Donald Trump’s designs on Venezuela and Greenland have sent shock waves around the world. Canadian premier Mark Carney said they have created a “rupture in the world order”, as political alliances that have held for over 80 years are thrown aside.
And as the US seeks to carve out a Western Hemispheric sphere of influence, questions about the dollar’s future as the lynchpin of the global economy are growing louder. Many other parts of the world are switching to green energy sources as renewable energy becomes cheaper than fossil fuels, and countries forced to pay back loans in dollars are eyeing alternative currency options to free themselves from the penalty of fluctuating exchange rates amid unpredictable policy shifts.
As a result, the continued relevance of the petrodollar system – in which oil is traded in dollars and guarantees demand for US currency – may be less than assured.
What is the petrodollar system?
The petrodollar system was established in the 1970s following the collapse of the Bretton Woods system and is one of the most consequential monetary arrangements in modern history.
In 1944, the Bretton Woods agreement made the US dollar the anchor of the global monetary system, pegged to gold and with other currencies fixed to the dollar. The framework aimed to provide global financial stability following the economic fragmentation of the Second World War and cemented the dollar as the world’s reserve currency.
US President Richard Nixon abandoned the gold standard in 1971 to curb inflation after foreign central banks – increasingly reluctant to hold depreciating dollars – began converting their dollar reserves into gold. The petrodollar system emerged as an alternative means of keeping the dollar as the backbone of international transactions.
The petrodollar system refers to the pact that Gulf Cooperation Council (GCC) states – including Kuwait and Saudi Arabia – made with the US, agreeing to price oil in dollars and to recycle revenues into US Treasury securities in return for military protection and sales of advanced weaponry.
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Andrés Arauz, former Ecuadorian minister and central bank director, told Green Central Banking that ramifications for the global economy were immense: “So oil and gas [are traded in dollars], but then also downstream with all the derivatives, but then also all the chemical elements derived from the oil industry and petrochemical industry. And then likewise, upstream with all the technology and inputs required to extract the oil, [it] created a dollar-denominated value chain with global and international repercussions.”
Arauz also notes that international accounting standards set by institutions like the IMF reinforce the system by requiring central banks and organisations to report reserves in dollars, solidifying the greenback as the default unit of account.
For decades, this system delivered guaranteed demand for dollars, recycled oil revenues into safe-haven US debt markets, and provided outsized geopolitical leverage to the US Federal Reserve given the need of other countries to accumulate dollars to conduct global transactions.
Fadhel Kaboub, associate professor in economics at Denison University, explains how this “exorbitant privilege” distorted the global economy in the US’s favour. “All countries operate … within a system where they have to accumulate reserves not in gold anymore but in dollars and countries that have debt, their debt is denominated in dollars. So that created a locked-in system that gives the US dollar a privilege as the dominant payment system and gives the opportunity to weaponise this system.”
The petrodollar system has also encouraged and amplified US consumption of fossil fuels and its contribution to greenhouse gas emissions. Kaboub, who is also a member of the United Nations High-Level Advisory Board on Economic and Social Affairs, says the system has “rewired” the global economy into an extractive model that promotes environmentally destructive industries.
But as decarbonisation accelerates and renewable energy displaces fossil fuel value chains, the petro-lynchpin of dollar dominance faces unprecedented strain.
Is the petrodollar in decline?
Signs of discontent are increasing, placing the dollar’s decades-long dominance under unprecedented pressure.
BRICS countries are discussing new financial mechanisms that will make trading within the bloc easier but may also reduce reliance on existing dollar-dominated channels. Both India and Brazil have denied that linking BRICS digital currencies is part of moves towards de-dollarisation, but such a move will likely cause concern in the US.
Meanwhile, European Central Bank President Christine Lagarde made headlines in May 2025 with her blunt assessment that the current global landscape presents a significant opportunity for a “global euro moment”, as investors “unsettled by unpredictable US economic strategies” increasingly reduce their exposure to dollar-denominated assets.
These developments reflect deeper structural shifts. The dollar’s share of global reserves has declined from 71% to 56.3% since 2008, with central banks purchasing over 1,000 metric tons of gold annually for three consecutive years. China slashed its US Treasury holdings from US$1.3tn in 2013 to just $682bn by November 2025, while simultaneously expanding yuan-based trade across Asia.
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This shift was triggered by what Arauz describes as “eroding trust” in US financial systems.
“Perhaps the most serious element that has accelerated this diversification has been the weaponisation of the hegemonic banking system,” Arauz said. “[Through] sanctions, through asset freezes, through confiscation of international reserves in many countries … [these] have definitely stirred things up and made countries reflect about the reliance on this previously thought of neutral system that is now, on the other hand a threat, to their national sovereignty and economic policies.”
