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Petrodollar

Agreements 1973-75 that the OPEC Cartel may quadrupel its oil price, if in turn they sell only for dollars and - importantly - re-invest their petrodollars in "The West". The agreements included "military aid" and cooperation.

Key Citations

http://faculty.georgetown.edu/imo3/petrod/petro2.htm

Petrodollars: Problems and Prospects
by
Dr. Ibrahim M.Oweiss
Address before the Conference on The World Monetary Crisis
Arden House, Harriman Campus, Columbia University
March 1 - 3, 1974

First, the placement of petrodollar surpluses of the Arab 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 Arab 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 l980s 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.
It is worth noting that the difference between the volume of oil actually supplied and the volume that 
should have been supplied in observance of standard microeconomic theory is in fact a subsidy granted, in 
real terms, to oil-importing nations such as the United States, Germany, France, and Japan.1
The process of petrodollar recycling makes it possible for commercial banks of industrialized nations, 
international lending institutions, and Arab banking consortia to provide financial assistance to 
less-developed countries (LDCs). Western Europe, Japan, and the United States buy oil from oil-exporting 
countries (OECs). LDCs pay for oil imports and other foreign goods and services with money borrowed front 
Western commercial banks. The process of recycling is complete when those commercial banks and institutions 
obtain cash and investments from OECs.

http://www.globalresearch.ca/the-real-reason-russia-is-demonized-and-sanctioned-the-american-petrodollar/5402592

in 1973 the Richard Nixon administration began negotiations with the government of Saudi Arabia to establish   
what came to be referred to as the petrodollar recycling system. Under the arrangement, the Saudis would  
only sell their oil in U.S. dollars, and would invest the majority of their excess oil profits into U.S. 
banks and Capital markets. The IMF would then use this money to facilitate loans to oil importers who were 
having difficulties covering the increase in oil prices. The payments and interest on these loans would of 
course be denominated in U.S. dollars. 
This agreement was formalised in the “The U.S.-Saudi Arabian Joint Commission on Economic Cooperation” put 
together by Nixon’s Secretary of State Henry Kissinger in 1974. The system was expanded to include the rest 
of OPEC by 1975. This was a major economic success for the U.S. As long as the world needs oil, and as long 
as oil is only sold in U.S. dollars, there will be a demand for dollars, and that demand is what gives the  
dollar its value.