military power and the petrodollar – both essential for US imperialism

“Negotiations are a euphemism for capitulation if the shadow of power is not cast across the bargaining table.” So said George Schultz, former president of Bechtel Corporation and former member of the cabinet of the Nixon and Reagan administrations.

Power means being able to bend somebody to your will and that means physical power. Trump’s present war on Iran is a case in point, and there are two key aspects to that power, one of which is widely discussed and the other is not. The more widely discussed one is Iran’s ability to develop its own nuclear bomb. The less widely discussed but at least as important one is the petrodollar. Let’s consider the nuclear issue first:

Nuclear weapons
The Iran government aspires to becoming a regional power, one that is powerful enough to challenge Israel. Especially in that region, with Israel showing every day that it is willing to use any military force in its arsenal to maintain its power, it’s impossible to be a regional power without having a nuclear bomb. If there was ever any confusion on that issue on the part of the Iran regime, whose base is the Revolutionary Guard (IRGC), that confusion disappeared when Netanyahu spoke through Trump’s mouth when the latter threatened to “wipe out Iran’s civilization”. There is only one way that could be done – a nuclear attack. Maybe up until now the Iran regime was just trying to develop the capacity to build a nuclear bomb on short notice, but it seems highly unlikely that they don’t see that as an immediate necessity at this time.According to reports, one of the roadblocks to an agreement between the US and Iran in the recent negotiations between the US and Iran was the US demand that Iran hand over the nearly 1,000 pounds of highly enriched uranium. Iran insists on keeping it with the promise of diluting it. If it is diluted, it can quickly be enriched again.

The other nuclear power: Israel
There is one and only one way that the U.S. can convince Iran to give up on becoming a nuclear power: If it forces Israel to surrender its nuclear weapons. The entire US political establishment constantly warns against the Iranian verbal threats against Israel and the US, but it’s Israel that has been the most militarily aggressive, not only against the Palestinians in Gaza and the West Bank, but also in relation to its invasions of Lebanon and Syria as well as its terrorist attacks such as when it blew up thousands of hand held pagers and walkie-talkies of Hezbollah members in 2024. Short of Israel giving up “the bomb”, all countries in the region are or will be looking to develop a nuclear bomb themselves. Why else would the Saudi government be developing nuclear energy when it is overflowing with oil, which is a cheaper means of creating electric power?

The “shadow of power” that hovers over all South West Asia North Africa (SWANA) is Israel’s nuclear bomb. They may be reluctant to use it, but if it becomes necessary to enforce their power they will, and everybody knows it. That’s why Iran is trying to develop one of its own. This has gone hand in hand with the shift to the IRGC becoming the major power base of the Iran regime, which also means even more vicious repression of the masses of the Iranian people. In fact, the IRGC government’s drive for regional power facilitates its repression at home.

This shift has an ideological aspect. An article in the Wall St. Journal explains this clearly (without intending to do so). According to the article, the Iran regime has become far more radical and has taken up “Mahdism” which is similar to the “end times” Christians associated with Pete Hegseth. According to the article, it seems to resemble a Shiite version of the Islamic State. This is what the aggression of the two nuclear powers in the region – Israel and the United States – have helped create.

The petrodollar – it casts a long shadow

Petrodollar
The other driving cause of the war on Iran is the threat Iran poses to the petrodollar system. That system’s role derives from the history of the international role of the dollar. Back in 1944, under the Bretton Woods Accord, the major Allied powers agreed to use the dollar as the currency of international exchange. World trade would be conducted in dollars, which was the world’s most stable currency against which all other currencies would be measured. In return, the U.S. agreed that dollars could be exchanged for gold at the rate of $32 per ounce. That was beneficial for world trade and also for the U.S. because other central banks bought US Treasury notes by the bushel basket. This meant in effect making loans to the U.S. government. They were happy to do so because they knew that the dollar wouldn’t depreciate in valaue over time, meaning their loans would not be paid back in cheapened dollars. They helped finance the U.S. budget deficits, and the U.S. took full advantage of it. But over time, the deficits exploded and there started to be a run on the dollar – foreign investors were exchaning their dollar investments for gold – at the fixed rate of $32 per ounce. The result was that in 1972, then-President Nixon famously “closed the gold window”. He let the dollar “float” in relation to gold. This threatened to weaken the international role of the dollar. Enter Henry Kissinger, who made a secret visit to Saudi Arabia in 1974. According to the Japan Times (among other sources), Kissinger arranged a deal with the Saudi government that they would price all oil in US dollars and would get their neighbors to do the same. They would then use their surpluses to buy US Treasuries. “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 U.S. has taken full advantage of the fact that there is no substitute for the dollar. It has done so by effectively forcing other countries to help finance the US government deficit. According to an AI search, the US budget deficit was 5.8% of the US GDP last year and is predicted to grow to 6.7% this year. By comparison, the average budget deficit in the EU countries was 3.1% in 2024, which was an actual decrease from the previous year. In other words, the US budget deficit as a percentage of GDP is almost double what the EU deficits are. Other countries don’t like it, but where else can they invest their dollars?

