Energy & Resources Ryan Krueger Security, Trade and the Economy

An Analysis of the US Petrodollar

Have you ever wondered how the U.S. economy remains afloat despite the country’s more than $17 trillion in debt?

Experts maintain America has not defaulted on its debts owing to extreme external demand that exists for the US dollar. This in large part due to the existence of the Petrodollar. Accompany the Petrodollar with a dose of geopolitics and you have a recipe for global aggression.

In today’s political landscape there are a variety of prominent players entangled in a struggle to achieve global superiority, mainly America, Russia and China. It is also worth mentioning the close geopolitical ties Iran, Syria and Iraq share with Russia and China. Ethics have rarely been considered by nations in their pursuit of this supremacy.

The United States to date has successfully managed its power struggle with its rivals by keeping them dependent on the US dollar. This dependency was manufactured through the implementation of the Petrodollar in 1973. The Nixon administration negotiated the Petrodollar Recycling System, which bound Saudi Arabia to selling their oil in USD. The U.S. – Saudi Joint Agreement required the Saudis to invest their excess oil profits into U.S. banks and capital markets. This allowed the IMF to lend Saudi profits to oil importers who had difficulty financing the increase in oil prices. The loans charge interest in US dollars. This has given a considerable amount of control to the United States over all OPEC members since 1975.

In the years following 1975, all major military attacks and/or economic sanctions imposed by the United States or indirectly by proxy can be attributed to external conditions that threatened the continued existence of the Petrodollar and its control system.

Listed below are examples of events that represent external threats to the American Petrodollar. Each nation has been involved in a military attack and/or economic sanction perpetrated by the United States as a result of the listed nation’s negative attitude toward the US Petrodollar:

  1. Iraq – Saddam Hussein announced Iraq would defect from the sale of oil in $U.S.
  2. Iran – The Iranian regime sought to establish its own independent oil exchange and defect from the sale of oil in $US
  3. Libya – Muammar Gaddafi proposed a unified state with a single African currency
  4. Syria – Assad agreed to create a pipeline with Iraq and Iran to bypass Saudi Arabia and Turkey
  5. Russia – Opened their own energy exchange with sales denominated in Rubles and gold
  6. China – Seeks to pull out of the US dollar in all trade with Russia. The two countries have proposed the development of a Eurasia security pact

The de-dollarization agendas of many of America’s largest adversaries pose a substantial destabilizing threat to the U.S. economy, and in turn global financial markets. If global demand for the US dollar is weakened as a result of trade in oil in alternative denominations, the American economy could experience rampant inflation, greatly damaging the purchasing power of the US dollar. As long as the dollar is utilized within petroleum transactions, stability will ensue and the United States will remain a hegemonic entity. However, the unwillingness of America’s adversaries to submit to the Petrodollar power scheme is becoming less and less manageable.

A sustainable exchange model must be devised and implemented in effort to achieve harmony within the energy markets. Nation states must consider common global economic well-being in order to achieve individual growth targets. International cooperation is essential in this era of market integration and seamlessness. Ryan Krueger

Ryan Krueger
Ryan Krueger is a junior research fellow for the International Business and Economy section. He graduated from Wilfrid Laurier University in 2010 with a Honours Bachelor of Arts in Political Science. While completed his degree he focused strongly on International Law, the United States Government, International Political Economy, Defence, Security & Foreign Policy Issues, Contemporary Security Issues, Global Political Military Issues, and Terrorism, War & Global Violence. After graduating he travelled all over Europe and Asia and also lived in Australia for 2 years. He currently works for the Government of Canada in Vancouver.