The U.S. dollar's global dominance is structurally entrenched due to the size of the U.S. deficit and overwhelming private and state-owned investor preference for U.S. assets, despite official de-dollarization efforts by rivals like China and Russia.
Saudi Arabia's economic model is fiscally strained, requiring oil prices near $100/barrel to break even and forcing it to borrow heavily, which increases its financial vulnerability despite high energy revenues.
China strategically uses its economic power for political leverage, such as controlling key industrial exports to demand political compliance, while simultaneously managing a complex, dual-track approach to its U.S. dollar exposure.
The current global energy shock is historically significant, but the financial beneficiaries and geopolitical implications differ from past crises, with North America now a net exporter and military hardware constraints directly affecting foreign policy.
China's current export boom represents a more significant economic shock to Europe than the ongoing oil price shock, indicating a fundamental shift in global trade pressures.
1970s
Setser references this decade as a foundational period, marked by oil shocks from the Yom Kippur War and Iranian Revolution. He notes this is when petrodollar recycling through London banks began, contributing to the 1980s debt crisis, and when the U.S. Treasury started masking bond ownership at Saudi Arabia's request.
Mid-1990s to 2000
According to Setser's analysis, this period marks the point where the vast petrodollar wealth accumulated by Saudi Arabia in the 1970s had been largely spent, with its cumulative current account returning to neutral or deficit.
2005
Setser identifies this year as a high-water mark for the U.S. dollar in China's official reserves, at 79%. He frames this as the starting point for China's deliberate, policy-driven diversification away from the dollar in its formal reserve holdings.
Pre-2014
Setser points out that Russia had already begun reducing its U.S. dollar reserve share to 40-50% even before the 2014 annexation of Crimea, indicating a longer-term strategic shift.
Post-2014
Following the conflict in Donbas, Setser states that Russia accelerated its de-dollarization policy, ultimately reducing the U.S. dollar share of its reserves to nearly zero.
Present
Setser's current analysis focuses on a global oil market disruption of 10-15 million barrels per day, Saudi Arabia's breakeven oil price rising to $90-$100, and China's export boom creating a larger economic shock for Europe than the oil price shock.
▶The Enduring and Structurally-Reinforced Dominance of the U.S. DollarApr 2026
Despite geopolitical narratives of de-dollarization from countries like China and Russia, Setser argues the dollar's role is deeply entrenched. This is driven by the necessity of financing the trillion-dollar U.S. current account deficit and the revealed preference of global private and state-affiliated investors for U.S. assets across safety, yield, and equity categories.
Analysts assessing the future of the U.S. dollar should look beyond the composition of official central bank reserves and focus on the larger, more decisive flows from sovereign wealth funds, state-owned banks, and private retail investors, which show a continued strong bias towards dollar assets.
▶Saudi Arabia's High-Stakes Economic TransformationApr 2026
Setser portrays Saudi Arabia's economic strategy as a high-wire act, with its fiscal breakeven oil price surging from $60 to nearly $100 per barrel. This forces the kingdom to borrow on an unprecedented scale to fund its megaprojects, making it the largest borrower in the emerging world despite high oil revenues.
Saudi Arabia's creditworthiness and the viability of its Vision 2030 plan are now critically dependent on oil prices remaining exceptionally high, creating a new form of economic vulnerability that replaces its previous reliance on petrodollar surpluses.
▶China's Dual-Track Geoeconomic StrategyApr 2026
Setser details China's complex approach to global finance and power. On one hand, it strategically reduces the dollar share in its official reserves as a political statement; on the other, its state-owned banks maintain high dollar exposure. Concurrently, China leverages its control over key industrial products to exert political pressure on other nations.
Investors and policymakers must recognize that China's economic actions are not monolithic; they involve a calculated balance between long-term geopolitical ambitions and the short-term practical realities of operating within a dollar-centric global system.
▶The Interplay of Energy Markets and Military-Industrial Constraints
Setser analyzes the current oil market disruption, noting it represents 20-30% of globally traded oil and benefits a different set of producers than past crises. He connects this resource volatility to geopolitics by highlighting that constrained global supplies of military hardware, like missile interceptors, will force the U.S. and Europe to rethink security commitments and domestic production.
The new geopolitical landscape is defined not just by energy flows, but by the production capacity of the defense-industrial base, suggesting that future conflicts and alliances will be heavily shaped by the availability of critical military systems.