ENERGY, EMPIRE AND THE DOLLAR

ENERGY, EMPIRE AND THE DOLLAR

What if the wars dominating today's headlines are not really about oil at all, but about protecting a financial system built upon it?

Why the Financial System May Be Unable to Accept Defeat

Contents cover the following:

• Why energy has remained the organising principle of great-power strategy for more than a century

• Why control over oil finance may matter more than control over oil itself

• How the Western banking system became structurally dependent upon the petrodollar

• Why banking leverage could make negotiated peace financially dangerous

• How distorted commodity markets may be signalling deeper systemic stress

• Why inflation may become the preferred solution to an overleveraged financial system

• The strengths and weaknesses of this interpretation.

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1. INTRODUCTION

Most discussions of international conflict revolve around ideology, democracy, human rights or territorial disputes. Those explanations undoubtedly play a role.

This article examines a different framework.

It proposes that energy has been the constant objective of imperial strategy for over a century, while the US dollar has become the financial mechanism through which control of energy translates into global financial power.

If this interpretation is correct, today's conflicts are not simply about territory or governments. They concern the preservation of a financial architecture whose stability depends upon continued confidence in dollar-denominated energy finance.

Whether every part of this argument proves correct is open to debate. Nevertheless, it offers a coherent explanation for several otherwise puzzling developments.

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2. ENERGY HAS ALWAYS BEEN THE STRATEGIC PRIZE

The transition of the British Empire from coal to oil during the early twentieth century fundamentally altered global geopolitics.

Oil possessed extraordinary advantages.

Modern hydrocarbons perform more than fifty times the work obtainable from equivalent human labour. Industrial output, transport, agriculture and military capability all became directly dependent upon abundant energy supplies.

Consequently, economic growth has closely tracked energy consumption throughout modern history.

From this perspective, securing reliable control over hydrocarbon-producing regions became an enduring objective of great-power strategy.

The Middle East became strategically indispensable.

Later, attention increasingly focused upon other major reserves, including Venezuela and Canada's Alberta oil sands.

Supporters of this theory argue that these interests are best understood through energy security rather than the official language of democracy promotion, nuclear proliferation or humanitarian intervention.

Particular emphasis is placed upon heavy crude oil.

Unlike the lighter grades produced through hydraulic fracturing in the United States, heavy crude remains particularly valuable for aviation fuels, shipping and heavy industrial applications.

Its strategic importance therefore extends well beyond simple production volumes.

Glossary

Imperial energy logic – the argument that control over hydrocarbon-producing regions has shaped great-power strategy for over a century.

Heavy crude (sour crude) – dense, high-sulphur oil particularly suited to aviation fuel, shipping and heavy industry.. Dense, high-sulphur oil ("sour" refers to its sulphur content; low-sulphur oil is "sweet"). Refineries are designed for specific crude grades, and many US Gulf Coast refineries are optimised for heavy crude. America's shale oil is mainly light, sweet crude and cannot fully replace it, making Venezuelan heavy oil strategically important.

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3. THE DOLLAR MAY BE THE REAL PRIZE

This interpretation argues that oil itself is not the ultimate objective. After all, countries without empires successfully purchase oil on international markets every day.

The real prize, according to this analysis, is control over financing. When Western banks finance energy projects for multinational companies such as Chevron or Shell, those loans become valuable assets on bank balance sheets.

The resulting oil is then typically sold in US dollars.

Loan repayments therefore flow back into Western financial institutions.

Under this model, wealth generated in Nigeria, Kazakhstan or elsewhere ultimately services debts owed to banks in London, New York or Paris.

Supporters describe this not as traditional colonialism but as financial colonialism.

Rather than directly owning foreign resources, financial institutions capture part of the value created through the financing mechanism itself. Countries attempting to finance their own energy development outside this system may therefore be perceived as threatening its foundations.

Glossary

Petrodollar recycling – the return of dollar-denominated oil revenues into Western financial institutions through lending and investment.

Financial colonialism – influence exercised through financial structures rather than direct political rule.

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4. WHEN THE BANKING SYSTEM CANNOT AFFORD TO LOSE

A central constat is that decades of energy lending have created enormous banking exposure. Commercial banks typically operate with relatively thin capital cushions. High leverage means relatively modest losses can eliminate shareholder equity.

If conflicts interrupt energy production, export revenues decline. When borrowers cannot service loans, those loans become non-performing assets.

Supporters of this thesis argue that prolonged disruption across parts of the Middle East therefore threatens far more than oil supplies. It threatens the balance sheets of major Western financial institutions.

They further argue that the simultaneous commitment of vast sums to artificial intelligence infrastructure represents another layer of concentrated financial risk, increasing overall systemic vulnerability.