The climate crisis is also acting as a catalyst. As the world transitions away from fossil fuels, structural strain is placed on the demand for dollars, and the more the US clings to fossil fuel dependency in order to maintain monetary dominance, the deeper the cracks become.
Gulf states have long-term plans to diversify away from oil and reinvest a substantial portion of their oil revenues in green value chains, challenging the core pact which upholds the petrodollar system that US currency dominance has long depended on.
And while economists expect the dollar to remain the primary reserve currency in the near term, it has also been noted that once transitions to a new system are underway, they can happen very quickly. Speaking at the World Economic Forum in Davos in January, Jeffry Frieden, political science professor at Columbia University, warned of “an erosion of confidence in the dollar” amid mounting doubts about the safety of US Treasuries as “the most important financial asset in the world”.
‘US pulling itself out of the picture’
The Trump administration’s response to a shift away from the dollar has been to double down on arms sales and fossil fuel infrastructure – what Kaboub calls a “long-term strategic failure” that fundamentally misreads the changing dynamics of global power.
Trump’s recent $142bn arms deal with Saudi Arabia aims to tether Gulf revenues to the dollar through military exports. However, economists like Maya Senussi at Oxford Economics and John Sfakianakis of the Gulf Research Centre warn that financing such deals alongside decarbonisation projects will strain GCC budgets, and Bloomberg estimates it will require oil prices to be at least $96 a barrel just to break even. Brent oil prices currently hover around $67-68.
And in the Global South, higher oil prices may inadvertently threaten dollar dominance by exacerbating debt burdens by increasing repayment costs, pushing countries towards cheaper (and greener) energy systems. America’s transition to net fossil fuel exporter status means higher oil prices now strengthen rather than weaken the dollar, creating a triple blow for dollar-indebted countries in Latin America and Africa: higher energy costs, escalating debt servicing and constrained fiscal space.
The very mechanism designed to strengthen dollar ties – expensive arms deals premised on elevated oil prices – accelerates the search for alternatives among countries holding critical transition minerals like lithium, copper and cobalt. This pushes the US further from the green value chains of the future.
“The US is pulling itself out of the picture, it’s divesting from the green technologies and green industries. Which means it’s moving away from its interest in critical minerals,” says Kaboub. “So the remaining big player is China, and it’s a friend of the Global South.”
Today, China controls 85-90% of global rare earth processing and offers renewable energy equipment that remains attractive to the GCC despite US and EU tariffs. This is thanks to competitive pricing and comprehensive infrastructure approaches that western competitors have largely failed to match.
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Kaboub says that Trump’s minerals-for-security deals, such as in Greenland and elsewhere, may secure short-term market access but erode global trust in US foreign policy, a cornerstone of confidence in the dollar. “The isolated backwards technology bloc is going to be the United States,” he says.
As Lagarde observed, investors increasingly seek “geopolitical assurance in another form” by directing investments toward regions perceived as “dependable security allies” – but this no longer automatically defaults to the US as its government criticises its one-time allies and jeopardises the future of NATO.
Yet the petrodollar system faces challenges that extend far beyond the geopolitics of sanctions; climate change has introduced structural pressures making the core foundations of dollar dominance increasingly untenable.
However, given Trump’s bellicose stance on Venezuela and Greenland, there is a risk that American policymakers will not recognise this new reality until it is too late.
This article was originally published by Green Central Banking.
The post Explainer: What is the petrodollar and why is it under pressure? appeared first on Climate Home News.
Explainer: What is the petrodollar and why is it under pressure?
The launch of the Africa Energy Bank (AEB) has been put back yet again, raising doubts about the institution’s future ability to finance fossil fuel projects – its main objective – as global lenders retreat from such investments over climate concerns, experts told Climate Home News.
The bank, which had been billed to launch in September after a series of delays, is now scheduled to begin operations in November, according to the head of the African Energy Chamber, an advocacy body for the continent’s oil and gas sector.
Even as the world aims to transition away from fossil fuels, many African leaders have made clear they want to continue exploring and extracting the continent’s large oil and gas deposits – estimated at around 125 billion barrels of crude and over 600 trillion cubic feet of gas – to boost economic development.
As a group, Africa sided with a number of powerful oil-and-gas producing nations in blocking progress on negotiations to craft a global roadmap to transition away from fossil fuels at last year’s UN COP30 climate talks, although some countries did individually support the proposal.
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Meanwhile, major projects under development across the continent – including the 1,443-km East African Crude Oil Pipeline (EACOP) and Dangote’s 700,000-barrel-per-day Kenyan refinery – show that African governments see oil and gas as playing a significant role in meeting their energy and economic needs for many years to come.
