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Following the collapse of the Bretton Woods system in 1971, which unpegged the U.S. dollar from gold, global financial stability faced unprecedented uncertainty.
The United States and Saudi Arabia reached an agreement that would profoundly shape global economics: Saudi oil exports would be priced exclusively in U.S. dollars, and in return, the U.S. would provide military protection to the kingdom starting in 1973 and renewd under Bush Admin.
Countries around the globe needed to hold substantial reserves of dollars to purchase oil, creating a consistent demand for U.S. currency and Treasury securities.
This demand allowed the United States to run larger trade deficits without facing immediate economic repercussions, as there was always a steady market for its debt.
Fact Checkers seem to be having a difficult proving this one to be false: https://www.rfa.org/english/news/afcl/afcl-us-saudi-oil-deal-07082024043619.html
While oil is still traded in $USD, the demise of the petrodollar means that Oil from Saudi Arabia, and surrounding empires is traded in other currencies like $Yen or the Chinese $Yuan
Historically, this system has fortified the U.S. dollar's status as the world's reserve currency and underpinned American economic hegemony. These countries have actively pursued bilateral agreements with major oil producers to bypass the dollar altogether, thereby eroding its exclusive grip on global oil trade.
Countries like Iran and Venezuela have been compelled to find alternative trading partners and currencies due to restrictions on their ability to conduct transactions in U.S. dollars.
The rise of renewable energy sources and innovations in electric vehicle technology reduce global dependence on fossil fuels, thereby weakening one of the foundational pillars supporting demand for dollars.
For decades, the petrodollar system has anchored global demand for U.S. dollars, as oil transactions have been predominantly conducted in this currency. The unraveling of this system introduces several immediate pressures on the value of the dollar.
Investors might seek safer or more stable assets elsewhere, leading to capital outflows that can further weaken the dollar's position and exacerbate volatility in financial markets.
Moreover, interest rates might be affected as policymakers attempt to manage these new economic challenges.
As countries move away from this practice—opting instead to conduct oil trades in alternative currencies—the immediate impact will be a reduced demand for U.S. dollars on international markets. A diminished role for the dollar could lead to decreased global confidence in its stability and value. This shift would likely increase volatility in currency exchange rates and could result in higher borrowing costs for the U.S. government as foreign investors demand greater returns to offset perceived risks.
Consequently, servicing national debt would become more expensive, potentially exacerbating fiscal deficits and limiting government spending on critical programs.
Reduced global dependence on U.S.-denominated oil transactions might initially seem detrimental; however, Texas' diverse energy sector could pivot towards new opportunities within renewable energy markets or enhanced trade relations with non-dollar trading partners.
Ultimately, while the end of the petrodollar era poses significant challenges to U.S. economic hegemony and stability, it also necessitates strategic adaptations that could redefine America's role in an increasingly multipolar world economy.
As the world’s energy landscape shifts, Texas—a leading player in the U.S. energy sector—stands to experience multifaceted effects. Firstly, a move away from the petrodollar could disrupt traditional revenue streams for Texan oil companies. Historically, selling oil in U.S. dollars has provided a stable and predictable financial environment.
If major oil-producing nations begin accepting alternative currencies like the $euro or $yuan, Texas-based companies might face new currency exchange risks and potential financial instability. The petrodollar system has historically attracted substantial foreign investments due to its perceived stability and security.
By controlling both military power and financial liquidity through its currency dominance, the U.S could exert considerable sway over international affairs.
In summary, historically speaking, the petrodollar system formed a cornerstone of late 20th-century global economics by reinforcing dollar hegemony while simultaneously bolstering American economic strength and geopolitical influence—an arrangement whose potential dissolution poses intricate challenges today.
"What Is a Petrodollar and How Does It Affect the Global Economy? | Market Pulse." fxopen.com, Unknown, https://fxopen.com/blog/en/what-is-a-petrodollar-and-how-does-it-affect-the-global-economy/. Accessed 05. Jul 2024.
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"The true story of the petrodollar's demise." azerbaycan24.com, Unknown, https://www.azerbaycan24.com/en/the-true-story-of-the-petrodollar-s-demise/. Accessed 05. Jul 2024.
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"The End of the Petrodollar Agreement: A New Era for Global Finance - Forex News by FX Leaders." fxleaders.com, Unknown, https://www.fxleaders.com/news/2024/06/28/the-end-of-the-petrodollar-agreement-a-new-era-for-global-finance/. Accessed 05. Jul 2024.
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"Special Guest Post - How the Petrodollar System Restored, Then Ruined, America's Economy - Deep Knowledge Investing." deepknowledgeinvesting.com, Unknown, https://deepknowledgeinvesting.com/special-guest-post-how-the-petrodollar-system-restored-then-ruined-americas-economy/. Accessed 05. Jul 2024.
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"Dollar Hegemony: Dollar Hegemony: How the Petrodollar Shapes Global Power - FasterCapital." fastercapital.com, Unknown, https://fastercapital.com/content/Dollar-Hegemony--Dollar-Hegemony--How-the-Petrodollar-Shapes-Global-Power.html. Accessed 05. Jul 2024.
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"Saudi Arabia Ends 50-Year Petrodollar Deal with US: Why Is It A Big News? - News18." news18.com, Unknown, https://www.news18.com/business/saudi-arabia-ends-50-year-petrodollar-deal-with-us-why-is-it-a-big-news-8932118.html. Accessed 05. Jul 2024.
Biden has allowed the petro dollar agreement with Saudi Arabia to collapse.
— Commie Gibberish of the Day (@CommieGibberish) June 22, 2024
The US dollar has been held up by all oil sales from the Saudis being denominated in US dollars, and them investing excess USD they’re holding straight into US government debt. That will no longer be the… pic.twitter.com/Tjx0Wwvoaw
Are you kidding me?
— Meme Coins. Economist. Quantum Physics. i-Ching (@OTC_Bitcoin) July 5, 2024
1. Brazil Russia Iran China all dumping Bitcoin 2 weeks after the Petro dollar expired
2. On US independence Day?
3. Because they have their own banking system now?
4. Brics currency makes Bitcoin obsolete pic.twitter.com/PSu9Y1XQ6z
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