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Iran War Threatens Petrodollar and U.S. Entitlements

Source: thebulwark.com

TL;DR

Jonathan V. Last argues the Iran war threatens the petrodollar system that underpins U.S. dollar dominance.
Oil priced in dollars forces global demand, with revenues recycled into U.S. Treasuries to fund deficits.
Losing it could make Social Security, Medicare, and defense spending unsustainable at current levels.

The story at a glance

Jonathan V. Last warns in The Bulwark that the ongoing Iran war risks dismantling the petrodollar system, America's key financial vulnerability. The U.S., Saudi Arabia, and Gulf states are central, with Iran leveraging the Strait of Hormuz to push yuan-denominated oil sales. This is reported now amid U.S. setbacks like Hormuz disruptions and foreign Treasury sales.[[1]](https://www.thebulwark.com/p/the-iran-war-is-coming-for-your-social-security)[[2]](https://www.bloomberg.com/opinion/articles/2026-04-06/the-petrodollar-loop-supporting-the-treasury-market-is-broken)

Key points

Petrodollar system, born from the 1971 Nixon shock ending gold convertibility and 1974 U.S.-Saudi deal, requires oil sales in dollars, creating constant global dollar demand.[[3]](https://www.thebulwark.com/p/the-war-developments-that-should)
Dollars flow to oil exporters, who recycle them into U.S. Treasuries, keeping borrowing costs low and enabling deficit spending on entitlements and defense.[[2]](https://www.bloomberg.com/opinion/articles/2026-04-06/the-petrodollar-loop-supporting-the-treasury-market-is-broken)
Iran war has fractured the loop: importers like India sell $82 billion in Treasuries for dollars amid oil spikes over $100/barrel; Gulf producers cut 10 million barrels/day due to Hormuz blockade.[[2]](https://www.bloomberg.com/opinion/articles/2026-04-06/the-petrodollar-loop-supporting-the-treasury-market-is-broken)
Iran proposes yuan oil sales for Hormuz access, potentially forking the market and challenging dollar reserve status after 52 years.[[3]](https://www.thebulwark.com/p/the-war-developments-that-should)
Last calls petrodollar America's "Achilles’ heel," worse than sanctions loss or Iranian nukes, as it teeters the world order.[[1]](https://www.thebulwark.com/p/the-iran-war-is-coming-for-your-social-security)

Details and context

The system started when Nixon ended dollar-gold ties in 1971 amid Vietnam War deficits, then Kissinger secured Saudi oil priced in dollars for U.S. protection. This "elegant circularity" subsidizes U.S. debt: consumers buy oil in dollars, exporters buy Treasuries (Gulf holds ~$300 billion), funding programs like Social Security and Medicare that exceed revenues.[[2]](https://www.bloomberg.com/opinion/articles/2026-04-06/the-petrodollar-loop-supporting-the-treasury-market-is-broken)

Iran's Hormuz control strands Gulf oil, halting flows; producers invoke force majeure on U.S. investments. Central banks now hold more gold than U.S. bonds for the first time since 1996, signaling a shift.[[2]](https://www.bloomberg.com/opinion/articles/2026-04-06/the-petrodollar-loop-supporting-the-treasury-market-is-broken)

Prior Bulwark pieces note Last "banging on" about this for weeks, tying it to U.S. losses like potential yuan deals with China.[[3]](https://www.thebulwark.com/p/the-war-developments-that-should)

Key quotes

"I have been banging on about this for weeks because the petrodollar is America’s Achilles’ heel." – Jonathan V. Last[[1]](https://www.thebulwark.com/p/the-iran-war-is-coming-for-your-social-security)

"Just as a for-instance: Without the petrodollar system, Social Security and Medicare become hard to support at current levels and defense spending gets crunched." – Jonathan V. Last[[1]](https://www.thebulwark.com/p/the-iran-war-is-coming-for-your-social-security)

Why it matters

A petrodollar collapse would raise U.S. borrowing costs, strain the $39 trillion debt, and erode dollar reserve privileges built over 50 years. Readers face higher taxes or cuts to Social Security and Medicare; businesses see pricier energy and credit; investors watch Treasury yields climb. Watch Hormuz negotiations and Gulf oil deals for yuan shifts, though full dollar dethroning remains unlikely soon.[[2]](https://www.bloomberg.com/opinion/articles/2026-04-06/the-petrodollar-loop-supporting-the-treasury-market-is-broken)