LONDON, July 14 — The mechanism that has underpinned global oil trade for half a century is the petrodollar system, established by a 1974 agreement between the United States and Saudi Arabia. Under the hood, this arrangement ensures that oil is priced globally in US dollars, creating a structural demand for both the currency and US Treasury bonds that has shaped international finance ever since. The technical reality of the petrodollar is straightforward: any nation wanting to buy crude must first acquire dollars.
This has provided the US with what economists call an “exorbitant privilege” — the ability to run persistent trade deficits while maintaining the dollar’s value. The system has survived multiple oil price shocks, though not without damage.
Oil price volatility has a track record of inflicting real economic harm. The 1973 oil crisis saw US GDP fall 3.2 percent in 1974. The 2008 price spike, when crude reached $147 per barrel, contributed to the global financial crisis.
These are the detail that matters when assessing the system’s stability.
The industry under the hood
The oil and gas industry directly contributed about 8 percent of US GDP in 2022, according to the American Petroleum Institute. The sector is capital-intensive: upstream exploration and production costs vary widely depending on geology, location and extraction method. The International Energy Agency estimates that global upstream oil and gas investment reached $499 billion in 2023.
The major publicly traded players in this ecosystem include ExxonMobil, which reported 2023 revenue of $344 billion; Chevron, at $200 billion; and ConocoPhillips. These companies operate across the full value chain — exploration, drilling, refining and distribution — and their financial health is directly tied to dollar-denominated oil prices.
What to watch next
As ever, the question for analysts is whether the petrodollar system faces genuine structural pressure or merely cyclical noise. The 1974 US-Saudi agreement has never been formally revoked, and no alternative pricing mechanism has gained traction in global crude markets. But the concentration of upstream investment — $499 billion in a single year, according to the IEA — means that any disruption to dollar-based pricing would have immediate consequences for capital allocation across the industry.
The detail that matters for the months ahead: oil price volatility remains the system’s most destabilising feature, and the historical record — from 1973 to 2008 — suggests that when prices move sharply, the economic fallout is rarely contained to the energy sector alone.
