Difference between revisions of "Petrodollar"
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Consequently to buy oil, dollars are needed. On a large scale exchanging local currency for dollars is too costly. The prefered way for countries to get dollars is therefore to export goods and services for dollars - or to get a loan from banks who hold enough dollar denominated assets, ie. the IMF or other big western banks. | Consequently to buy oil, dollars are needed. On a large scale exchanging local currency for dollars is too costly. The prefered way for countries to get dollars is therefore to export goods and services for dollars - or to get a loan from banks who hold enough dollar denominated assets, ie. the IMF or other big western banks. | ||
| − | On the other hand the term "revenues" includes surpluses on such a scale that the oil producing countries could buy up a large proportion of Western assets. The term '''Petrodollar''' refers also to the management of these revenues. Walter Levy, speaker at the [[Bilderberg Conference]] 1973 made clear that "Serious problems would be caused by unprecedented foreign exchange accumulations of countries such as Saudi Arabia and Abu Dhabi." <ref name=CoW>Engdahl, F.W. (2004) A Century of War: Anglo-American Oil Politics and the New World Order. London: Pluto ISBN 0-7453-2309-X, p.143</ref>These OPEC countries were advised on how to invest their surpluses by Western investment bankers and subsequently signed contracts with the U.S. on military bases, large arms deals, military training and cooperation on governmental and economic levels. Their dependency on U.S. specialists remains unchanged to the present day.<ref>Christopher M. Blanchard (2014) Saudi Arabia: Background and U.S. Relations. Congressional Research Service 7-5700 http://www.crs.gov RL33533</ref> | + | On the other hand the term "revenues" includes surpluses on such a scale that the oil producing countries could buy up a large proportion of Western assets. The term '''Petrodollar''' refers also to the management of these revenues. Walter Levy, speaker at the [[Bilderberg Conference]] 1973 made clear that "Serious problems would be caused by unprecedented foreign exchange accumulations of countries such as Saudi Arabia and Abu Dhabi." <ref name=CoW>Engdahl, F.W. (2004) A Century of War: Anglo-American Oil Politics and the New World Order. London: Pluto ISBN 0-7453-2309-X, p.143. |
| + | This view is also expressed by the {{ccm}} today when finding that countries like Saudi Arabia are the '''culprits''' responsible for global '''imbalances''' when running surpluses. See ie. [http://www.economist.com/node/21553424 Petrodollar profusion - Oil exporters are the main drivers of global imbalances, The Economist, Apr 26th 2012]</ref>These OPEC countries were advised on how to invest their surpluses by Western investment bankers and subsequently signed contracts with the U.S. on military bases, large arms deals, military training and cooperation on governmental and economic levels. Their dependency on U.S. specialists remains unchanged to the present day.<ref>Christopher M. Blanchard (2014) Saudi Arabia: Background and U.S. Relations. Congressional Research Service 7-5700 http://www.crs.gov RL33533</ref> | ||
==Overview== | ==Overview== | ||
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===Further reading=== | ===Further reading=== | ||
* Spiro, David E. (1999). ''The hidden hand of American hegemony : petrodollar recycling and international markets''. Ithaca, NY : Cornell University Press. | * Spiro, David E. (1999). ''The hidden hand of American hegemony : petrodollar recycling and international markets''. Ithaca, NY : Cornell University Press. | ||
| − | |||
* William R. Clark (2005) ''[http://www.petrodollarwarfare.com/ Petrodollar Warfare:] Oil, Iraq and the Future of the Dollar'', New Society Publishers, ISBN: 978-0865715141 | * William R. Clark (2005) ''[http://www.petrodollarwarfare.com/ Petrodollar Warfare:] Oil, Iraq and the Future of the Dollar'', New Society Publishers, ISBN: 978-0865715141 | ||
Revision as of 10:30, 4 November 2014
 Petrodollar    | |
|---|---|
 | |
| Type | commercial |
| Start | 1974 |
| Interest of | US/Federal Reserve |
| Subpage(s) | •Petrodollar/Recycling |
| Denomination of the majority of the worlds oil in U.S. dollars has been the backbone of U.S. dollar hegemony since the U.S. unilaterally terminated the rights of foreign central banks to convert dollars to gold in 1971. | |
Petrodollar may be simply defined as oil revenues denominated in U.S. dollars. [1]
Consequently to buy oil, dollars are needed. On a large scale exchanging local currency for dollars is too costly. The prefered way for countries to get dollars is therefore to export goods and services for dollars - or to get a loan from banks who hold enough dollar denominated assets, ie. the IMF or other big western banks.
