Dollar Hegemony Rests on Fiscal-Military and Financial Power, Not Oil, So Energy Transition Won't Automatically End It
Source: Matías Vernengo. "The Dollar’s Power Never Came From Oil." November 9, 2026. jacobin.com
The Gist
People often say the dollar is powerful because oil is priced in it, so green energy and China's solar dominance could topple it. The author argues the dollar rests on the US government's financial and military strength and the world's need for dollar debt and credit, which won't vanish when oil does. The US may be declining relatively, but that more likely means harsher use of the dollar as a weapon than an imminent collapse.
Conclusion
The dollar's international dominance does not primarily depend on oil or on technological leadership in energy, so the decline of petroleum and China's rise in renewables will not automatically end dollar hegemony; the more likely result of relative US decline is increasingly coercive use of the dollar system (sanctions, financial exclusion).
Premises
- The 'hydrocarbon dollar' thesis holds that energy regimes (coal for Britain, oil for the US, renewables for China) determine hegemonic transitions, and that petrodollar demand sustains the dollar.
- Reducing energy-import dependence through renewables is not the same as escaping the international monetary hierarchy.
- Pricing oil in another currency would not necessarily undermine the dollar, because FX markets allow currencies to be obtained for specific transactions without changing the denomination of international debts, reserve composition, or the structure of international credit.
- Monetary hegemony rests on a broader structure of fiscal, financial, productive, and military power built over centuries; the fiscal-military state (public debt, central banking, military spending) created the conditions for sterling's and then the dollar's dominance.
- The relationship between fiscal-military and monetary power is circular and self-reinforcing: military superiority and alliances support the dollar's use, and dollar hegemony lets the US borrow and settle obligations in its own currency and finance military commitments.
- The rest of the world still needs dollars (for debt, reserves, and credit) while the US does not face a comparable need for foreign currencies, and even adversaries remain dependent on the dollar-centered financial system.
Assumptions
- The mechanisms that sustained sterling and the dollar historically (fiscal-military capacity, financial depth) are the same mechanisms that will determine the dollar's future.
- No rival (e.g., China) can quickly build comparable financial markets, reserve-asset supply, and military/alliance networks.
- Existing dollar-denominated debts and reserve holdings create strong inertia and switching costs.
- Declining US legitimacy and productivity lead to more coercion rather than faster abandonment of the dollar.
- Energy technology leadership matters only secondarily to monetary hegemony.