Iran, the $39 trillion national debt and dedollarization: How Trump exposed America’s Achilles Heel in Hormuz

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The year was 1974 and President Richard Nixon had dispatched his Secretary of State Henry Kissinger to Saudi Arabia to strike a secret deal. Three years earlier, in August 1971, Nixon had already administered the “shock” that ended the Bretton Woods system governing global finance since World War II — suspending the dollar’s convertibility to gold in a televised address that transformed every major currency overnight. By 1973, the system had fully unraveled.

The world wouldn’t know for another 50 years what Nixon and Kissinger replaced it with, striking a deal that would quietly govern the global economy for the next half-century. Riyadh agreed to price and trade its oil in U.S. dollars and channel its petroleum windfalls back into U.S. Treasury bonds; in return, Washington promised military aid, equipment, and security guarantees—a deal that would quietly govern the global economy for the next half-century.

The existence of this secret agreement wasn’t even publicly confirmed until 2016, when Bloomberg News filed a Freedom of Information Act request with the National Archives. Other OPEC members had followed Riyadh’s lead in the years since, locking in the dollar as the indispensable currency of the modern world. The arrangement had a name only economists used: the “petrodollar” system. It was America’s greatest secret weapon—and today, in the churning waters of the Persian Gulf, it faces its most serious threat since its creation.

The Strait of Hormuz is a sliver of water barely 21 miles wide at its narrowest point, separating Iran from Oman. It does not look like the axis of the global economy on a map. But in 2024, roughly 20 million barrels of oil and petroleum products passed through it every day—about 20% of global petroleum liquids consumption and approximately 25% of all seaborne oil trade on Earth.

Qatar and the UAE rely on the strait for virtually all of their LNG exports, representing about 20% of global LNG trade. The bulk of the crude leaving the strait heads to China, India, Japan, South Korea, and other Asian markets, which absorb the overwhelming majority of Hormuz volumes. When Iran slammed shut this door, it didn’t just disrupt shipping lanes. It placed maximum stress on the architecture of dollar dominance at its most physical chokepoint.

For weeks, President Trump has scrambled to respond. He issued a 48-hour ultimatum threatening to “obliterate” Iran’s power plants if Tehran did not reopen the strait. Iran countered by threatening to mine the Persian Gulf and target American energy infrastructure in the region. Trump then postponed his deadline amid what the White House described as diplomatic progress—a face-saving maneuver that former Defense Secretary James Mattis warned could ultimately cede the strait to Tehran’s influence. 

The administration has cycled through a list of increasingly desperate options, from building a naval coalition—with Trump saying he’d approached “about seven” countries—to a reported proposal to wind down the conflict without resolving the Hormuz closure. As of Monday, Trump told CNBC: “We are very intent on making a deal.”

While the gunboat diplomacy dominates the headlines, the more existential danger may be unfolding in the bond market. The U.S. national debt crossed $39 trillion on March 18, 2026, a milestone reached just weeks into the war in Iran. The speed of accumulation is staggering, and the timing could not be worse: interest costs on the debt are projected to become the fastest-growing line item in the federal budget over coming decades, and the U.S. has already suffered credit downgrades from all three major ratings agencies — S&P in 2011, Fitch in 2023, and Moody’s in May 2025.

The reason this matters geopolitically—not just fiscally—goes back to that 1974 handshake. The petrodollar system created a perpetual buyer for U.S. Treasury bonds in the form of oil-exporting nations. The mechanism was elegant in its simplicity: oil exporters accumulated vast dollar surpluses and parked them in U.S. Treasuries, which Washington was only too happy to supply. Saudi Arabia alone held $149.5 billion in U.S. Treasury securities as recently as December 2025 — a figure that, notably, rose by $12 billion over the course of last year, even as Riyadh declined to formally renew the original petrodollar agreement. That recycling loop is what allowed Washington to borrow cheaply, run persistent deficits, and still maintain the world’s reserve currency.

The unfolding crisis in the Strait of Hormuz is exposing America’s privilege as a vulnerability. The speaker of Iran’s parliament delivered a warning this week that rattled bond traders: financial institutions backing the U.S. military budget were “legitimate targets,” and buyers of U.S. Treasury bonds were purchasing “an attack on your headquarters and assets.” It was theatrical. It was also a signal—that America’s $39 trillion debt load could become a pressure point in an escalating conflict.

Even before Iran closed the strait, cracks in the petrodollar system were visible—though economists caution that “cracks” is very different from “collapse.” 

What the Hormuz crisis means isn’t an end to the petrodollar—it is a threat to accelerate a shift that was previously moving at a glacial pace by raising the geopolitical temperature around a system that had long operated below the radar.

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