Glossary

Leverage ratio – the relationship between a bank's total assets and its capital.

Non-performing loan – a loan on which scheduled repayments have effectively ceased.

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5. UKRAINE THROUGH A FINANCIAL LENS

The same framework is applied to Ukraine.

Western governments, investment funds and financial institutions hold substantial quantities of Ukrainian sovereign debt. Some investors reportedly purchased these bonds at distressed prices, anticipating eventual repayment under favourable political outcomes.

According to this interpretation, recognising military defeat would transform impaired assets into realised losses. That prospect creates powerful incentives to continue financial and political support.

Supporters argue that this helps explain why negotiated settlements remain politically difficult despite mounting costs.

Critics would counter that governments continue supporting Ukraine primarily because of security concerns, alliance commitments and deterrence against future aggression.

Which thesis is the more credible?

Glossary

Repo market – the market where financial institutions obtain short-term funding using securities as collateral.

Temporary impairment – an accounting treatment allowing losses to remain unrealised while recovery is still considered possible.

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6. WHEN MARKETS STOP REFLECTING EVENTS

Perhaps the most controversial evidence concerns commodity markets.

In 2019, attacks upon Saudi Arabia's Abqaiq processing facility triggered one of history's largest single-day increases in oil prices.

Supporters of this theory argue that subsequent attacks producing comparable or greater disruption generated surprisingly muted or even negative price movements. They interpret this divergence as evidence of intervention, aggressive short selling or official efforts to maintain market confidence.

Alternative explanations also exist. Modern oil markets possess greater spare capacity, more sophisticated hedging instruments and different expectations than existed several years earlier.

Nevertheless, repeated discrepancies between geopolitical risk and commodity pricing inevitably raise questions regarding price discovery.

Glossary

Price discovery – the process through which markets establish prices by matching buyers and sellers.

Naked short selling – selling securities without first borrowing them or confirming delivery.

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7. THE ENDGAME: INFLATION RATHER THAN COLLAPSE

The final stage of this argument concerns crisis management.

During the financial crisis of 2008, governments openly recapitalised banks. Today, central banks possess far greater capacity to create liquidity electronically.

Supporters argue this makes outright banking collapse less likely. Instead, losses may be absorbed gradually through monetary expansion.

History offers several examples where excessive money creation preserved financial institutions but significantly reduced purchasing power. Weimar Germany, Zimbabwe and Argentina are frequently cited, although each emerged under very different political and economic circumstances.

Under this scenario, inflation becomes a hidden method of distributing banking losses across society ie savers, rather than concentrating them within financial institutions.

For savvy investors, this interpretation often leads to increased allocations towards physical precious metals, diversified real assets, liquidity held outside highly leveraged institutions and reduced dependence upon debt.

Glossary

Quantitative easing – central bank creation of money to purchase financial assets or provide liquidity.

Monetary debasement – reduction in a currency's purchasing power through expansion of the money supply.

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8. WHY THIS THEORY DESERVES SERIOUS CONSIDERATION

The argument presented here should not be accepted uncritically.

Several claims remain difficult to verify independently, while some depend upon assumptions regarding the motivations of governments, central banks and financial institutions.

Yet the framework possesses internal consistency. It links energy, finance, banking leverage, geopolitics and monetary policy into a single explanatory model. We have seen this understanding elsewhere: liquidity from the banking system is dirrected into finanacially attractive assets, that then hit economics and eventually geopolitics supports this flow. (Michael Howell)

Whether entirely correct or only partially so, it raises important questions.

If the true strategic asset is not oil itself but the dollar-denominated central banking system that finances global energy production, then today's conflicts are about securing battlefields to preserve the bond market's financial balance sheets.

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9. THE BOTTOM LINE

The central proposition is straightforward.

Energy remains the foundation of industrial civilisation.

The US dollar remains the principal financial infrastructure through which much of that energy is financed.

If Western banks have become heavily leveraged upon that system, then military defeat carries consequences extending far beyond geopolitics and hegemonic survival, defeat threatens the integrity of the financial architecture itself.

Whether one agrees with every conclusion or not, this is how to view the wars of the twenty-first century. It suggests that the real battlefield may not be oilfields, pipelines or front lines... It is the balance sheets of the global financial system.

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References

• Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power. 

• Daniel Yergin, The New Map. 

• Michael Hudson, Super Imperialism. 

• David Graeber, Debt: The First 5,000 Years. 

• Bank for International Settlements (BIS), annual banking statistics. 

• International Energy Agency (IEA), World Energy Outlook. 

• US Energy Information Administration (EIA), international petroleum data. 

• International Monetary Fund (IMF), Global Financial Stability Reports.