Case Study: The Rise and Fall of the Petrodollar System

When Nixon closed the gold window in August 1971, the dollar lost its anchor. Within three years it had a new one: oil. After the 1973 embargo quadrupled crude prices, the United States and Saudi Arabia reached an understanding in 1974 under which oil would be priced in dollars and the surplus recycled into US Treasuries, banks and arms. That arrangement, the petrodollar system, helped give the US its exorbitant privilege, financed the Latin American lending boom that ended in the 1982 debt crisis, and meant every barrel India imported had to be paid for in a currency it could not print. This case study traces the system from its birth to its cracks: the 1990 Gulf War oil spike that pushed India into its 1991 balance of payments crisis, India's rupee payments to Iran under sanctions, the challengers from Iraq's euro switch to Shanghai's yuan crude futures, the 2014 shale crash that sent recycling into reverse, and the 2022 freezing of Russia's reserves. It closes by separating myth from data on de-dollarisation, examining India's rupee trade settlement push, and turning the story into a practical framework for Indian investors tracking crude, the rupee and the dollar cycle.