February 2026 — one day before the strikes began — Oman’s Foreign Minister announced that a ‘breakthrough’ had been reached: Iran had agreed to never stockpile enriched uranium and to accept full IAEA verification. Peace was ‘within reach.’ Talks were expected to resume on 2 March.

[Source: Wikipedia – 2026 Iran War, citing FM Oman Badr Al-Busaidi’s statement]

The US struck Iran one day before a nuclear deal was about to be finalised. The stated reason — nuclear threat — was being resolved diplomatically. So what was the real urgency?

The answer suggested by the petrodollar thesis: the real threat was not Iran’s nuclear bomb — it was the structural extinction of global dollar demand. Saudi Arabia had already effectively ended its exclusive commitment to dollar pricing in June 2024. The mBridge platform — a digital yuan settlement system — was already operational. BRICS was expanding. The window for the US to defend the petrodollar through military force was narrowing.

[Source: House of Saud analysis, 16 March 2026; The Friday Times, 18 March 2026]

3. Iran’s Most Dangerous Shot — And It Wasn’t a Missile

While the world focuses on missiles and drones, Iran has launched a far more powerful weapon: it has weaponised the Strait of Hormuz as a tool of currency warfare.

The Yuan-for-Hormuz Condition: On 14 March, a senior Iranian official told CNN that Tehran is considering allowing a limited number of oil tankers through the Strait of Hormuz — but only if the cargo is traded in Chinese yuan, not US dollars.

[Source: CNN, 14 March 2026; European Business Magazine, March 2026]

A former senior US Treasury official speaking to the Financial Times described it as: ‘Iran is doing with gunboats what Beijing could never do with white papers. The yuan-for-passage policy at Hormuz is the most significant threat to dollar hegemony in oil markets since 1974.’

[Source: Financial Times, cited in European Business Magazine, March 2026; House of Saud, 16 March 2026]

3.1 This Is Not Rhetoric — The Infrastructure Already Exists

What makes Iran’s yuan condition operational rather than merely symbolic is that a parallel financial infrastructure has been built over a decade:

[Source: The Friday Times, 18 March 2026; Foreign Affairs Forum, 16 March 2026; House of Saud, 16 March 2026; CNN, 14 March 2026]

3.2 The Bifurcated Oil Market

What is emerging is something the world has never seen before: a two-tier oil market.

• Dollar Track: Higher prices, war-risk insurance, no Hormuz access, dependent on limited alternative pipelines (3.5–5.5 million bpd capacity via Yanbu and Fujairah).
• Yuan Track: Hormuz access (with Iranian permission), lower prices, settlement via mBridge/yuan, requires diplomatic relations with Tehran.

This is not just about oil. It is about which currency governs the global economy. Every barrel sold in yuan rather than dollars weakens the structural demand that underpins the entire American financial system.

[Source: Foreign Affairs Forum, 16 March 2026; Geopolitical Economy Report, 17 March 2026]

4. The Tragic Irony: The War Is Accelerating What It Was Meant to Prevent

The greatest irony of this war is that the military action intended to preserve dollar dominance may be the very event that destroys it.

Professor Laleh Khalili (speaking on Democracy Now!, 19 March 2026) argued that Iran’s strategy is ‘a really interesting and quite clever indication of how the Iranians are hoping to influence the crafting of a new world order post this war, where there’s a multipolar financial system, where the dollar is no longer a single currency that rules the world.’

[Source: Democracy Now!, 19 March 2026]

What the war has permanently destroyed:

1. The myth of the US security guarantee. The GCC states the petrodollar system was supposed to protect are being bombed by Iran. UAE, Saudi, Qatar, Kuwait, Bahrain, Oman — all attacked. The US promise to protect them in exchange for dollar pricing has been proven hollow.
2. Qatar’s LNG for 3–5 years. Iran’s strikes on the Ras Laffan facility eliminated 17% of Qatar’s LNG export capacity. Repairs will take 3–5 years regardless of how the war ends. The structural damage is already done.
3. Maritime insurance trust. Even if Hormuz reopens tomorrow, war-risk insurance premiums remain elevated for months or years. The commercial route through Hormuz is now permanently flagged as a war zone in risk models.
4. Dollar exclusivity. Iran’s yuan-for-passage condition has created an operational precedent for non-dollar oil trade. Once a single barrel of crude successfully transits Hormuz in yuan, the dollar monopoly is cracked.

As The Friday Times wrote: ‘The waves of the Hormuz and the drones over the Middle East have not just halted oil tankers; they have ended the era of unchallenged dollar hegemony that defined the last half-century.’

[Source: The Friday Times, 18 March 2026]

5. Current War Status: Day 21 (21 March 2026)

Based on the latest reporting from major sources:

5.1 Escalation, Not De-escalation

• 18 March: Israel struck the South Pars gas field (world’s largest) with US coordination. Iran retaliated by striking the world’s largest LNG facility in Qatar. QatarEnergy CEO said damage will sideline 12.8 million tonnes of LNG/year for 3–5 years. [Reuters, Al Jazeera]
• 20 March: Iran attacked Kuwait’s Mina Al-Ahmadi refinery. Brent settled at US$112.19/barrel — the highest in the war so far. Goldman Sachs suggested higher prices could last through 2027. [Reuters, CNN]
• 20 March: Iran launched intermediate-range ballistic missiles at Diego Garcia — a joint US-UK military base in the Indian Ocean, 3,810 km from Iran — extending the conflict far beyond the Middle East. [CNN]
• 20 March: The US temporarily lifted sanctions on 140 million barrels of Iranian oil in a desperate bid to lower prices. This means the US is literally financing the enemy it is fighting. [CNN, CNBC]
• 20 March: Trump said ‘I think we’ve won’ but refused a ceasefire. Iran’s FM Araghchi said ‘We don’t ask for ceasefire. This war must end so our enemies never think about repeating such attacks.’ [CNBC, Iran International]

5.2 Projection Scenarios

Scenario B (prolonged attrition) is the most likely base case. Both sides have explicitly rejected ceasefire.

