- What is Petrodollar: Crude oil transactions using USD as its single currency | means USD for oil trade.
- Agreement: Between Saudi Arabia and USA | struck in 1974 | 8th June.
- US Prez Richard Nixon | Secretary of State Henry Kissinger | the Saudi royal family.
- Saudi Arabia: to use USD exclusively for its crude oil trade with other countries/entities.
- Saudi Arabia: to invest the surplus oil revenue that that it got in U.S. Treasury bonds.
- In return: Saudi Arabia got US support, protection and military support.
- & US would get a stable oil supplier | post the 1973 oil crisis.
- The gateway to US geopolitical dominance: oil be sold in USD | means USD slowly began the world’s reserve currency.
- Why: the global demand | every country now needed USD to buy crude oil | directly helped the American economy.
- Global demand | means USD emerging as a strong currency | means cheap imports from other countries | means expensive export by other countries from the US.
- The agreement expired: on June 9, 2024.
Can it Disrupt the Global Financial Order?
- Emergence of news power order | along with US.
- India, China, Russia | means changing geopolitical dynamics | with emerging economies.
- Rising pollution | means focus on EV, renewables, natural gas and other non-polluting energy sources | and not on crude oil and other fossil fuels any more.
- That goes along with new oil producers on the market | Canada, Brazil, Guyana | challenges OPEC and Middle East oil dominance.
- The Petrodollar exit | direct impact on the US economy possible | global fintech dominance may get affected | as US dollar could get weakened.
- No Petrodollar for oil trade | means demand for USD globally coming down | could result in higher inflation and interest rates in the US.