Iran prepares to 'nuke' the petrodollar system
Key Markets report for Friday, 3 April 2026
As Europe and most of the rest of the world face the greatest energy crisis in decades, Iran has moved to strike at the petrodollar system. Yesterday, Iran’s Head of the Government Information Council, Elias Hazrati, stated on state TV that Tehran is ready to conclude agreements with European, Asian, and Arab countries for transit through the Strait of Hormuz.
Iran will invite users to negotiate terms, asserting full control amid the ongoing crisis. The EU countries will be offered transit access through the Strait of Hormuz - on Iran’s terms. Europe’s energy bill soared by $16.2 billion in just 30 days of war, and it could get significantly worse if no deal is reached. The price of natural gas doubled and oil is up more than 60%.
Europe’s dollar vulnerability
As I discussed it here last May (“Fear of Trump grips the Eurozone”), the European Central Bank mandarins are concerned about Eurozone banks’ exposure to U.S. dollars and access to dollar liquidity in conditions of stress. Their fear is that under the Trump administration, Eurozone banks’ access to U.S. dollars could be cut which would plunge Europe into a severe financial crisis. Since most foreign trade in the world is still conducted in U.S. dollars, Europe and other global players need dollars to pay for imports.
As much as 17% of Eurozone banks’ funding is in dollars, which are typically lent to non-bank institutions in the Eurozone for trade financing. This arrangement exacerbates Europe’s vulnerability to the U.S. and Iran’s leadership has evidently calculated that they can exploit this to push a wedge between the U.S. and its European vassals. Iran’s offer will entail transit through the Strait of Hormuz, provided that the cargos are settled in Euros.
City of London in the crosshairs
Accumulating Euro balances may not be particularly attractive to Iran from the financial point of view, but it could be very effective from the strategic point of view: it largely resolves the problem of Europe’s vulnerability to the risk of financial blackmail from the Trump administration. For the same low price, this move would deliver a financial nuclear strike at the Empire’s petrodollar system, which has dominated global trade since 1974, forcing all nations to hold U.S. dollars to participate in global trade. Nations’ exposure to U.S. dollars made them all vulnerable to U.S. sanctions, which has been the key mechanism of imperial coercion and hegemony.
Indeed, the control over the petrodollar system has been the basis of the American power, but not only American. The City of London and its offshore centers (Cayman Islands, British Virgin Islands, etc.—British Overseas Territories and Crown Dependencies) also figured as the dominant non-U.S. hubs for managing, intermediating, and recycling petrodollar flows, especially from Gulf oil and gas producers.
In fact, London has been the primary manager of petrodollars and Gulf monarchies’ sovereign wealth funds (SWFs), handling more petrodollars and Gulf SWF money than any other financial center outside the U.S. Gulf investors routed their U.S. asset purchases (e.g., Treasuries) through London banks or intermediaries to bypass US disclosure rules (e.g., post-Patriot Act). That made the UK-reported holdings a common proxy for hidden petrodollar flows.
In all, the petrodollar system has thereby enabled Global Britain to punch well above its weight in global affairs:
Routing through UK offshore centers: Oil exporters often acquire US assets via London or Caribbean offshore hubs (heavily UK-linked, like Cayman). Cayman alone hosts investment funds with ~$8 trillion in assets and has historically ranked among the top custodians of US securities (often exceeding direct oil-exporter reporting).
Broader UK/offshore dominance in supporting infrastructure:
London still dominates global FX trading (up to 40% of worldwide volume, including the vast Eurodollar market of offshore USD banking/deposits, which petrodollars helped build in the 1970s).
The Brent crude benchmark (traded on ICE in London) influences pricing for a large share of global oil (estimates often 2/3 to ~80% of traded volumes, depending on the source).
UK offshore networks handle a massive share of global cross-border investment flows and secrecy structures.
In short, the international financial plumbing - custody, recycling, and pricing mechanisms - are disproportionately routed through or managed by the UK and institutions domiciled in its opaque offshore ecosystem. Sovereign wealth funds of Gulf monarchies, which manage trillions of US dollars have deep historical ties to London for both investments and operations. According to the U.S. Treasury’s TIC data (Treasury International Capital), UK-controlled custodial locations account for some $900 billion in US Treasuries - an important chunk of collateral supporting the British financial house of cards.
It is probably no exaggeration that the petrodollar (and eurodollar) systems are the main glue holding the “special” U.S. - U.K. relationship together. Donald Trump may think that the Iranians belong in the stone age, but right now they seem far more clever than he and his administration. If the Europeans miraculously find their backbone and accept Iran’s deal, this could turn out to be a painful blow to the U.S. - U.K. financial empire and a boost for the multipolar global order. If their gambit is successful, we can expect that Ansarallah in Yemen will follow suit and impose similar restrictions on traffic through the Red Sea.
Will the Europeans take Iran’s offer?
The Europeans might have no choice but to accept Iran’s offer, perhaps not because they’ll find their backbone at last, but because they are now in truly desperate straits. On 2 April, ECB board member Panetta said that, “Even if the Iran war ends, the damage has been done.” Deutsche Bank called the Iran war a “catalyst” for yuan replacing the petrodollar. An unexpected opening for the humble euro could prove irresistible while also alleviating Europe’s energy crisis.
This development won’t go unnoticed by all other countries, including the Gulf monarchies. The Empire won’t just lose control over a trade route (or two): it could lose the dollar’s 50-year monopoly on global trade flows. By attacking Iran, Trump didn’t just create a regional war: he jeopardized the very foundations of U.S. hegemony that has powered the Western empire. We have to hand it to the stone-age Iranians: unlike their enemies, they thought things through and their conduct of war seems to be at a level of sophistication that’s far beyond that of Trump and his dream team.
To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).
Today’s trading signals
With yesterday’s closing prices we have the following changes for the Key Markets portfolio:
