Ep46: David Spiro - The self-destruction of American Hegemony? Petrodollars, Iran War & The New World Order

The dollar is not just a currency. It is an operating system for global power.

For decades, oil, trade, sanctions, debt, capital markets, and geopolitical influence have all moved through one central channel: the U.S. dollar. When countries buy energy, settle payments, hold reserves, or move money through the global financial system, they are not simply using a neutral medium of exchange. They are participating in a world order built around American monetary power.

But that system is now under pressure.

Wars in the Middle East, sanctions on Russia and Iran, rising gold purchases by central banks, China’s growing financial ambitions, Bitcoin and stablecoins, tariff chaos, and the erosion of trust in U.S. institutions have all revived a once-fringe question: is the age of dollar dominance beginning to weaken?

To understand what is really happening, I sat down with someone who has studied one of the most important but misunderstood parts of this story: petrodollar recycling.

I am joined by David E. Spiro, political scientist and author of The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets. The book, published by Cornell University Press, challenged the standard story that petrodollar recycling in the 1970s was simply a market-driven process and instead showed the deeper political role of American power in shaping where oil surpluses went.

David’s central argument is that the dollar system has always been about more than economics. It is about trust, coercion, liquidity, state power, and the ability of the United States to shape global outcomes through the plumbing of finance. In the 1970s, oil exporters accumulated massive dollar surpluses after OPEC price shocks. Much of that capital flowed into U.S. government obligations and the Western banking system, helping finance trade deficits and reshape global debt markets. But today, the same system that once amplified American power may be starting to reveal its fragility.

We dive into:

• What petrodollar recycling actually means — and why the common story is incomplete

• How the 1970s oil shocks reshaped global finance

• Why oil being priced in dollars matters so much for American power

• Whether dedollarisation is real or exaggerated

• How SWIFT, sanctions, and dollar clearing became tools of geopolitical pressure

• Why gold is returning as a reserve asset

• Why Bitcoin and stablecoins may not challenge the dollar as much as people think

• How U.S. tariff policy and political instability are weakening trust in the dollar system

• Whether the American-led rules-based order is now breaking down

• Why China may be the biggest beneficiary of American self-sabotage

• The real limits of bringing manufacturing back to America

• Why rare earths, chips, and supply chains are more complicated than the headlines suggest

• Why the future may belong to societies that protect education, institutions, trust, and human thinking

Key Takeaways from the Episode:

1. Petrodollar Recycling Was Never Just a Market Story

The standard version of petrodollar recycling says that oil-exporting countries deposited their surplus dollars into Western banks, which then lent that money to oil-importing developing countries. David argues that this is too simplistic.

In the 1970s, after OPEC raised oil prices — first around the 1973–74 oil embargo and later after the Iranian Revolution in 1979 — exporters like Saudi Arabia accumulated enormous dollar surpluses. These were the famous “petrodollars”: dollars earned from selling oil. But according to Spiro, much of this money did not simply flow through private banks in a neutral market process. A large portion went into U.S. Treasury obligations and government-linked assets, while developed economies also recycled their own surpluses through the Eurobanking system. That banking system then lent heavily to countries like Mexico and Brazil, helping create the debt build-up that later exploded across Latin America.

The deeper point is that the petrodollar system was not just financial plumbing. It was geopolitical architecture. The flow of oil money helped sustain U.S. public debt, support American financial markets, and preserve the dollar’s central place in the global economy.

2. Oil Priced in Dollars Gives the U.S. Extraordinary Power

One of the most important themes in the conversation is that dollar dominance is not only about reserves. It is about the fact that critical commodities — especially oil — are priced, invoiced, and settled in dollars.

When oil is priced in dollars, global demand for dollars is structurally reinforced. Countries need dollars not just to trade with the United States, but to buy energy, settle international transactions, and operate inside the financial system. This gives the U.S. a unique advantage: it can issue liabilities that the rest of the world wants to hold. As David puts it, in the 1970s America could print green pieces of paper and receive goods and services from abroad in exchange.

But that privilege also becomes a weapon. When transactions clear through dollar-based systems and institutions like SWIFT, the U.S. gains the ability to impose sanctions, cut off access, and turn financial infrastructure into geopolitical leverage. This was central to sanctions on Russia and remains one of the strongest tools in the American foreign policy toolkit.

3. Dedollarisation Is Real — But Gradual

David does not argue that the dollar is about to collapse. In fact, he is clear that the dollar remains extremely important in trade, reserves, settlement, and global finance. But he does think dedollarisation is happening gradually.

The key driver is not simply that China wants a bigger role or that countries dislike the U.S. It is that America itself is making the dollar system look less trustworthy. Sanctions, tariffs, political volatility, and unpredictable foreign policy all encourage other countries to look for alternatives. Iran has tried to sell oil using Chinese currency. Central banks are buying more gold. Countries are exploring payment systems that avoid direct dependence on dollar clearing.

The irony is that dedollarisation may be less the result of American enemies attacking the system, and more the result of America weakening confidence in its own system.

4. Being the Reserve Currency Is Powerful — But Also Costly

One of the most interesting parts of the conversation is David’s explanation of why not every country wants to be the world’s reserve currency.

In the 1990s, many believed Japan might become the next great economic superpower. But David notes that Japan did not want the yen to become a global reserve currency in the same way the dollar had become one. The reason is simple: once your currency becomes global money, domestic control becomes harder. Demand for your currency is no longer shaped only by your own citizens, businesses, and central bank. It is shaped by the entire world.

That creates enormous power, but also enormous constraints. Exchange rates, capital flows, and monetary policy become tied to global needs. The dollar gives America unmatched influence, but it also means the U.S. economy is deeply entangled with the financial needs of everyone else.

5. Gold Is Coming Back — But Not in the Way People Think

Gold has historically been treated as the ultimate refuge when confidence in currencies breaks down. Under Bretton Woods, gold was central to the international monetary system. After the end of Bretton Woods, many central banks reduced their gold holdings, and the dollar became a purely fiat reserve asset.

Now gold is returning to the conversation.

David’s view is nuanced. He does not see gold as a simple, risk-free escape from the dollar system. He argues that gold is now heavily shaped by speculation, hedge funds, and information asymmetries. Small investors do not necessarily have the same information as major players. But he also acknowledges that central banks buying gold again matters because it signals that some countries no longer see the dollar as the only viable reserve asset.

Gold, in this reading, is not replacing the dollar. But it is becoming part of the hedge against a less trusted dollar world.

6. Bitcoin and Stablecoins May Extend Dollar Power Rather Than End It

Bitcoin is often presented as a challenge to the dollar. But David is sceptical of that framing.

He breaks money into three functions: a unit of account, a means of exchange, and a store of value. Oil is still largely priced in dollars. That means the dollar remains the unit of account. Even if a country uses Bitcoin, euros, pounds, or another currency to settle payment, the underlying price may still be denominated in dollars. In that sense, Bitcoin may function more like a means of exchange than a true replacement for dollar pricing.

The same logic applies to stablecoins. Dollar-backed stablecoins such as USDC may actually extend dollarisation onto blockchain rails. They make dollars more programmable, more mobile, and easier to settle digitally. Rather than destroying dollar dominance, they may create a new on-chain version of it.

7. The Bigger Risk Is Not Oil — It Is the Breakdown of the Rules-Based Order

The conversation begins with oil, Iran, and the Strait of Hormuz, but David argues that the bigger threat to markets is not simply a temporary oil shock.

For him, the deeper problem is the erosion of the rules-based international order. Tariff volatility, insults toward allies, attacks on institutions, uncertainty around U.S. commitments, and the politicisation of economic policy all make the system less predictable. Markets can sometimes absorb geopolitical shocks. What they struggle with is a world where the rules themselves become unstable.

This is where David is most forceful: he sees the current U.S. administration not merely as mismanaging policy, but as damaging the security, diplomatic, and economic structures that made American leadership credible in the first place.

8. American Power May Be Destroying Itself From Within

David’s most provocative claim is that the American empire has not simply declined — it has been actively damaged from within.

He argues that the destruction of expertise inside the State Department, the weakening of diplomatic capacity, and the loss of institutional trust cannot be repaired quickly. Diplomats, regional experts, language specialists, and legal professionals take decades to develop. If they are purged or forced out, a new administration cannot simply rebuild that capacity overnight.

This matters because empire is not just aircraft carriers and GDP. It is credibility. It is institutional memory. It is the ability to coordinate allies, manage crises, enforce rules, and make other countries believe that your commitments mean something. Once that trust is broken, even a future political reversal may not fully restore it.

9. China Benefits When America Weakens Itself

David does not frame China as an unstoppable replacement for the United States. He notes that China began far behind the U.S., and even rapid growth takes time to close that gap. But he is clear on one point: when the U.S. weakens itself, China benefits.

China has pursued an industrial strategy that David compares to Alexander Hamilton’s infant-industry protection. Hamilton argued that young economies need protection before they can compete with richer powers. The United States used that logic in its own development, as did Germany. David suggests China’s industrial policy should be understood in that historical context.

The problem is that the U.S. is no longer a young developing economy. For America, broad tariffs are not a nation-building tool. They risk damaging the sectors where the U.S. now holds real comparative advantage: finance, capital markets, innovation, services, and high-end knowledge work.

10. Bringing Manufacturing Back Sounds Simple — But It May Be Economically Backward

One of the strongest sections of the episode is David’s critique of the idea that America can simply tariff its way back into manufacturing dominance.

He argues that mature economies tend to move from agriculture to manufacturing to services and capital products. The United States is now highly specialised in finance, derivatives, insurance, capital markets, and advanced services. Its trade deficit is connected to that role. Trying to artificially close the trade deficit by forcing manufacturing back into the U.S. may end up hurting the very sectors where America is strongest.

His argument is not that manufacturing does not matter. It is that pretending the U.S. can return to a 20th-century industrial model may be like trying to “set the economy back a hundred years.” The deeper question is not whether manufacturing is good or bad, but which parts of production are strategically essential, which are economically efficient, and which are being romanticised for political reasons.

11. Rare Earths and Chips Are Serious — But Not Permanent Dependency

Waheed raises the national security argument: what if China controls rare earths, chips, and the manufacturing stack needed for modern weapons, vehicles, electronics, and infrastructure?

David accepts that supply chains can be disrupted, but he pushes back against the idea of permanent dependency. On chips, he suggests a Chinese cutoff could create serious disruption for a few years, but not forever. On rare earths, he points out that they are not literally rare in the simple sense. What is rare is the willingness to tolerate the environmental damage involved in refining them.

That distinction matters. The issue is not that the West has no resources. The issue is that China has been willing to absorb costs — environmental, industrial, and political — that others have avoided. Supply-chain dependence is real, but it is not destiny.

12. The Future Belongs to Societies That Protect Human Thinking

The episode ends on a surprisingly human note.

David cites the idea that the future economy may increasingly divide between what is tradable and what is non-tradable. Products can be made anywhere. Manufacturing can move. Digital tools can travel. But “humans who think” are not so easily replaceable. The real foundation of future success may be education, institutional trust, political stability, and the ability to cooperate with one another.

That may be the deepest civilisational point of the conversation. Dollar dominance, petrodollars, tariffs, gold, Bitcoin, China, and oil shocks all matter. But underneath all of them sits a more basic question: can a society remain intelligent, trustworthy, educated, and institutionally serious enough to sustain power?

If it cannot, no currency system can save it.

Timestamps:

(00:00) – Introduction to David Spiro and The Hidden Hand of American Hegemony

(00:40) – What petrodollar recycling means and why it mattered in the 1970s

(01:30) – OPEC, oil surpluses, Treasury bills, and the recycling of petrodollars

(02:20) – Why the common story of petrodollar recycling is incomplete

(03:20) – Parallels between the 1970s oil shocks and today’s Middle East tensions

(04:00) – Exploitative hegemony and how the U.S. treated its allies

(04:40) – Why oil being priced in dollars still matters

(05:00) – Is dedollarisation actually happening?

(05:40) – SWIFT, dollar clearing, sanctions, and American power

(06:20) – Why Japan and Germany did not want reserve currency status

(07:00) – The power and burden of being the global reserve currency

(07:40) – Gold, central banks, Bitcoin, and hedging against dollar risk

(09:30) – Gold’s changing role after Bretton Woods

(10:40) – Money as unit of account, means of exchange, and store of value

(11:40) – Bitcoin, stablecoins, and whether crypto really challenges the dollar

(12:50) – Gulf surpluses, AI investment, and the macro risk of Middle East escalation

(14:30) – Iran, oil prices, and the wider threat to markets

(15:30) – Tariff chaos and the breakdown of the rules-based order

(16:20) – Is gold the right response to geopolitical instability?

(17:20) – Is there a method to the current U.S. administration’s chaos?

(18:20) – Why the current crisis surprised international political economy scholars

(19:20) – Has the American empire entered decline?

(20:00) – Why Trump’s second term is different from the first

(21:00) – State Department purges, diplomacy, and irreversible institutional damage

(22:30) – Markets, oil, and why fundamentals no longer explain everything

(24:20) – China’s role in a weakening American-led order

(25:30) – China, Alexander Hamilton, and infant industry protection

(26:40) – Are tariffs a winning strategy for rebuilding America?

(27:20) – Agriculture, manufacturing, services, and America’s comparative advantage

(28:30) – Why forcing manufacturing back may hurt U.S. finance and capital markets

(30:00) – Chips, rare earths, supply chains, and national security

(31:40) – Alan Blinder, tradable vs non-tradable goods, and the value of human thinking

(32:20) – Why education, institutions, and being nice to one another still matter

(33:00) – Final reflections and closing thoughts

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