[Source: CNBC, 20 March 2026; Iran International, 16 March 2026; Al Jazeera, 19 March 2026; Dallas Federal Reserve, 20 March 2026]

5.3 Critical Escalation Signals to Watch

1. Kharg Island operation. If the US seizes or strikes Iran’s primary oil export terminal, it eliminates Iran’s revenue base and triggers maximum retaliation. [Fox News, 17 March 2026]
2. US troop numbers. Thousands more troops are heading to the Middle East despite Trump’s denials. If deployment exceeds 50,000, ground operations become likely. [CNN, Reuters, 20 March 2026]
3. Houthi re-entry. The Houthis have so far confined themselves to rhetorical solidarity. If they resume Red Sea attacks, both major maritime chokepoints (Hormuz + Bab al-Mandeb) close simultaneously. [ACLED, March 2026]
4. Iran nuclear breakout. With 440.9 kg of 60%-enriched uranium, Iran is within technical reach of a nuclear weapon. Any indication of weaponisation changes the entire calculus. [IAEA, Fox News, March 2026]
5. Qatar LNG long-term damage. Damage to Qatar’s facilities will sideline capacity for 3–5 years regardless of how the war ends — meaning the energy crisis has a structural tail. [Reuters, QatarEnergy CEO, 20 March 2026]

6. Implications For Malaysia

6.1 Malaysia at the Critical Intersection

Malaysia is not a bystander in this systemic shift. It is a participant. Consider Malaysia’s position:

• ASEAN Chair 2026 — with regional diplomatic influence.
• BRICS partner — since 1 January 2025, signalling integration with the de-dollarisation bloc.
• Net energy exporter — oil and gas contribute ~20% of GDP.
• Major trade partner of both the US and China — requiring careful balancing.
• US-Malaysia Reciprocal Trade Agreement — with 19% tariffs and concessions to US interests.
• Currency (Ringgit) exposed to global oil volatility and capital flows.

6.2 The Strategic Dilemma

6.3 Policy Recommendations

1. Strategic currency hedging. Petronas should explore dual-currency settlement (dollar + yuan) for crude oil and LNG exports, following Saudi Arabia’s lead in building yuan infrastructure. This is not picking sides — it is hedging against systemic risk.
2. Join mBridge as an observer. The digital currency settlement platform has already processed US$55+ billion. Bank Negara Malaysia should at minimum join as an observer to understand the new financial infrastructure being built.
3. Independent energy diplomacy. As ASEAN Chair, Malaysia should lead an ASEAN energy security initiative not dependent on any single great power. This includes collective ASEAN negotiation for alternative energy routes.
4. Strategic Petroleum Reserve (SPR). The most basic lesson: Malaysia has no formal SPR. With supply confirmed only until May 2026, this must be established as a legal obligation.
5. Refining self-sufficiency (Brunei Model). Configure at least one major refinery to process domestic sweet crude (Tapis). Do not depend on imported crude that transits routes that can be closed.
6. Do not hollow out Petronas. Political pressure to extract maximum emergency dividends from Petronas could damage the institutional capacity that makes Petronas effective. Petronas is a strategic asset, not an emergency piggy bank.

Conclusion

The US-Israel war against Iran is not primarily about nuclear weapons. A nuclear deal was within reach on 27 February. The US struck the next day.

The historical pattern is clear: Iraq, Libya, Venezuela, Iran — every country that attempted to leave the dollar-based oil trading system has faced US military action. This is not conspiracy theory — it is a documented record discussed by academic institutions and major financial publications.

But the tragic irony is this: the war may be accelerating the very end of the petrodollar it was meant to defend. Iran’s yuan-for-passage condition at Hormuz has created an operational precedent for non-dollar oil trade. The parallel financial infrastructure (mBridge, Saudi-China currency swaps, BRICS framework) already exists. The damage to Gulf energy infrastructure (Qatar LNG 3–5 years to repair) means supply will not return to normal even if the war ends tomorrow.

For Malaysia, the question is no longer ‘will the petrodollar system weaken?’ — it already is. The question is where Malaysia positions itself in this transition. As ASEAN Chair 2026, BRICS partner, energy exporter, and major trade partner of both the US and China, Malaysia has a unique position to navigate the multipolar world taking shape.

The final lesson, as always, comes back to sovereignty: the nation that can fuel itself, refine its own crude, and diversify its settlement currencies — that nation will survive regardless of who wins which war.

__________________________________________________

M. H. M. Ramli

21 March 2026

Ilahi anta maqsudi wa ridhaka matlubi, a’tini mahabbataka wa ma’rifataka