After World War 2, the US emerged as the dominant economic power due to its large gold reserves. In 1944, the Bretton Woods agreement established the US dollar as the currency to trade gold, backed by the US gold reserves. This created strong global demand for the US dollar. However, by 1971 rising US debt and spending on the Vietnam War depleted US gold reserves. In response, President Nixon ended dollar convertibility to gold, disrupting the global monetary system. To maintain demand for the dollar, the US negotiated an agreement where OPEC would sell oil using only the US dollar, establishing the "petrodollar" system and securing the dollar's status as the world's reserve currency.

1. Rise of US
economy
after WW-II
Gold for
Dollars
Peripeteia :
Falling USD
Oil for
Dollars
At the end of world war-II, USA emerges as a leader of global
economy
Reason: USA was having 80% of world gold reserves at that
time, Gold was supposedly the most stable trading
commodity.
Earlier superpower Britain had become debt-ridden and war
torn by the end of WW-II.

2. Rise of US
economy
after WW-II
Gold for
Dollars
Peripeteia :
Falling USD
Oil for
Dollars
In 1944, At United Nations Monetary & Financial Conference
(Bretton woods Conference)- US dollar was accepted unanimously
as a means to trade against Gold.
WHY: Two Reasons:
1) US Dollar was the most stable currency at that time,
because of high gold reserves of USA.
2) USA offered fixed trading rate for Gold: 35 $ per ounce
of gold, Many countries became overwhelmed by this
kind of financially stable opportunity.

3. Rise of US
economy
after WW-II
Gold for
Dollars
Peripeteia :
Falling USD
Oil for
Dollars
American
Consumers
Federal
Government
US Federal
Reserves
“Gold for US Dollars” accepted, and USA
successfully created a strong demand for its
currency in global markets.

4. Sudden rise of demand for USD resulted into
Inflated asset prices in ecomonies worldwide.
By 1971, weights of ‘Gold for USD’ system upon
US economy became unbearable.
Nations were demanding more and more US
Dollars to trade against Gold. This led to
shortage of US dollar liquidity in Global
economy.
Rise of US
economy
after WW-II
Gold for
Dollars
Peripeteia :
Falling USD
Oil for
Dollars

5. Rise of US
economy
after WW-II
Gold for
Dollars
Peripeteia :
Falling USD
Oil for
Dollars
Way to
survive
for USA
Raise
Taxes
Cut
Spending
Print
more
Dollars
Borrow
more
money
US government had only 4 ways to
tackle with this issue.. But they did
something which shocked the world.

6. By 1971, US economy was
suffering from High trade
deficits and High spending on
Vietnam war.
Which resulted into improper
balance in US Gold Reserves
to Debt Levels.
USA had Large debts, they
finally got caught in their own
trap.
They fell short of their own
currency to pay off their
debts.
Things got reversed, other
nations started trading
Rise of US
economy
after WW-II
Gold for
Dollars
Peripeteia :
Falling USD
Oil for
Dollars

7. On Aug 15,1971 US President Nixon changed
the game completely.
They announced the end of ‘USD
convertibility for Gold’ making US Dollar and
other global currencies almost- Floating
Currencies.
Rest of world currency dependence on USD
started decreasing.
Now, USA wanted to increase the demand
for USD by some another means.
They Introduced “ Oil for Dollars”
Rise of US
economy
after WW-II
Gold for
Dollars
Peripeteia :
Falling USD
Oil for
Dollars

8. US offered a two criterion deal to saudi
arab:
1) Sell your Oil in exchange of only one
currency US dollars.
2) Surplus Oil reserves should be
invested back into US debt
securities.
In exchange, USA offered them
‘Guaranteed Protection against their
neighbour enemy- ISRAEL’.
So, USA finalised ‘Oil for Dollar’ deal in
exchange for weapons.
OPEC countries accepted this lucrative
offer.

9. Benefits of Petrodollar System
Global Demand for Dollar
• Artificial Demand for
dollars created
• By providing incentives to
countries that conduct oil
trade to dollars
• Demand for dollars
increas-Permission slip
to print in Dollars
Global Demand for US
Debt Securities
• Recycle Petrodollar by
encouraging investment
of profits made from oil
sales in US Debt
securities
• Money comes back-
Dream come true for a
country like US that has
huge expenses.
• Distorts the true demand
for Debt securities-
Hence an artificially low
interest rate maintained
that will vanish once the
petrodollar system
collapses
Buy Oil in Domestic
Currency
• USA ‘s consumption of Oil
is greater than it’s
doemestic supply
• Hence US buys oil from
other countries using
dollars that it can print at
will.
• Cause an increase in
demand for dollars and
Debt securities by Oil
buying countries.

10. Consequences of the petrodollar
collapse
Petrodollar
Collapses :
USA loses
ability to print
dollars
Supply of
Dollar greater
than the
demand
All dollars
across the
globe rushes
back to US
from foreign
nations
Hyperinflation
in USA;
Subsequent
increase in
interest rates.
Oil related
prices sky
rocket in USA
Massive
reduction in
supply of
dollars
attempted by
USA.
Massive
reduction in
value of assets.
Massive layoffs
in businesses.
A recovering
economy
which will be
much smaller
due to
drastically
reduced
money supply

11. US in Afganistan: Why?
Aim declared by the United States: “liberate”
Afghanistan from the terrorist network, Al
Qaeda, headed by Osama Bin Laden
Name of the Operation: Operation Enduring
Freedom

12. The Bush Years
• The Bush administration swore up and down that Iraq had
weapons of mass destruction and that Saddam Hussein was
intimately connected to the attacks of 9/11 and to Al Qaeda
itself.
Reality:
 15 of the 19 alleged 9/11 hijackers were citizens of Saudi
Arabia, not Afghanistan or Iraq.
 Iraq had no WMDs and, despite massive intelligence efforts,
no connection could be found between Iraq and Osama Bin
Laden.

13. Al Qaeda: Just Another CIA Creation
Operation Cyclone

14. Extent to which USA can go for Oil
Security
• Iraq War: Leveraging on the world trade
center attack USA Created false attack to
Conquer Iraq for its Oil Reserves.
• Afgan War: With motives to establish peace
USA Spends $2 billion per week, but the
ulterior motives here are to establish control
over the Country’s Oil Reserves.

15. Timeline Of the War
April 1995- The U.S.
State Department,
the CIA, and the
National Security
Council formed a
working group to
study U.S. oil and
gas interests in the
Caspian Sea region.
October 1995-Turkmenistan’s
president, Saparmurad Niyazov,
signed an agreement with
Unocal and the Saudi Arabian
Delta OilCompany.Development
of the Trans-Afghanistan
pipeline
Pakistani offi cials claimed
the Bush administration
informed them fi ve weeks
before 9/11 that they would
begin military operations in
Afghanistan against the
Taliban in October of that
same year.

16. Critical Analysis:
• 1. the dominance of petrodollar penetrates all the economies.
• 2. Petrodollar seems the primary force driving the oil trade accross
the world
• 2. One single country with it's brilliant economic move of
petrodollar has not let countries like EuroZone and Opec dominate
the oil sector.
• 3. Opec Countries who have a monopoly in supply of Oil across
globe also are a big drivers of Petrodollar System. It could be
possible for them to create their own currency system of oil trading
but they haven't.
• 4.Euro Currency is still not in demand as much as the dollar despite
entire europe trading in it.