Tag Archives: oil exports

The End Of The Petrodollar

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On Friday, MSN posted an article from India Today about the end of the petrodollar. Since 1974, oil has been traded in petrodollars.

The article explains:

What are petrodollars?

Petrodollars are not a currency but US dollars exchanged for crude oil exports.

The term “petrodollars” refers to the US dollars earned by oil-exporting countries through the sale of oil.

The concept emerged in the early 1970s and has played a significant role in global economics and geopolitics.

History behind petrodollars

Initially, the Bretton Woods Agreement of 1944 established the US dollar as the world’s primary reserve currency, pegged to gold. This facilitated international trade and economic stability post-World War II.

However, in 1971, US President Richard Nixon ended the dollar’s convertibility to gold, leading to floating exchange rates and increased currency volatility.

In the following year, the Organization of Petroleum Exporting Countries (OPEC) imposed an oil embargo in response to US support for Israel during the Yom Kippur War, causing oil prices to skyrocket.

The US struck a deal with Saudi Arabia and other OPEC countries to stabilise the situation, where oil would be traded exclusively in US dollars.

The move to petrodollars was supposed to stabilize the world’s currency. It was also a boon to America because it provided some stability for the American dollar. Petrodollars were also part of what sustained the value of the American dollar despite ridiculous overspending by Congress. Obviously, the overspending by Congress continues. My fear is that we will become like many formerly prosperous countries with citizens needing to take wheelbarrows of money to the supermarket to buy groceries.

This is not being heavily reported, and I suspect that is because most Americans will have no idea what it means and the news may start an unnecessary panic.

If You Wondered Why Energy Independence Is Important

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The Wall Street Journal posted an article yesterday about the drone attack on Saudi oil fields. The Iran-allied Houthi rebels in neighboring Yemen have claimed credit for the attack.

The article reports:

The production shutdown amounts to a loss of about 5.7 million barrels a day, the kingdom’s national oil company said, roughly 5% of the world’s daily production of crude oil.

Officials said they hoped to restore production to its regular level of 9.8 million barrels a day by Monday. Energy Minister Prince Abdulaziz bin Salman said lost production would be offset through supplies of oil already on hand.

The strikes mark the latest in a series of attacks on the country’s petroleum assets in recent months, as tensions rise among Iran and its proxies like the Houthis, and the U.S. and partners like Saudi Arabia. The attacks could drive up oil prices if the Saudis can’t turn production back on quickly and potentially rattle investor confidence in an initial public offering of Saudi Aramco, the national oil company.

The article concludes:

The Yemen war is a central front in a new and more aggressive foreign policy overseen by Prince Mohammed, who launched the intervention with a coalition of allied states in 2015. Under the prince’s watch, the kingdom also applied a blockade on neighboring Qatar, detained Lebanon’s prime minister, and sent a team of men to kill exiled journalist Jamal Khashoggi in Istanbul in 2018.

A conservative kingdom with a Sunni Muslim majority, Saudi Arabia has been an opponent of Iran in a struggle for power across the broader Middle East since the 1979 revolution that toppled Iran’s monarchy.

The attacks on Aramco’s facilities are poorly timed for Aramco’s coming IPO and pose a challenge to oil officials after a changing of the guard in their leadership. Aramco last week picked seven international banks to help it list on Saudi Arabia’s domestic exchange, an IPO that could value the company at about $2 trillion dollars and come before the end of the year.

There are a lot of things going on behind the scenes here. This is part of the conflict between Sunni and Shiite Muslims. At their core, both the Saudis and the Iranians want to bring back the former caliphate. The Ottoman Empire (which was that caliphate) existed until the early 1900’s. Many Muslims want that Empire restored. The argument is over who will rule the caliphate when it is established. Al Qaeda and the Muslim Brotherhood are players in this conflict, as is ISIS. Jamal Khashoggi was a part of the Muslim Brotherhood. Descriptions of him as simply a journalist were misleading. Another part of this puzzle is the fact that Saudi Arabia is drawing closer to aligning with Israel because of the fear of a nuclear Iran. That also would be a cause for increased aggression from Iran.

Generally speaking, any terrorism that goes on in the Middle East can be traced back to Iran. They have been training and funding terrorists since the Iranian Revolution in 1979.

I have no idea what impact this will have on world oil prices. I do know that Saudi Arabia will work to repair the damage as soon as possible. I have no doubt that Iran is violating the sanctions on its oil exports, so if the price of oil rises significantly, Iran may be able to pull itself out of its current economic difficulties and calm its population. America will continue to prosper as oil prices rise because we are now a net exporter of oil rather than a net importer. Because of the policies of President Trump, we are in a very different situation than we were during the oil crisis of the 1970’s.

Moving Toward Energy Independence

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One America News posted an article today about the impact of developing America’s oil resources.

The article reports:

The Energy Information administration reports U.S. oil production reached almost 9.9 million barrels per day this month.

So what is the impact of this? America i s exporting more than 1.7 million barrels per day of oil. Hopefully this will end some of our cozy relationships with tyrants who rule oil-producing countries in other parts of the world.

The article further reports:

Energy experts say the U.S. is on track to surpass Saudi Arabia in oil output this year, and rival Russia as the world’s energy giant.

The article also notes that the increase in our oil exports give America an advantage in both international trade and diplomacy. There is a concern that the increased exports will cause fuel costs in America to rise, but the Trump administration believes that the deregulation of prices will prevent that from happening.

Energy independence is a good thing. Being able to export oil you don’t need is an even better thing!