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How The Petrodollar Quietly Died, And Nobody Noticed


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Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company – the end of the system that according to many has framed and facilitated the US Dollar’s reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop.

The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance themselves from the US-led, “developed world” status quo spearheaded by the IMF, global trade would increasingly take place through bilateral arrangements which bypass the (Petro)dollar entirely. And sure enough, this has certainly been taking place, as first Russia and China, together with Iran, and ever more developing nations, have transacted among each other, bypassing the USD entirely, instead engaging in bilateral trade arrangements, leading to, among other thing, such discussions as, in today’s FT, why China’s Renminbi offshore market has gone from nothing to billions in a short space of time.

And yet, few would have believed that the Petrodollar did indeed quietly die, although ironically, without much input from either Russia or China, and paradoxically, mostly as a result of the actions of none other than the Fed itself, with its strong dollar policy, and to a lesser extent Saudi Arabia too, which by glutting the world with crude, first intended to crush Putin, and subsequently, to take out the US crude cost-curve, may have Plaxico’ed both itself, and its closest Petrodollar trading partner, the US of A.

As Reuters reports, for the first time in almost two decades, energy-exporting countries are set to pull their “petrodollars” out of world markets this year, citing a study by BNP Paribas (more details below). Basically, the Petrodollar, long serving as the US leverage to encourage and facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove itself into irrelevance.

A consequence of this year’s dramatic drop in oil prices, the shift is likely to cause global market liquidity to fall, the study showed.

This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling.

But no more: “this year the oil producers will effectively import capital amounting to $7.6 billion. By comparison, they exported $60 billion in 2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations.”

Read more here.





  1. BRICS (backed by gold) is a direct threat to the USD fiat dollar that is only backed by debt, threats of war, and oil. But not our oil…Middle East oil. The race by America to be the leading producer of oil is a race (against) WWIII. However, the timing is too late and war is inevitable. Some experts say that we will see WWIII by 2020, but at the rate the world is going, I’d say by 2018.

    When a country prepares for war, the internal problems need to be rectified…and in the U.S. the internal problems far exceed the capabilities of a country that wants an all out war with Russia, knowing that China will side with Russia, the only hope is for a “David versus Goliath” outcome.

    That’s a big ambition for the U.S. that has an armed population ready for a revolution to get (this) government back on track. Then of course…a military that is tired of losing every war since Vietnam, the push to get illegal immigration moving forward by this administration and the next one, Republican or Democrat, doesn’t matter….THEY need these (now) 17 year old illegal aliens for the next “Draft” which will give them automatic citizenship. Radio ads along the southwest border are now pimping the U.S. military for illegal aliens to join….promising them free college and citizenship.

    Placing military “boots on the ground” around the world will be the necessary strategy for the next couple years, even if that means sending 5,000 troops to West Africa for a convenient pandemic disease. I would venture to say, troops are already planning operations in the Arctic region to match Russian positioning of radar and defense missile sites.

    The Russians are NOT fooling around and are aggressively preparing for war. Putin sees a weak and awkward president that has purged over 200 top military men and parades around as if he is a “world leader,” and dangerously maneuvering for a possible “first strike” (by the U.S.) at any time.

  2. Actually what we need to do is to start purging the traitors like Obama (did you forget that overheard comment to Putin that Obama would arrange everything after this last election? Or that he took all our enemies through our “secret” military places on tours, etc?). Remember that all those who did not stop this who was serving in the other two branches at any time Obama (actually Bush 1 – Obama) are tarnished with the same brush, except they are PERSONALLY responsible for their actions .. well, NON actions to stop it.

    We need to clean up within each state and get its (US) constitutionally REQUIRED Militia going. Start arrests, prosecutions, etc we are seen as weak by other nations because they believe we have been stupefied down to the level of “dumb for a sheep, let alone a human”.

    WHILE we are at this we need to get alternative currencies going, barter, etc. We need to kick out all corporations who did not keep their allegiance to the USA while using Americas natural resources for foreign lands, might not be traitors , but darn close if not.

    We do not need to go to war, we NEED TO DEFEND THE USA and her people from all that threaten her be it diseases, or armed contractors, or domestic enemies representatives and judges, LE’s who are just gang members in uniform (not all, just the bad ones that would have never made the grade in say — the 960’s, 70’s 80’s.

    Start charging and prosecuting for 9/11, Fast and Furious, Benghazi, etc (lots more). We will not be viewed as strong until we take our nation back, KEEP our US Constitution as is required.

  3. Sorry again

    We do not need to go to war, we NEED TO DEFEND THE USA and her people from all that threaten her be it diseases, or armed contractors, or domestic enemies representatives and judges, LE’s who are just gang members in uniform (not all, just the bad ones that would have never made the grade in say — the 960’s, 70’s 80’s. WE need to DEFEND our nation from all foreign nations and NO MORE FOREIGN entanglements.

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