Introduction
The contemporary global financial system has rested for nearly eight decades on a central pillar: the dominance of the United States dollar. Following the end of the Second World War and the establishment of the Bretton Woods system, the dollar gradually emerged as the core currency of the world economy. As the principal medium of international trade, the primary reserve asset of central banks, and the central unit of global financial markets, the dollar has long maintained a position that is almost without rival.
However, the international environment today is undergoing rapid transformation. Geopolitical rivalries are intensifying, new economic alliances are emerging, and technological innovations are reshaping the architecture of global finance. Within this changing context, escalating tensions involving Iran, Israel, and the United States have raised an important question: could this Middle Eastern conflict weaken the global dominance of the dollar?
Some analysts argue that the war may undermine the petrodollar system and push countries toward alternative monetary arrangements. Others maintain that historical experience suggests the opposite—that geopolitical instability tends to strengthen rather than weaken the dollar.
A careful examination of recent trends in global economics and international politics reveals a subtle but significant reality: in the short term, the Iran–Israel–United States conflict is unlikely to break the dominance of the dollar; however, in the long term it may accelerate the gradual emergence of a more multipolar international monetary system.
The Structural Strength of the Dollar:
To understand the resilience of the dollar, one must first examine the structural foundations that support it within the global economy. According to recent data from the International Monetary Fund, approximately 56–58 percent of the world’s foreign-exchange reserves held by central banks are still denominated in U.S. dollars. By comparison, the euro accounts for roughly 20 percent, while China’s renminbi (yuan) represents less than 3 percent. The influence of the dollar extends far beyond reserve holdings. In the global economy:
Nearly 80 percent of international trade finance is conducted in dollars.
Around half of global trade transactions are invoiced in dollars.
About 90 percent of foreign exchange transactions involve the dollar on one side of the exchange.
Several fundamental factors explain this dominance.
First, the financial markets of the United States remain the deepest and most liquid in the world. In particular, the U.S. Treasury bond market is valued at approximately $27 trillion, making it the largest and most secure sovereign debt market globally.
Second, the legal and institutional framework of the United States continues to inspire confidence among international investors.
Third, a powerful network effect operates within the global currency system. Once a currency becomes widely used in international transactions, shifting away from it becomes extremely costly.
Fourth, the military and geopolitical power of the United States indirectly reinforces the global financial system centered on the dollar.
For these reasons, replacing the dollar rapidly would be extremely difficult.
War and the Safe-Haven Currency Effect:
An intriguing reality of global finance is that geopolitical conflict often strengthens rather than weakens the dollar. When international conditions become unstable, investors tend to move toward assets that are safe, stable, and highly liquid. U.S. Treasury bonds have long been regarded as the world’s most reliable safe-haven assets. Recent financial market behavior during the Iran–Israel tensions has reflected the same pattern. As uncertainty increased in global markets, investors gravitated toward dollar-denominated assets. Similar dynamics were observed during the global financial crisis of 2008 and the COVID-19 pandemic. In other words, global instability often reinforces the strength of the dollar. This reality reveals an important truth about the international economy: the greater the uncertainty in the world, the stronger the dollar tends to become as a safe haven. This tendency has almost become a widely accepted myth—one that neoliberal financial ideology frequently employs to further consolidate the dominance of the dollar-based financial order.
The Weaponization of the Financial System
Yet the very strength of the dollar has also produced a new challenge. Over the past two decades, the United States has increasingly used financial sanctions as a tool of international politics. Through sanctions imposed on countries such as Iran, Russia, and Venezuela, the dollar-centered financial system has effectively been transformed into a geopolitical instrument. Such measures provide Washington with immense strategic leverage. At the same time, however, they create strong incentives for other nations to reduce their dependence on the dollar. For example:
Russia has significantly reduced its holdings of U.S. Treasury bonds.
China has developed its own international payment system, known as CIPS (Cross-Border Interbank Payment System).
Many countries have begun conducting bilateral trade using their local currencies. The freezing of Russia’s foreign reserves following the Ukraine war particularly forced many countries to reconsider the risks associated with excessive dependence on the dollar. Consequently, the global financial system has begun to witness a gradual process of reserve diversification.
The Challenge from the BRICS Bloc:
The rise of emerging economies is also pushing the global monetary system toward transformation. The BRICS bloc—Brazil, Russia, India, China, and South Africa—along with its recently expanded membership, now represents a significant portion of the global economy. Measured in purchasing power parity, this group accounts for roughly one-third of global economic output. Within this grouping, discussions have increasingly focused on:
the use of local currencies in bilateral trade, the development of alternative international payment systems, and the possibility of a BRICS settlement currency. Although these initiatives remain at an early stage, they form part of a broader strategic effort to reduce reliance on Western financial infrastructure.
Energy Markets and the Petrodollar
The Middle Eastern conflict also raises another important question: the future of the petrodollar system. Since the 1970s, the vast majority of global oil trade has been priced in U.S. dollars. Because oil remains the most important traded commodity in the world, the petrodollar system has long sustained global demand for the dollar. However, recent developments suggest that this structure may be gradually evolving. China has been encouraging oil exporters to trade crude through the Shanghai Energy Exchange using yuan-denominated contracts. At the same time, Russia and Iran—both subject to Western sanctions—have already begun conducting parts of their energy trade outside the dollar system. If geopolitical fragmentation deepens, global energy markets could gradually become divided across multiple currencies. Nevertheless, such transformations are likely to occur slowly.
The Limitations of Dollar Alternatives
Potential alternatives to the dollar also face significant constraints. Although the euro plays a major international role, the European Union still struggles with structural political and fiscal challenges. The Chinese yuan, despite expanding internationally, remains limited by China’s strict capital controls and relatively restricted financial transparency—factors that make many international investors cautious. Most importantly, no other currency currently has a financial market comparable in size and liquidity to the U.S. Treasury market. Given these realities, the most plausible future scenario is not the replacement of the dollar by a single rival currency, but rather the emergence of a multipolar international monetary system.
The Emergence of a Multipolar Currency Order
Several trends suggest that the global financial system may gradually diversify over the coming decades. Many central banks around the world are increasing their gold reserves. At the same time, regional currencies such as the euro and the yuan are expanding their roles within specific economic zones. Technological innovations may also play an important role. Central bank digital currencies and new cross-border payment systems could reshape the mechanisms of international financial transactions. In such a scenario, the dollar may remain the most important global currency, but its share in global reserves and trade may gradually decline.
Conclusion
The Iran–Israel–United States conflict reflects a broader transformation in the global balance of power. Intensifying geopolitical rivalry, the rise of new economic powers, and rapid technological change are gradually reshaping the international financial order. However, the assumption that a single war could abruptly dismantle the dominance of the dollar does not fully correspond to reality. Such expectations may represent an excessive optimism. Yet the emerging trends themselves cannot be ignored. For many countries in the Global South, the present moment calls for serious reflection on alternative economic arrangements. Otherwise, crises may be used to further consolidate the grip of an international monetary order dominated by powerful imperial financial structures. In the short term, global instability may indeed strengthen the dollar. In the long run, however, the increasing use of financial sanctions, shifts in economic power, and the development of new financial technologies may gradually diversify the global monetary system.
Moreover, Iran’s recent announcement regarding the use of the yuan in oil transactions through the Strait of Hormuz could introduce a new element into global energy trade. The most probable future world economy may therefore be one in which several major currencies collectively shape the international financial system rather than a single dominant currency. The real question, therefore, may not be when the dollar will fall, but rather:
How the balance of global economic power will be reconfigured in the twenty-first century.
