Understanding the petrodollar system
The term “petrodollar” refers to US dollars earned by oil-exporting nations through the sale of oil. The petrodollar system is not a formal treaty but rather the global norm where crude oil is priced and sold predominantly in US dollars.[1]
This system was strengthened through decades of economic and geopolitical alignment between the United States and major oil producers such as Saudi Arabia, ensuring dollar dominance in global energy markets.[2]
What actually underwrites the petrodollar system
Contrary to the common belief that “Houston underwrites every petrodollar deal,” no single city or entity guarantees those transactions. The system’s stability rests on three major pillars:
US financial system
The US Treasury market remains the safest and most liquid investment channel for oil exporters to recycle their dollar revenues—commonly called “petrodollar recycling.”[3]
US geopolitical power
Strategic and military alliances with key oil-producing nations have historically encouraged the continued use of the US dollar for oil trade.
Global acceptance of the dollar
The dollar’s dominance in international trade provides powerful network effects, making it the most convenient and widely accepted settlement currency worldwide.[4]
Houston’s true role
Houston is the energy capital of the world—home to major oil companies, refineries, and financial institutions handling global energy contracts. It serves as a center for deal-making, logistics, and financing in the oil and gas sector.[5]
However, Houston does not “underwrite” the petrodollar in the financial sense. It does not guarantee payments or back the dollar’s value—roles reserved for the US Treasury and Federal Reserve.
De-dollarization and its implications
De-dollarization refers to the growing trend of conducting international trade, especially in energy, using non-US currencies like the Chinese Yuan or the Euro.[6]
This trend could reshape global financial flows and weaken the US dollar’s central role in world trade.
Comparative impact: US vs. Houston
The impact of de-dollarization would differ between the broader US economy and Houston’s energy sector. Nationally, reduced demand for US Treasury bonds could lead to higher interest rates and borrowing costs, tightening financial conditions across the economy[7]. In Houston, the effects would be more direct—particularly in the oil and energy markets, where a shift away from dollar-based transactions could disrupt pricing, hedging, and financial strategies used by local firms. Geopolitically, the US might experience a decline in global economic influence, while Houston-based multinational energy companies would face greater complexity in deal-making and currency management as they adapt to a more fragmented global market.
Conclusion
While New York’s financial sector would bear the brunt of any large-scale loss in dollar dominance, Houston would face the most immediate operational impact.
As the hub of global energy production and trade, Houston would have to adapt quickly to a multi-currency oil market, manage volatile exchange risks, and adjust its financial infrastructure to remain competitive in a de-dollarized world.
Reference:
[1] Understanding Petrodollars: Definition, History, and Global Impact – Sep 01, 2025, Investopedia
[2] How Petrodollars Affect the US Dollar – Aug 05, 2024, Investopedia
[3] Petrodollar Recycling And Global Imbalances — Presentation by Saleh M. Nsouli, Director, Offices in Europe, International Monetary Fund – Oxford academic
[4] Dollar Dominance in the International Reserve System: An Update – Jun 11, 2024, IMF Blog
[5] Energy Capital and Opportunity City: Houston in the Twentieth Century – Mar 23, 2006, IMF
[6] De-dollarization: Is the US dollar losing its dominance? – Jul 01, 2025, J.P. Morgan
[7] Impact of Dedollarization – Learnsignal
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