On the other hand the term "revenues" includes surpluses on such a scale that the oil producing countries could buy up a large proportion of Western assets. The term Petrodollar refers also to the management of these revenues. Walter Levy, speaker at the Bilderberg Conference 1973 made clear that "Serious problems would be caused by unprecedented foreign exchange accumulations of countries such as Saudi Arabia and Abu Dhabi." [2]These OPEC countries were advised on how to invest their surpluses by Western investment bankers and subsequently signed contracts with the U.S. on military bases, large arms deals, military training and cooperation on governmental and economic levels. Their dependency on U.S. specialists remains unchanged to the present day.[3]
Contents
Overview
In 1947, by the Bretton Woods agreements, the dollar became the world's reserve currency. To establish trust in the dollar the exchange rate to gold was fixed at 35$/ounce. However, the U.S.Federal Reserve increased the money supply by 340% from 1947 to 1971. At the same time its gold reserves decreased. Since 1969 foreign countries began to exchange dollars for gold.
In 1971, after exessive spending on the Vietnam War the U.S. unilateraly terminated the rights of foreign central banks to convert dollars to gold. The end of the Bretton Woods system is marked by a depreciation of the dollar, a stockmaket crash and global recession. The U.S. went from oil export to import after its own production peaked in 1972.
In an effort to prop up the value of the dollar the Nixon administration negotiated a deal with Saudi Arabia that in exchange for arms and "protection" they would denominate all future oil sales in U.S. dollars. Less mentioned by the commercially-controlled media is the fact that part of the agreement was the recycling of the oil producing countries' surpluses into U.S. dept securities held at Western banks. At the same time the U.S. administration secretly lobbied OPEC through its puppet regime in Iran to increase prices.
Until 1975 the other OPEC countries agreed to similar deals.
In October 1973, the United States' open support of Israel in the Yom Kippur War triggered an oil embargo, a reaction Arab countries had discussed at least since Israel occupied Syrian and Egyptian territory in the Six-Day War in 1967. The shortfall corresponded to only 7.5% of global output. On January 1, 1974 however, the Persian Gulf countries doubled the price of oil (Hamilton 2011). Further increases followed.
The embargo was not the cause of raised prices (Barsky and Kilian 2001) but OPEC took the blame although an increase in the price of oil now corresponded to an increase in the global demand for dollars aswell as an increase in the demand for U.S.securities.
Recycling
- Full article: Petrodollar/recycling
- Full article: Petrodollar/recycling
Petrodollar recycling is the handling of the oil producing countries' surpluses. These surpluses are commonly turned into either U.S. government securities (allowing the printing of more U.S. dollars[4] which are in turn used to buy oil and other goods and services) or are spent in arms deals including payments for U.S. military bases in the Middle East.
The framework for this recycling scheme was layed down by an agreement between the U.S. Treasury and the Saudi Arabian Monetary Agency (SAMA), whose mission was "to establish a new relationship through the Federal Reserve Bank of New York with the [U.S.] Treasury borrowing operation. Under this arrangement, SAMA will purchase new US Treasury securities with maturities of at least one year".[5]
It is noteworthy that under this agreement a higher oil price leads to a rising demand for U.S. dollars on a global scale without negatively affecting key parts of the U.S. economy.
Financial and Political implications
Since the volume of oil that should have been supplied in observance of standard microeconomic theory exceeded the volume actually supplied , Ibrahim Oweiss noted that "the difference [...] is in fact a subsidy granted, in real terms, to oil-importing nations such as the United States, Germany, France, and Japan."(Oweiss 1974) In other words, these close trading partners of the U.S. can buy oil with a fiat currency print at will.
Moreover, according to Oweiss, the "placement of petrodollar surpluses of oil exporting nations in the United States may be regarded politically as "hostage capital". In the event of a major political conflict between the United States and an oil-exporting nation, the former with all its military power can confiscate or freeze these assets or otherwise limit their use. It can impose special regulations or at least use regulations for a time, in order to attain certain political, economic, or other goals. It may be argued that such actions are un-American, since they are a direct violation of the sacred principles of capitalism and economic freedom. Nevertheless, the U.S. government resorted to such weapons twice in the 1980s against Iranian and Libyan assets. It follows, therefore, that governments placing their petrodollar surpluses in the United States may lose part of their economic and political independence. Consequently, the more petrodollar surpluses are placed in the United States by a certain oil-exporting nation, the less independent such a nation becomes.
Petrodollar Wars
News outlets in mid-2000-2002 carried articles about Saddam's efforts to sell oil on markets exclusively in Euros.[6][7] This may have been viewed as a push by Iraq to influence other OPEC states to challenge the reserve currency status in oil trading of the USD. This may have been an unacceptable outcome in the global economy with respect to the flow of petrodollars.
Since the beginning of 2003, Iran has required euro in payment of exports toward Asia and Europe. The government opened an Iranian Oil Bourse on the free trade zone on the island of Kish,[8][9] for the express purpose of trading oil priced in other currencies, including euros.
