Tag Archives: petrodollar

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.

The Dismantling Of America

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The two-plus years of the Biden administration have not been a roaring success. Despite the fact that the administration tells us the economy is strong and doing well, there seem to be a few problems, two or which are very obvious when you go to the grocery store or fill up your gas tank. There is another problem looming that is far more serious than the two I just mentioned.

On Thursday, The Daily Caller reported the following:

Joe Biden is dethroning King Dollar in real time. The US dollar’s financial dominance is under siege from a uniquely bad combination of foreign and domestic policies, and Americans should be deeply concerned by the fallout if the dollar loses its 80-year reign as the world’s reserve currency.

In just the past weeks, China conducted the first major LNG sale in renminbi instead of dollars, struck a major deal with Brazil to conduct trade in their own currencies, and just announced the sale of 65,000 tons of LNG to France denominated in yuan. This dovetails with the Biden administration’s inflationary policies and ham-handed sanctions on Russia that accelerated foreigners’ flight from the dollar at the very moment the world doubts if the dollar remains a safe and reliable store of value.

Since the Bretton Woods agreement in 1944 and the petrodollar deal in 1945, the dollar has enjoyed preeminent status around the world, especially for international trade and exchange. This created huge demand for dollars abroad and allowed the US to export inflation, to spend beyond our means and leaving foreigners to soak up the extra.

As the Federal Reserve created billions for the government to spend in the 1960s, it threatened America’s gold reserves. At the time, all major currencies were redeemable for dollars, and dollars were redeemable for gold. When “guns and butter” policy led to a run on gold, President Nixon ended the dollar-gold-exchange standard with what was supposed to be a temporary measure.

The article concludes:

If the de-dollarization progresses what becomes of the trillions of dollars accumulated around the world since 1944?

If foreigners no longer want them for trade, central bank reserves, private wealth funds, and the official currency of about a dozen countries, all those dollars have nowhere to go but back to us in a flood like our country has never seen. This flood will compete for goods and services in the US against the dollars already here as decades of accumulated trade deficits come flooding back all at once.

At that point, hyperinflation will not be hyperbole.

Please follow the link to read the entire article. My only investment advice is “PRAY.”

Destroying The United States’ Economy

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President Biden has not done a great job on economic issues, and things are about to get a lot worse for his administration. One of the main things that has kept the American dollar from being totally worthless is the fact that oil is traded in American dollars. That is now changing.

WallStreetMojo explains the Petrodollar as follows:

The petrodollar history stems from the Soviet Union’s breakdown (1991), following which the US became the only superpower throughout the materialized unipolar world. Subsequently, the world observed several destabilizations and crises to sustain the leadership of the petrocurrency structure.

The term emerged in 1973 when the US agreed to offer armed protection to Saudi Arabia. It also provided weaponry and other military supplies in an agreement involving the overall sale of oil in US dollars. Moreover, Saudi Arabia would recycle the surplus dollars into the American economic system using US treasury bills and bonds.

By 1975, all OPEC members embraced the petrocurrency arrangement and consented to oil export in US dollars. As a result, the American currency now contributes to almost two-thirds of the international economy. It is the reserve currency for most central banks worldwide since the US dollar is the chief currency needed for natural gas and oil trading.

On Wednesday, PJ Media reported the following:

The petrodollar — a term describing the post-WWII global system of trading in oil almost exclusively using the U.S. dollar — has literally built and buttressed the U.S. empire for decades.

Saudi Arabia has long been a stalwart supporter of the U.S. petrodollar, which it adopted in exchange for security provided by the dominant U.S. military.

But that arrangement may be about to change.

Via TVP World:

Saudi Arabia, the world’s largest crude oil exporter, is open to discussing oil trade settlements in currencies other than the U.S. dollar, Saudi Minister of Finance, Mohammed Al-Jadaan, told media outlet Bloomberg in Davos on Tuesday.

If the Saudis were to open to talks about oil trade arranged in non-dollar currencies it would represent a significant threat to the current dominance of the U.S. dollar in the global oil trade.

Saudi Arabia is just the latest rat to contemplate leaving the sinking ship. Ghana recently announced intentions to purchase oil in gold instead of U.S. dollars moving forward. Russia, China, Brazil, India, and South Africa (BRICS) are reportedly cooperating to develop a “new global reserve currency.”

President Obama was put in place to manage America’s decline–not to make America great again. President Biden is finishing what President Obama began.