“Black gold” (oil) became a substitute for yellow gold.

U.S. Treasuries vs. yellow gold
The power of the dollar is linked to the petrodollar, whose use is linked to foreign purchase of US Treasuries. According to the Japan Times, around the early or mid 2010s, foreign investors held about half of all US Treasuries. That percentage steadily declined and now foreign investors own only 32% of US Treasuries.

Central banks’ investment in Treasuries vs gold

Instead, foreign investors have tended to put increasing amounts of their investment into gold – a trend that started in 2016. That was the year that Trump first made his run for the US presidency. This signaled an increase in political instability, making investment in US currency less desirable. Now, for the first time since 1996, foreign investors hold more gold than US Treasuries. (See graph.)

China
Another, and equally important reason, has been the rise of the BRICS, most of whose countries are more politically linked to China. U.S. sanctions against Russia have actually helped this process. Mexc.co reports : “The BRICS nations (Brazil, Russia, India, China, South Africa) are actively bypassing the US Dollar. They want to avoid US financial sanctions. In 2026, we see more countries buying oil using local currencies like the Chinese Yuan or the Indian Rupee. When countries stop using dollars to buy oil, they stop recycling those dollars into US Treasuries. This forces the US to find new buyers for its debt. This global shift creates massive volatility in the oil markets, giving day traders incredible opportunities.”

In other words, it is a symptom of the increased power of Chinese imperialism, although the yuan cannot replace the dollar as the international currency because the yuan is not freely convertible. Despite that, it can weaken the dollar, which is what is happening.

But note what backs up the petrodollar: US military protection of Suadi Arabia and other Arab opec countries. In other words, it is force or the credible threat of the use of force. Right now the US cannot invade Iran because it lacks the troops. In order to get enough soldiers, it would have to institute conscription. Trump took a step in that direction by ordering that eligible men between 18 and 25 years old to be automatically registered for conscription. That is a long way from actually instituting a draft, but it’s a step in that direction.

A maternity ward in Mariupol bombed by Russia. Russia made the “shadow of power” real.

Ukraine
The example of the petrodollar has implications for the other ongoing major war: Russia’s invasion of Ukraine. That invasion started in 2014 and it had nothing to do with NATO; it was about Ukraine joining the EU. Doing this would be the equivalent of destroying the petrodollar, which Russia could not tolerate so it carried out the first stage of its invasion.

Schultz’s point about power also answers a claim of the Putin apologists who claim that what’s needed instead of “war” is “negotiations”. On these grounds, they oppose sending arms to Ukraine. But when that happens, the “shadow of power” fades away, so what these people are really advocating is capitulating to Putin!

Trump with his two closest allies – Putin and Netanyahu. They play him like a fiddle.

War and “the bomb”
The NY Times gave a detailed account of the process through which one of Trump’s best allies , Netanyahu (the other is Putin), convinced him to go to war with Iran. Ever the gullible megalomaniac, Trump just swallowed everything Netanyahu said (just as he has done with Putin), and so he set off to war lacking both clear objectives and a strategy. This is one of the main reasons why a big bulk of the representatives of US capitalism are so critical. Even the Wall St. Journal editorial board, while generally supportive, don’t completely trust Trump to see the war through to the end.

The real reason for the split between the more aggressive forces as represented by the WSJ editors and others is simply this: Contrary to what the simplistic left says, almost all of US capitalists’ strategists are usually very reluctant to enter a shooting war. Wars are risky, expensive and destabilizing, so they only enter into them as a last resort, when a true test of power can be conducted in no other way. Most of the capitalist strategists are reluctant to conclude that a war will be truly necessary. The WSJ editors and others who are like minded such as John Bolton understand that it ultimately is, and better to do it now than later when the going will be even more difficult.

This is where capitalism is taking us.

Iran’s drive towards getting “the bomb” is also an example of the spread of nuclear weapons – “nuclear proliferation” – as a result of the increasing geopolitical instability. This proliferation is a threat to human society and life on the planet in general. This is where capitalism is driving us – either later or sooner. Given the present direction, “sooner” seems more likely than “later” unless the working class intervenes.

The petrodollar and military power – both essential for US imperialism