Brad Setser on the War in Iran and the Future of the US Dollar

The current global oil shock, triggered by geopolitical tensions in the Middle East, lacks the extreme price volatility seen during the 1970s, despite significant physical disruptions to supply chains. Brad Setzer, Senior Fellow at the Council on Foreign Relations, notes that while the market faces a massive shortfall of 10 to 15 million barrels per day, the global economy has adapted through diversified production in North America and other regions. Contrary to popular narratives regarding de-dollarization, the U.S. dollar remains dominant, bolstered by a massive current account deficit and the tendency of global investors to remain overweight in U.S. equities. While some nations seek alternatives to avoid sanctions or political tolls, the dollar continues to function as the most efficient medium for global trade, with reserve portfolios often holding lower dollar shares than private equity and institutional investment funds.