WANA (Aug 08) – Fifty years after the “first oil shock” birthed the petrodollar system, escalating military conflict involving Iran has pushed Saudi Arabia’s crude exports to the United States down to zero for the first time in decades.

 

Reflecting on the shift, American economist Steve Hanke noted on his social media page: “Goodbye petrodollar.”

 

The original petrodollar architecture took shape 53 years ago when Saudi Arabia instituted a five-month oil embargo against the U.S. over its support for Israel, quadrupling global crude prices.

 

In 1974, Washington and Riyadh finalized a landmark agreement: Saudi Arabia pledged to price its petroleum exports exclusively in U.S. dollars and reinvest surplus revenues into Treasury securities in exchange for American military protection.

 

To hedge against future supply crises, the U.S. Congress mandated the creation of the Strategic Petroleum Reserve (SPR) in the late 1970s.

 

The present disruption follows a six-month blockage of the Strait of Hormuz and a three-week closure of the Bab-el-Mandeb Strait to Saudi tankers amid active hostilities. Consequently, U.S. energy reserves face mounting pressure.

 

The latest data from the U.S. Department of Energy places the SPR at 304.8 million barrels—just five million barrels above the critical 300-million-barrel threshold cited by economists.

 

Compounding the crisis, key Saudi energy infrastructure remains offline or vulnerable:

Jizan Refinery: Aramco facilities in Jizan remain non-operational following drone and missile strikes launched by Yemeni forces.

 

Abqaiq and Yanbu: Major processing facilities in Abqaiq and Yanbu, alongside Saudi maritime vessels, face ongoing threat vectors from regional strikes.