Is the petrodollar responsible

[Black Red Devil]

Has the petrodollar been responsible for all the troubles in the Middle East in the last 20 years and ultimately in Venezuela and are Russia and China preparing a decisive move to clip the wings off the US dollar?

Has the US been fending off all challenges? After all General Wesley Clark in 2001 revealed a plan by the US Govt they were going to attack Iraq (2003), Syria (2011), Lebanon (2006), Libya (2011), Somalia (2009), Sudan (was already in a civil war in 2001) and Iran (not yet). In brackets when wars took place post 2001.  Coincidence? Who knows but in one way or another they were either preparing to dump the dollar or were allies of Russia. 

In summary,

·        In 1971 Nixon established the petrodollar after it was facing inflation.  Nixon was forced to find a new commodity after countries started dumping the dollar as the world reserve currency in favor of gold.  Until then, the US dollar was valued to be ‘as good as gold’ but countries buying US dollars instead of gold, which was valued at $35 an ounce at the time, thought they were getting ripped off by the equivalent value of gold they believed was much higher.  An alternative deal was struck with Saudi Arabia who promised they would sell all their oil in US dollars and so did (initially) all other OPEC producers.  The US in return had the task of modernizing Saudi Arabia through profits made from oil sales the US was purchasing from the Saudi’s and invested in US Govt securities.  More details in this link.

·        In the year 2000 Saddam defied the petrodollar (and the US) by changing his oil transactions into Euro’s and paid the consequences for it in 2003.  BTW, the invasion in 2003 was met by strong opposition from Germany and France, the two strongest European economies belonging to the Eurozone who had mostly to gain from a stronger Euro.  Iran eventually also defied the Dollar by creating a trading exchange where all other commodities (such as Gold) could be used and eventually dropped the US dollar.  Gaddafi went one step further and wanted to introduce a new monetary commodity for oil transactions (Gold Dinar) for all Arab and African States.  We know what happened to Gaddafi and the US has been itching for a war against Iran ever since. More details in this link.  

Isn’t it strange that Saddam WMD’s were ever found and the UN Resolution never warranted for an invasion. Similarly Ghaddafi was fighting a civil war against rebel Govt troops, the UN Resolution never warranted for the excessive and over the top bombing campaign that took place, mainly by France, which was mostly intent in killing the Libyan leader.  Finally Iran who has been accused of enriching uranium for weapons despite numerous inspections never finding any evidence.  The only reason Iran hasn’t been pre-emptively attacked thus far is probably because of its close ties to Russia.

·        Venezuela, along the lines with Iran, are also trying alternative arrangements to trade their oil (and defy sanctions) by creating an alternative crypto currency as opposed to the dollar and their gold which has been frozen by sanctions.  Similar to Venezuela and Iran, although not directly related to the petrodollar in this case, Russia is also preparing to diminish the power of the US dollar as a counter action against imposed sanctions due to its role in the Crimean war and also, understandably, due the rivalry between Superpowers. Details found in the first link at the bottom. (cont.)

 

 

[Black Red Devil]

(prev.)

·        The Chinese are the biggest importers of oil in the world and have recently made the decision to price and use their own Yuan, or Petro-Yuan, as the currency to purchase oil from major exporters such as Iran and Russia who, with the same objective to weaken the grip of the US dollar as the world reserve currency, seem to be happy to agree to.  Venezuela and Indonesia are also ready to dump the petro dollar.  

A    According to this economist from Forbes (and others that I’ve read), the Chinese still fall short of eclipsing the dollar but it appears the challenge is definitely in progress.  With the Saudi’s (the largest oil producing country in the world) on their side, the US currently appears to have the better of China in this hegemony challenge, which Trump has only exacerbated with his trade war.  Not surprising how the Saudi’s seem to be able to get away with murder unpunished when they play such an important role.  Loyalties could change though when it comes to business and potentially, China has three times the amount of consumers than the US!

 

Edited April 5, 2019 by Black Red Devil

[CrimsonKing]

Actually a very interesting topic man...i gotta leave in a few minutes or i would like to add a bit to this.

Only add i really got time for,goes back a good little bit before "the last 20 years or so"...another WW will break out before anything changes,that or some kinda unseen freaky collapse in the markets.

[Black Red Devil]

8 minutes ago, CrimsonKing said:

Actually a very interesting topic man...i gotta leave in a few minutes or i would like to add a bit to this.

Only add i really got time for,goes back a good little bit before "the last 20 years or so"...another WW will break out before anything changes,that or some kinda unseen freaky collapse in the markets.

Yeah good point.  As mentioned it actually started in 1971 by Nixon but things started going south (for the US) when Saddam started looking for alternatives.

