Leverage has limits

A theory popular since 2012 said that Washington's hostility towards Iran was really about defending the "petrodollar". Iraq sold oil in euros, Libya flirted with monetary alternatives, Iran sought non-dollar settlements - and punishment followed. Neat. Too neat.

Oil mattered to the rise of the dollar system, but it never explained the whole system. The dollar still accounted for 57.13% of disclosed global forex reserves in the first quarter of 2026, according to IMF.

The Federal Reserve points to deeper reasons: large and liquid financial markets, safe assets, convertibility, institutional credibility and network effects. Thus, the dollar is not about to disappear because some oil is paid for in yuan, rupees or roubles. The real issue is how monetary power is used.

When so much global finance touches American institutions, sanctions become exceptionally potent. That can be useful. It can also be overused. The more the US turns access to the dollar system into a geopolitical weapon, the more incentive others have to create alternatives.

That is why local-currency settlement, alternative payment channels and reserve diversification matter. They are not yet a replacement for the dollar. They are insurance against dependence on one centre of power.

The latest Middle Eastern development makes the point better than another BRICS declaration.

Saudi Arabia has asked China to help restrain Yemen's Iran-backed Houthis after their advance put greater pressure on shipping around Bab el-Mandeb. Beijing then pressed Tehran privately. China buys most of Iran's seaborne oil, but it also has huge commercial and energy interests in Saudi Arabia and the wider Gulf. That is political economy at work.

China does not need to replace the US militarily to become relevant diplomatically. Economic interdependence is giving it leverage across relationships that cut through old alignments. There is irony on every side.

Iran gains tactical leverage when its allies can threaten strategic sea lanes. However, disruption of Hormuz and Bab el-Mandeb also hurts China, the very power on which Tehran increasingly depends for oil sales and diplomatic space. Saudi Arabia remains deeply tied to the US for security, but it has turned to Beijing where Chinese economic influence may reach Tehran more effectively.

US retains overwhelming military and financial power. The war with Iran nevertheless remains unresolved more than six months after it began. That should provoke a harder question than whether the dollar is still number one. Iran is not an innocent party. Its regional proxies, missile capability and nuclear activities have created legitimate security concerns. Threatening commercial navigation imposes costs on countries with no part in the conflict. Nevertheless, policy must be judged by outcomes. Decades of sanctions, covert confrontation and now open war have not produced a durable political settlement.

The same test applies to American financial policy. Sanctions may hurt an adversary today while strengthening tomorrow's incentive to trade outside channels Washington controls. Military force may destroy installations while creating new forms of asymmetric resistance. Power works. The question is what it produces.

The US built post-war influence through not only aircraft carriers and sanctions. It also offered markets, institutions and assets that others wanted to. That was leadership because participation was substantially voluntary. Leverage is different. It rests on the cost of saying no.

A global order cannot be sustained indefinitely by making exit painful. Nor can Middle Eastern peace be built by ensuring that every adversary is permanently weaker, sanctioned or bombed.

The petrodollar theory got the mechanism wrong. Its deeper warning survives.

The danger to American primacy is not that the world suddenly abandons the dollar. It is that more states begin treating dependence on an American-centred system as a risk to be hedged.

China's role between Saudi Arabia and Iran is a small but telling sign. The future may not be post-American. It is already less exclusively American. Leverage can compel. Leadership persuades. The Middle East is showing why the distinction matters.