Furthermore, there is no other currency that can cover the huge volume of the daily oil trades that help stabilise the global economy, especially since all futures contracts for oil and oil derivatives are priced in US dollars.
The strength of the dollar is tied to the strength of the US economy, which is the largest in the world. The GDP of the United States is based on the dollar and depends not only on the production of commodities, wheat, minerals, oil, and services, but also on securities.
In fact, US financial markets, and energy futures markets, are the largest and most vital in the world, attracting funds from many countries and individuals around the globe.
Yuan's share is almost negligible
However, with the rising worries and doubts, the petrodollar will face competitive challenges from other currencies, traditional or digital. Nevertheless, these currencies will often serve bilateral agreements, between Russia and China or China and Brazil for example, to bypass the dollar's dominance in the oil trade.
It is not yet clear whether China — the world's largest oil importer with around 11 million barrels per day — has been able to secure all or part of its oil imports in its own currency.
Even if China is serious about competing with the United States by using its currency to buy its oil needs (and sell its products as well), China's Shanghai International Energy Exchange has just started trading its first shipment of yuan-denominated liquefied natural gas (LNG), however, it is a very late move that will have limited impact.
For years, China has been looking to establish more global trade deals in yuan to increase the relevance of its currency in the global market.
Yet despite its strenuous efforts and the tremendous success of the Chinese economy with a GDP of $17.7 trillion (the largest after the United States), the yuan's share of international trade is a modest 3%, compared to the US dollar's dominant 87%.
It is also unknown to what extent China will be able to import large quantities of oil from around the world and expand LNG imports denominated in yuan.
Meanwhile, Russia's introduction of the Chinese yuan in its commercial exchanges, especially in the sale of its oil, came in the wake of Western sanctions on its exports, imports, and energy trade, making the yuan Moscow's only alternative in its endeavour to reduce dependence on the dollar and the euro.
Quantitative easing challenge
Adding to fears that the petrodollar is under threat, is global concern over the quantitative easing (QE) process that the US government carried out during the Covid-19 pandemic, without any regard for the consequences of its decision on the economies of the world.
For many, this reaffirmed fears that the dollar is nothing more than a printed currency with no convertibility to gold, which Richard Nixon had abolished in the 1970s.
The trillions of dollars floating around the United States and infiltrating world markets, the rise in the US public debt beyond the legislatively acceptable limit of $30 trillion within a few years, and the tacit knowledge that the United States will only pay its debts in its own currency (if, indeed, it pays its creditors, which some doubt) justifies these fears.
In addition, scientific technical knowledge and progress, especially in global economy and finance, may prompt a reconsideration of the idea of the reserve currency.
Americans are also still divided regarding the aggressive monetary policies that have been adopted to curb inflation, despite the successful attraction of capital to US investments and sovereign bonds.
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The growing divide between Democrats and Republicans on several social, economic, and political issues, makes it understandable why so many people are worried about emerging threats from and to the petrodollar.
The post-election phase in 2024 may send other signals, but the current state of uncertainty contributes, in general, to fuelling frustration with the dollar as a reserve currency.
Macron statement
French President Emmanuel Macron's recent statement after visiting China that Europe should focus on reducing its dependence on the dollar, and ending the dollar's dominance on its global trade to avoid falling into the trap of the Sino-American confrontation, has also fuelled worries.
Bureaucratic burdens have limited Europe's economic and technical development, making it harder to correct its current course. On the contrary, it will work to absorb shocks between America on the one hand and China and Russia on the other.