[aztek]

Debunking the Dumping-the-Dollar Conspiracy

For at least the last decade, a persistent, recurring conspiracy theory has held that major oil exporters will stop pricing oil in dollars, which will then lead to a collapse in the U.S. economy as the dollar becomes worthless. According to some accounts, Iraq’s decision to price its oil in euros rather than dollars precipitated the U.S. overthrow of Saddam Hussein, and Iran’s threats to move away from the dollar is the real reason the U.S. government is raising the alarm over the country’s nuclear program.

But they really shouldn’t be concerned. Fisk’s theory would make a good plot for a Hollywood movie, but it doesn’t make much sense as economics. It is true that oil is priced in dollars and that most oil is traded in dollars, but these facts make relatively little difference for the status of the dollar as an international currency or the economic well-being of the United States.

https://foreignpolicy.com/2009/10/07/debunking-the-dumping-the-dollar-conspiracy/

[Black Red Devil]

A couple of years old but an article providing more detailed evidence how the petrodollar came to make America the richest economy in the world and allow the US to rack up trillions of dollars in debt.  Also a  grim prediction.

The day of financial reckoning for the United States, is now rapidly approaching. It will happen when the oil producing nations of the world, will no longer accept payment in USD. There is increasing evidence that these nations as a group, will be requesting gold.

link

 

[Black Red Devil]

As mentioned in the OP, China, Russia and Iran (and EU!!) have thrown the gauntlet.  Trump may want to re-think his attitude towards the EU, especially when many/most European countries rely on large amounts of Russian oil and natural gas for their energy supply.

China, Russia and EU edge away from petrodollar

 

[Black Red Devil]

But this may be the final nail in the coffin for the petrodollar and possibly the US economy as the dominant nation. Russian natural gas to China, with a population of 1.2 billion and currently, the largest oil consumers in the world.

Russia’s Huge Natural Gas Pipeline To China Nearly Complete

Gazprom’s Power of Siberia natural gas pipeline from Russia to China is 93 percent complete, the Russian gas giant said in an update on its major projects.

A total of 2,010 kilometers (1,249 miles) of pipes are laid for the Power of Siberia gas pipeline between Yakutia and the Russian-Chinese border, or on 93 percent of the route’s length, Gazprom said in a statement.

The natural gas pipeline is expected to start sending gas to China at the end of 2019 and its completion is among Gazprom’s top priorities.

Gazprom is dominating gas supplies to many European markets while it vies to meet the surging Chinese natural gas demand as the country is in the middle of a massive switch from coal-fired to gas-fired heating in millions of homes.

Although Chinese companies are looking to boost domestic natural gas production, local production won’t come even close to meeting surging demand, and China is expected to increasingly rely on gas imports.

According to the Gas 2018 report by the International Energy Agency (IEA), China will become the world’s largest natural gas importer by 2019.

 

[aztek]

that is strange, i clearly remember posting two paragraphs,  only 1 remains

[aztek]

i see both paragraphs now, must be browser glitch on my side 

[Phaeton80]

21 hours ago, aztek said:

Debunking the Dumping-the-Dollar Conspiracy

For at least the last decade, a persistent, recurring conspiracy theory has held that major oil exporters will stop pricing oil in dollars, which will then lead to a collapse in the U.S. economy as the dollar becomes worthless. According to some accounts, Iraq’s decision to price its oil in euros rather than dollars precipitated the U.S. overthrow of Saddam Hussein, and Iran’s threats to move away from the dollar is the real reason the U.S. government is raising the alarm over the country’s nuclear program.

But they really shouldn’t be concerned. Fisk’s theory would make a good plot for a Hollywood movie, but it doesn’t make much sense as economics. It is true that oil is priced in dollars and that most oil is traded in dollars, but these facts make relatively little difference for the status of the dollar as an international currency or the economic well-being of the United States.

https://foreignpolicy.com/2009/10/07/debunking-the-dumping-the-dollar-conspiracy/

I think the bolded is an utterly obvious fallacy, cant be true, unless you interpret 'relatively little' as 'significant'. Make the global oil trade depend on the dollar, and you create the demand needed to stave off 'significant' inflation, even when printing dollars out of thin air ad infinitum. The last few words of that sentence seem excessively implausible, again; unless the interpretation of relatively little is, well.. 'broad'.

Here is another respected source even claiming the petro dollar doesnt exist since the 1970'ies, calling the whole thing a myth no less:

https://www.forbes.com/sites/douglasbulloch/2018/04/26/the-petro-dollar-is-a-myth-the-petro-yuan-mere-fantasy/

To the contrary, the following sources:

Quote

Benefits of the Petrodollar System

Since the most sought-after commodity in the world - oil - is priced in U.S. dollars, the petrodollar helped elevated the greenback as the world's dominant currency. In fact, according to the Bank for International Settlements (BIS) triennial survey, 88% of all foreign exchanges deals initiated in April 2016, involved the USD on one side [1]. With this status, the U.S. dollar enjoys what some have asserted to be an "exorbitant privilege" of perpetually financing its current account deficit by issuing dollar denominated assets at very low rates of interest as well as becoming a global economic hegemony.