In 2022, at a gathering of the African Petroleum Producers’ Organization (APPO) in oil-rich Angola, ministers from its member states adopted a resolution to create the Africa Energy Bank to finance projects for the production, use and trade of oil, gas and broader energy sources.
African control over energy resources
An article on the APPO website explains that the bank was conceived as a way to overcome “disenchantment” with fossil fuels among “the international community” which it said had crystallised around the “energy transition” concept.
“If Western countries, after having long taken advantage of the energy sources they now revile to develop, can afford the luxury of abandoning them, this is not the case in Africa,” it adds, noting that many of the continent’s economies are still largely dependent on oil and gas revenues.
A separate web page about the bank, also hosted on APPO’s website, says its objectives include financing the exploration, production and refining of oil and gas, as well as supporting member states in transitioning from fossil fuels to cleaner energy sources “while ensuring energy security”.
Said Addi, a former executive with Shell and energy commodities trading house Gunvor, said the new bank was judged necessary because financing for hydrocarbons from many traditional international lenders has become constrained.
In trying to fill this financing gap, Africa is not simply setting up another fund to support oil and gas, he added. “It is also an attempt to give African countries greater control over how their energy resources and infrastructure are financed,” he explained.
Nigeria to host the AEB
The energy bank – a joint initiative of APPO and the African Export–Import Bank (Afreximbank) – has so far suffered several delays and is almost two years behind schedule. The initial plan was to start operations in January 2025, with Nigeria as the host country, but the bank’s opening was delayed to June of that year to allow Nigeria time to finalise the construction of the bank’s headquarters in Abuja.
After the government announced the completion of the offices in late November 2025, a new launch date was set for January 2026, which was moved back to April, June and then September. Now it has shifted again to November, raising concerns that the institution may be losing momentum.
Former Shell executive Addi said that if the capital is eventually paid in, the bank becomes operational and its first projects are commercially credible, then the delays will be regarded as normal teething troubles in setting up a multilateral institution. But, he added, scepticism will be justified if it continues to stall.
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Baron Lamarré, an oil and gas expert and former Petronas oil trader, said that missing “three deadlines in a row is not normal”, and warned that if the timeline slips again, “the story flips from ‘ambitious institution finding its footing’ to ‘good idea that lost momentum before it found any’.”
The Nigerian government, APPO and Afreximbank did not respond to requests for comment by the time of publication.
The funding challenge
The Africa Energy Bank is targeting base capital of $5 billion, with plans to scale up to $120 billion within five years by mobilising private-sector funds. However, it is expected to start operations with initial seed capital of $500 million.
The funding plan is to have the 18 member countries of the APPO contribute $83 million each to the bank as equity for a combined $1.5 billion. Afreximbank, other non-APPO African countries and investors outside the continent are expected to provide the remaining $3.5 billion.
But even the initial $500 million has not been easy to mobilise. In May, APPO Secretary-General Farid Ghezali called on members to deliver on their pledges towards the startup goal before the end of June. But the delays suggest this may not have been met, with experts saying Africa may be finding it difficult to self-fund its oil and gas projects in the absence of international capital.
Lamarré said every extension of the deadline points to the fact that “raising fossil fuel capital in Africa without the majors and their financing networks is brutally hard”.
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Since 2020, Western lenders, export credit agencies and insurers have been in steady retreat from African hydrocarbons, he said, while oil majors are divesting their African assets, handing over fields to smaller local operators whose credit ratings are not high enough to borrow cheaply.
Even capital from China and the Gulf, which has partially filled the gap, cannot match the volume, tenor or pricing that Western investors once offered, Lamarré argued.
“If mobilising the first $500 million of seed capital [for the AEB] has taken this long, that’s the clearest signal yet of how steep the climb to $120 billion looks,” he said, noting that the continent’s energy financing gap is as large as $30 billion-$45 billion per year.
Africa’s investment landscape, meanwhile, has been shifting. While foreign direct investment dropped from a 2024 peak, inflows remained roughly one-third above the continent’s long-term average in 2025, according to the 2026 World Investment Report from UN Trade and Development (UNCTAD). They are concentrated in a few sectors including critical minerals needed for renewable energy technologies, battery manufacturing and advanced industrial production.
At the same time, data on global energy investment from the International Energy Agency (IEA) shows that fossil fuel investment in Africa has declined over the last decade.
“Trojan horse” for fossil fuels
While the Africa Energy Bank struggles to get off the ground, climate campaigners have criticised its primary aim of financing oil and gas on the continent at a time when the world is starting to move away from high-carbon fuels to cleaner alternatives.
Bhekumuzi Dean Bhebhe, founder of Africa Change Lab, described the bank as a “Trojan horse”, arguing that its focus on fossil fuel financing runs counter to the global energy transition and the African Union’s Agenda 2063 goals of sustainable development and inclusive growth.
