Venezuela and the Petrodollar Question: What Currency Power reveals about Today's Geopolitics

The US military operation in Venezuela on January 3, 2026, has been framed by the former as a narrow counter-narcotics and democratic enforcement measure. But its subsequent control over Venezuela's oil strongly suggests that energy imperatives and finances are central to U.S. strategy. The international backlash over US actions also demonstrated that currency, along with energy, sits at the heart of great-power rivalry in the contemporary era.

Politically unstable and economically mismanaged, and holding roughly 303 billion barrels of proven oil reserves, about 17% of the global total, and more than Saudi Arabia's 267 billion barrels, Venezuela is seldom as strategically significant as it is currently. But in today's global energy system, even with a significant production decline, from 59% to 47% in 2010, Venezuela has gained prominence because it is not mere production or control but the dollar that is threatened.

The US focus on Venezuela comes at a moment when energy and monetary systems are increasingly intertwined with geopolitics. Oil is no longer merely a commodity. It is a strategic instrument that shapes alliances and the use of currency. And with the declining trust of the Global South in the current economic arrangements, resource-rich, isolated states stand at the forefront, with their actions and choices reverberating far beyond their borders.

Apart from the established US rhetoric of democracy promotion, human rights protection, and counterterrorism, before the military adventures in the sovereign states, the case of Venezuela, much like earlier cases of resource-rich countries subjected to sanctions and regime change, is a strategic response to the increased alignment of the Global South and China and the subsequent de-dollarization. For the US, whatever the rhetoric may be, it is nothing but the petrodollar that needs saving this time.

The petrodollar emerged in the 1970s through an agreement between the United States and Saudi Arabia. This agreement anchored the global oil trade in dollars, creating a structural advantage for the U.S. in terms of financial stability, sustained demand for U.S. products, and liquidity in global trade. Over the years, oil and, generally, all trade are overwhelmingly invoiced in dollars, but this is not mandated, and countries retain the flexibility to transact in other currencies. This dollar system has turned out to be more of a soft-power mechanism than a formal legal arrangement.

While the U.S. dollar continues to dominate global trade, accounting for roughly 80% of oil transactions, several countries have been experimenting with non-dollar mechanisms for energy trade. Russia increasingly conducts transactions in rubles or yuan, Iran relies on barter and alternative payment systems to bypass sanctions, and Saudi Arabia has explored non-dollar settlements with China.

China, in particular, has actively promoted its currency since the establishment of the Cross-Border Interbank Payment System (CIPS), which provides a partial alternative to SWIFT, facilitating yuan-settled energy and commodity transactions. By 2024, CIPS had processed approximately ¥175 trillion (around US$24 trillion) in transactions, a 43% increase over the previous year. Moreover, China is also effectively connecting direct and indirect participants across countries, demonstrating a growing infrastructure to support non-dollar payments.While these changes do not indicate an immediate collapse of the petrodollar, they signal the dollar's once-unquestioned dominance.

For Venezuela, participation in or departure from this system carries significant geopolitical weight. Even partial sales of oil outside the dollar framework challenge longstanding norms and signal potential shifts in global financial influence. In 2017-18, Caracas began pursuing arrangements that moved beyond exclusive dollar-denominated oil sales. These steps signal a deliberate effort to integrate with non-Western financial channels, which can provide flexibility amid sanctions. With the world's largest proven oil reserves, Venezuela possesses long-term leverage, and its choices, whether to trade in dollars or alternative arrangements, challenge the established norms of energy finance. From Iraq and Libya to Iran and now Venezuela, efforts by resource-rich states to hedge against dollar dependence, often under pressure from sanctions, exhibit how currency power has long been foundational to energy politics and geopolitical motivations.

The common thread here is not "currency rebellion" but strategic risk management. Alternative payment systems, bilateral currency arrangements, and other efforts to reduce dependence on the dollar reflect attempts by resource-rich states to limit vulnerability within a U.S.-centered economic order. Currency policy, in itself, is rarely the sole driver of confrontation, but it can often amplify geopolitical risk, as the coercive responses like sanctions, blockades, or military pressure tend to accelerate diversification rather than deter it.

Venezuela's engagement with China and Russia illustrates how reliance on the dollar is increasingly viewed across the Global South as a vulnerability. While these dynamics do not threaten an immediate collapse of the dollar system, they signal a transitional moment in which monetary power is exercised less through trust and predictability than through coercive leverage.

In that sense, the Venezuela episode is less about oil or ideology and more about what happens when the foundations of economic order are defended by force. If Washington's calculus increasingly intertwines coercion, currency leverage, and energy access, traditional understandings of economic statecraft may be insufficient. The regional actors and Global South policymakers will have to reassess their strategies in a world where monetary order and military might are unambiguously intertwined.