 

For instance, countries like China, who hold vast quantities of U.S. debt have voiced their concerns in the past about the possible dilutive effects to their asset holdings should the dollar depreciate. However, the privileges associated with being able to run persistent current account deficits come at a price. As the reserve currency, the United States is obligated to run these deficits to fulfill reserve requirements in an ever-expanding global economy. If the United States were to stop running these deficits, the resulting shortage of liquidity could pull the world into an economic contraction. However, if the persistent deficits continue ad infinitum, eventually, foreign countries will begin to doubt the valuation of the dollar, and the greenback may lose its role as the reserve currency. This is known as the Triffin Dilemma. (For more, see: How The Triffin Dilemma Affects Currencies.)

https://www.investopedia.com/articles/forex/072915/how-petrodollars-affect-us-dollar.asp

 

Quote

How Important is the Petrodollar to US Economic Stability?

The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better. - Ron Paul

Ron Paul is calling for the end of the petrodollar system. This system is one of the main reasons the U.S. dollar is the world’s premier reserve currency. Essentially, Paul is saying that understanding the petrodollar system and the forces affecting it is the best way to predict when the U.S. dollar will collapse. Paul and I discussed this extensively at one of the Casey Research Summits. He told me he stands by his assessment. This is critically important. When the dollar loses its coveted status as the world’s reserve currency, the window of opportunity for Americans to protect their wealth from the U.S. government will definitively shut.

https://www.equities.com/news/how-important-is-the-petrodollar-to-us-economic-stability

 

Quote

The End of the Petrodollar?

In a move that could portend massive shifts in the global oil game, the Shanghai International Energy Exchange will soon unveil an oil-futures contract denominated in Chinese yuan rather than U.S. dollars (product symbol: SC). Experts warn that the growing clout of Chinese currency in international financial markets could erode the primacy of the U.S. dollar, a long-term economic trend that should greatly trouble Washington.

The International Energy Exchange conducted a final set of drills to test trading, settlement, and quote transmission back in December. China’s Securities and Regulatory Commission has announced that the crude-futures contract will launch on March 26.

The new benchmark is so significant because it directly challenges the dollar-dominated pricing scheme of crude oil markets—commonly known as the petrodollar system—which helps to undergird the dollar’s status as the international reserve currency. That arrangement dates back to 1974, when Saudi Arabia and other regional oil suppliers, in exchange for sustained U.S. military aid and equipment, agreed to exclusively accept the Greenback for oil sales and—perhaps most importantly—to invest their oil revenues into U.S. treasuries.

https://nationalinterest.org/feature/the-end-the-petrodollar-25002

 

Quote

Petrodollar power

Why Henry Paulson should have gone to the Middle East not China

THAT two-thirds of the world's oil comes from troubled emerging economies is worrying enough. Less noticed, and more alarming, is the growing financial clout of places like the Middle East, Russia and Venezuela as a result of sustained high oil prices and their build-up of foreign assets.

With America fixated on China, this matter is not widely discussed. A visit by Henry Paulson, America's treasury secretary, and a high-ranking team of policymakers to Beijing on December 14th to urge China to shrink its current-account surplus of around $200 billion this year is a symptom of the excessive attention paid to China's surplus and the supposedly undervalued yuan in the debate about global imbalances.

China's surplus is dwarfed by those of oil-exporting emerging economies, which are expected to total $500 billion, over half of it in the Middle East (see article). Relative to their economies, the oil producers' external surpluses look even bigger: Saudi Arabia, the UAE and Kuwait have an average surplus of around 30% of GDP, making China's 8% seem almost modest. These surpluses are having a huge impact on international capital flows; and they may, unless the right policy prescriptions are applied, undermine efforts to unwind global imbalances in an orderly way.

The surge in oil revenues over the past four years is perhaps the biggest windfall ever enjoyed by a group of countries. In real terms, the oil exporters' current-account surplus is more than twice as big as it was at its peak in the 1970s' oil-price shocks. According to the IMF, the cumulative surpluses of oil exporters could amount to $1.7 trillion in the five years to 2007, swamping China's likely stash of $700 billion.

[..]

The dollar peg means that, as the price of oil has soared, those currencies' real trade-weighted exchange rates have, perversely, fallen. This is pushing up inflation and stoking asset-price and credit bubbles in their domestic economies. Pegging those currencies to the weak dollar also dampens demand for imports in their economies, and thus hinders the rebalancing of global current accounts. Higher levels of both imports and government spending by the oil-producing countries would help unwind the imbalances that endanger the world's economic stability.

https://www.economist.com/leaders/2006/12/07/petrodollar-power

Seems these last sources dont only confirm the existence of the petrodollar, but its significant positive effect on the stability of the dollar, its position as a global currency, as well as the US economy as a whole.

Interesting..

 

Edited April 10, 2019 by Phaeton80

[Myles]

Whoops, I read the title wrong.   I thought this was a Biden thread.   Pedodollar.