What are petrodollars? Petrodollar is a United States dollar earned by a country through the sale of petroleum Coined by Ibrahim Oweiss , a professor of economics at Georgetown University, in 1973.
What is Petro Dollar Recycling? Petrodollar "recycling" refers to the $ reflows to the rest of the world that result from the use oil-exporting countries (mainly OPEC countries) make of their oil receipts
OPEC Formed at a meeting held on September 14, 1960 in Baghdad, Iraq, by five Founder Members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Algeria,Angola,Ecuador ,Iran ,Iraq ,Kuwait ,Libya ,Nigeria,Qatar, Saudi Arabia ,United Arab Emirates,Venezuela OPEC is the biggest and the most successful cartel in the world.
Reserves Saudioil reserves are the largest in the world, estimated to be around 264 billion barrels, 25% of world oil reserves. Iran’s total oil reserves are estimated of 138 billion barrels and production amounts to 2.4 million barrels per day. Venezuela is second with total oil reserves at 172 billion barrels at the end of 2009
OILY DOLLARS Sheikh Khalifa Bin Zayed Al Nahyan, Abu Dhabi,($23 bn) King of Saudi Arabia: Abdullah Bin Abdulaziz,($21 bn) Current account surplus (billions USD)
IMPORTANCE OF PETRODOLLARS FOR USA Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world.— Henry A. Kissinger
Nixon Shock made USD a fiat currency posed a great threat to the US as its supremacy as a reserve currency In 1974,US made a secret deal with the Saud’s to keep selling the oil in US dollars and invest a certain percent in T- bills. In return, the Americans provided the Saudis with military support and special voting rights in the IMF
1973 Oil Embargo and 1980 Oil Crisis In 1973 OPEC imposed an embargo i.ethe decision to boycott America and West in response to support for Israel. The world again saw a oil crisis in 1979-80
Impact The 1970s oil price shocks dealt a severe blow to the world economy. Prices more than doubled in late 1973 and again in 1979. In both instances the global economy entered recession within a year.
Inflation Was Accelerating
Unit Labor Costs Were Squeezing Margins
Central banks were tightening
Effect on the EU Economy
Petro dollar Tsunami
Global Current Account BalancesBillions of U.S. Dollars
Effects of Oil receipts on OPEC countries From 2002-08, OPEC countries experienced record amount of surpluses due to the high oil prices. They used a major part of it to build their infrastructure and develop their countries as tourist destinations. These include the Palm Jumeirah, BurjKhalifa and Burj-al-Arab in Dubai, World Trade Centre in Bahrain etc.
However the recent oil price crash of 2008 due to the global economic slowdown affected the OPEC countries adversely. Property prices in these cities fell by more than 60% and new projects like the Trump towers in Dubai were canceled due to financing problems. According to Citigroup, UAE alone has cancelled 160 billion $ projects in 3 years!
Conspiracy Theory War with Iraq The invasion of Iraq had less to do with any threat from Saddam’s long-gone WMD program and certainly less to do to do with fighting International terrorism There were only two credible reasons for invading Iraq: control over oil andPreservation of the dollar as the world's reserve currency.— John Chapman, “The Real Reasons Bush Went to War,” Guardian, 2004
Iranian Oil Bourse
“This notion that the United States is getting ready to attack Iran is simplyridiculous ...Having said that, all options are on the table.” – President George W. Bush, February 2005 Military operations against Iran relate to the macroeconomics of ‘petrodollar recycling’ and the unpublicized but real challenge to U.S. dollar supremacy from the euro as an alternative oil transaction currency.
Unrest in Libya Colonel Gaddafi was planning to introduce the gold dinar, a single African currency that would serve as an alternative to the U.S. dollar to buy oil Under the guise of “protecting civilians,” the United States led NATO into Libya and is attempting to assassinate the Libyan leader. Libya happens to be the largest oil producer in Africa.
Downgrading the PIIGS economies The US rating agencies downgraded the PIIGS (Portugal, Ireland, Italy, Greece and Spain) economies. This in turn made EU and the Euro unstable and hence the supremacy of the dollar was safe yet again.
Reinvestment in Oil through Hedge Funds Daily consumption of oil = 85 million barrels Daily trade on NYMEX = 1 billion Therefore prices depend on speculation not demand and supply. OPEC countries invest huge amount of money in oil, thus creating positive sentiments towards oil and accelerating its price.
WHAT THE FUTURE LOOKS LIKE! With the Chinese and Russians striking bilateral trade agreement to trade directly in Yuan and Ruble without Using dollar (including oil) is possibly the beginning of the petrodollar collapse! THE QUESTION IS NO MORE “WILL IT”….. IT IS JUST A QUESTION OF “WHEN WILL IT”!!!
Reinventing the system(1972-81) - International Monetary Fund
Petrodollar Recycling And Global Imbalances - Saleh M. Nsouli , Director , IMF
A Petrodollar Tsunami Is Coming - Morgan Stanley
Oil shocks and the global business cycle – J.P. Morgan
Petrodollar recycling : Issues and challenges - CréditAgricole Investment bank
Invasion of Libya was About Gaddafi’s Plan to Introduce Gold Dinar- Jason Hamlin
Petrodollar Theories of the War- Peter Dale Scott ,University of California, Berkeley
Insight: Petrodollar tsunami to hit euro and dollar-Financial Times
The hidden hand of American hegemony -David E. Spiro
Recycling Petrodollars by federal reserve bank of New York
Petrodollar Warfare:Dollars, Euros and the Upcoming Iranian Oil Bourse - William Clark
Hysteria Over Iran and a New Cold War with Russia - William Clark
Crude oil price graph : Inbuss GCMI slides
Peaking of world oil production - Robert L. Hirsch, SAIC