The energy bank, he warned, “risks locking Africa into a new cycle of debt, dependency and fossil fuel entrenchment”, adding that its financing blueprint does not pave the way for a climate-resilient future. “In truth, it is to deepen the same extractive, carbon-heavy pathways that the continent should be moving away from,” he added.
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Kenya-based climate and energy expert Joab Okanda said the AEB’s plan to finance oil and gas is “a misplaced priority” and it should instead back clean energy in line with the policies of some of Africa’s major export markets like Europe.
In addition, the new bank could struggle to mobilise enough resources to advance large-scale oil and gas projects, he added, noting that its proposed $5-billion initial capital is equivalent to the cost of the East African Crude Oil Pipeline alone.
The AEB’s aim of backing more fossil fuels should be flipped “to support countries that are oil-dependent to start working on their transition plans”, Okanda said.
The post Launch of Africa Energy Bank delayed again in blow to oil and gas hopes appeared first on Climate Home News.
Launch of Africa Energy Bank delayed again in blow to oil and gas hopes
A booklet published by the UK’s opposition Conservative party includes a “cost of net-zero” that appears to have been doubled by a spreadsheet error.
The “common sense” policy document argues that “what people ultimately want is a government competent enough to solve the problems for which it takes responsibility”.
In a section that says “sophisticat[ed]…modelling” should not be a substitute for “political judgement”, the “Right Way” document disparages various estimates of the cost of net-zero.
The Conservative document then claims – incorrectly – that the government’s official adviser, the Climate Change Committee (CCC), had put the cost of net-zero at close to £1tn. It says:
“In 2020, the CCC estimated that its route to net-zero would cost £957bn.”
In fact, the CCC’s 2020 estimate was exactly half this amount – £478bn – and last year it published a revised figure of £108bn, largely as a result of the falling cost of electric vehicles (EVs).
Spreadsheet error
The Conservative party’s erroneous claim appears to stem from another report that had accidentally added up numbers twice, using a spreadsheet published by the CCC in 2020.
The 2020 spreadsheet contains a table listing the additional investments that would be needed to build a net-zero economy, from low-carbon electricity generation through to heat pumps and EVs.
These extra capital expenditures, listed as “CAPEX”, add up to a total of £1.38tn over the 30 years of 2020-50. They are set against operational savings, listed as “OPEX”, of £0.90tn.
Added up over 2020-50, the combined CAPEX and OPEX figures come to a total of £478bn.
In addition to the annual sectoral CAPEX and OPEX figures, the CCC’s 2020 spreadsheet also has a line giving combined totals for each year. It appears that someone has added all of these numbers together, resulting in the savings and costs being counted twice.
This double-counted total for the cost of net-zero amounts to £957bn – as shown in the image below – and it appears to be the source of the claim in the Conservative booklet.
At the time of publication in 2020, the CCC said that the £478bn net cost of net-zero amounted to less than 1% of GDP over 30 years – and that the large investment needed would not only result in savings due to lower fossil-fuel imports, but that it would boost GDP overall, by around 2%.
In 2025, the CCC revised its estimates for investment costs and operating savings to £670bn and £562bn respectively, giving a net total of £108bn over 2025-50, or less than 0.2% of GDP.
Earlier this year, the committee said that cutting emissions to net-zero would cost less than a single fossil-fuel price shock and that doing so would have benefits worth £110bn per year.
Paper trail
The erroneous claim in the Conservative document is referenced to the CCC’s 2020 advice on the UK’s sixth “carbon budget”, which, as explained, does not contain the £957bn figure.
The earliest online use of the £957bn figure found by Carbon Brief is a 12 January 2026 article in the Spectator, by retired engineer and self-described “accidental energy analyst” David Turver.
A day later, Turver repeated the mistaken number in a report for the free-market Institute of Economic Affairs. His report cites figure 5.3 of the CCC’s 2020 advice.
However, as set out above, the CCC spreadsheet containing the data for figure 5.3 only adds up to £478bn, half the figure claimed by Turver.
It appears that Turver accidentally added up all of the numbers in the CCC spreadsheet, without noting that it already included a line for the annual total. This results in double-counting the cost.
(Turver’s report also triggered a slew of inaccurate headlines stating that net-zero would cost £7.6tn – or even £9tn. These figures, which came from Turver’s report, were based, among other things, on the implicit assumption that fossil fuels and the cars, boilers and power plants that use them are all free.)
After Turver’s report and article in January 2026, the erroneous £957bn figure was repeated in March by the Great British Think Tank. The organisation has the tagline “data, not vibes” and says of its work: “Every figure [is] sourced from official public bodies.”
The £957bn figure then appeared in the Conservative “Right Way” document in October 2026.
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