Libya decided to challenge the petrodollar system and stop selling all their oil for dollars, shortly before it was attacked. Qaddafi initiated a movement to refuse the dollar and the euro, and called on Arab and African nations to use a new currency instead, the gold dinar. Qaddafi suggested establishing a united African continent, with its 200 million people using this single currency. … The initiative was viewed negatively by the USA and the European Union, with French president Nicolas Sarkozy calling Libya a threat to the financial security of mankind; but Gaddafi continued his push for the creation of a united Africa. Gaddafi’s proposal to introduce a gold dinar for Africa revived the notion of an Islamic gold dinar floated in 2003 by Malaysian Prime Minister Mahathir Mohamad, as well as by some Islamist movements. The notion, which contravenes IMF rules and is designed to bypass them, has had trouble getting started.
But today the countries stocking more and more gold rather than dollars include not just Libya and Iran, but also China, Russia, India and Brazil. [10] [11] In May 2014, China agreed to buy $400 billion of Russian-produced natural gas over 30-years, valued in domestic currencies, in what was touted as Gazprom’s biggest contract ever. In August, Russia signed a historic deal with Iran to purchase $20 billion of oil in rubles, bypassing Western sanctions against Iran while hastening the petrodollar’s decline. Aug 14 (Reuters) - President Vladimir Putin said on Thursday Russia should aim to sell its oil and gas for Roubles globally because the dollar monopoly in energy trade was damaging Russia's economy. [12]
Related Documents
| Title | Type | Publication date | Author(s) | Description |
|---|---|---|---|---|
| Document:What are the Real Targets of the E.U. Oil Embargo against Iran? | article | 31 January 2012 | Mahdi Darius Nazemroaya | |
| Document:Will Iran Kill the Petrodollar? | article | 25 January 2012 | Marin Katusa | The possibility of Iran acquiring nuclear weapons is largely a smoke-screen used by the Western powers to obfuscate the real reasons for their escalating confrontation with Iran. |
| File:Of Money Part 1.pdf | essay | 2008 | Guido Preparata | Part 1 outlines the history of global monetary/financial systems since the end of WWI and their progressive domination by the United States Federal Reserve system. The essay explains any move by non-WTO countries to conduct trade in currencies other than Dollars, or construct non-Dollar trading blocks, have been so ruthlessly dealt with by the US and its NATO Allies. |
| Document:The Libyan War, American Power and the Decline of the Petrodollar System | paper | 17 April 2011 | Peter Dale Scott | A collection of insights that provide a more realistic explanation of the deep political background to the attacks on Libya. |
References
- ↑ Oweiss, Ibrahim M. (1974) Petrodollars: Problems and Prospects, Address before the Conference on The World Monetary Crisis Arden House, Harriman Campus, Columbia University http://faculty.georgetown.edu/imo3/petrod/define.htm
- ↑ Engdahl, F.W. (2004) A Century of War: Anglo-American Oil Politics and the New World Order. London: Pluto ISBN 0-7453-2309-X, p.143. This view is also expressed by the commercially-controlled media today when finding that countries like Saudi Arabia are the culprits responsible for global imbalances when running surpluses. See ie. Petrodollar profusion - Oil exporters are the main drivers of global imbalances, The Economist, Apr 26th 2012
- ↑ Christopher M. Blanchard (2014) Saudi Arabia: Background and U.S. Relations. Congressional Research Service 7-5700 http://www.crs.gov RL33533
- ↑ http://www.robinupton.com/people/WizardsOfMoney/ WIZARDS OF MONEY - 1. How Money is Created
- ↑ Letter of Jack F. Bennett (assistant secretary of the U.S. Treasury) to Henry Kissinger, February 1975. ‘Subject: Special Arrangements for Purchase of U.S. Government Securities by the Saudi Arabian Government.’ International Currency Review. Vol. 20, no. 6, January 1991.
- ↑ Foreign Exchange: Saddam Turns His Back on Greenbacks
- ↑ Radio Free Europe - Iraq: Baghdad Moves To Euro
- ↑ Kish Oil Exchange Planned, Iran Daily, January 24, 2006
- ↑ A frenzied Persian new year, March 22, 2006, Asia Times
- ↑ The Libyan War, American Power and the_Decline of the_Petrodollar System
- ↑ The Wars That Really Are About The Oil - spectator 30 August 2014
- ↑ Putin: 'The petrodollar must die' - WND 15 August 2014
Further reading
- Spiro, David E. (1999). The hidden hand of American hegemony : petrodollar recycling and international markets. Ithaca, NY : Cornell University Press.
- William R. Clark (2005) Petrodollar Warfare: Oil, Iraq and the Future of the Dollar, New Society Publishers, ISBN: 978-0865715141
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