The idea that the US dollar’s power comes entirely from oil aka the “petrodollar” is one of the most persistent myths in geopolitics and this video from macroeconomist Joeri Schasfoort of breaks down why that’s wrong, and why the dollar isn’t going to collapse just because some oil is traded in other currencies.
# **1: “Dollar only” condition does not exist**
Many people believe a 1974 deal forced Saudi Arabia to sell oil *only* in dollars to save the US economy, but declassified documents show that wasn’t actually the case. The US was mostly worried about **oil price stability** after the 70s energy crisis and getting the Saudis to invest their extra cash back into US banks. There was no “dollars only” rule, that’s why the Saudis actually kept taking British pounds for a long time after the deal.
# **2: The math does not math**
1: The global oil market is about $3 trillion a year. That sounds huge, but the global currency market trades nearly **$10 trillion every single day.** Oil is a tiny drop in the bucket compared to total global trade.
2: The US used to be the world’s biggest oil buyer, but now it’s a net **exporter**. The old logic of “recycling” oil money to pay for imports doesn’t apply anymore.
3: People worry that if oil states sell their US debt, the US will go broke. In reality, countries like Japan and the UK own way more US debt than Saudi Arabia does.
The world uses the dollar because US financial markets are the deepest and safest places to put money, not because of a 50-year-old agreement about oil. Even if every oil country stopped using the dollar tomorrow, it wouldn’t kill the dollar’s status as the global reserve currency, because finance and manufacturing are simply much bigger drivers of demand than energy is.
Easy_Welcome_9142 on
Anyone have any thoughts on where the myth of the petro dollar originated?
Annoying1978 on
It’s not a myth. It has become less effective in the past because of organizations like BRICS and other countries willing to defy the United States order to trade in oil.
3 Comments
## **Submission Statement:**
The idea that the US dollar’s power comes entirely from oil aka the “petrodollar” is one of the most persistent myths in geopolitics and this video from macroeconomist Joeri Schasfoort of breaks down why that’s wrong, and why the dollar isn’t going to collapse just because some oil is traded in other currencies.
# **1: “Dollar only” condition does not exist**
Many people believe a 1974 deal forced Saudi Arabia to sell oil *only* in dollars to save the US economy, but declassified documents show that wasn’t actually the case. The US was mostly worried about **oil price stability** after the 70s energy crisis and getting the Saudis to invest their extra cash back into US banks. There was no “dollars only” rule, that’s why the Saudis actually kept taking British pounds for a long time after the deal.
# **2: The math does not math**
1: The global oil market is about $3 trillion a year. That sounds huge, but the global currency market trades nearly **$10 trillion every single day.** Oil is a tiny drop in the bucket compared to total global trade.
2: The US used to be the world’s biggest oil buyer, but now it’s a net **exporter**. The old logic of “recycling” oil money to pay for imports doesn’t apply anymore.
3: People worry that if oil states sell their US debt, the US will go broke. In reality, countries like Japan and the UK own way more US debt than Saudi Arabia does.
The world uses the dollar because US financial markets are the deepest and safest places to put money, not because of a 50-year-old agreement about oil. Even if every oil country stopped using the dollar tomorrow, it wouldn’t kill the dollar’s status as the global reserve currency, because finance and manufacturing are simply much bigger drivers of demand than energy is.
Anyone have any thoughts on where the myth of the petro dollar originated?
It’s not a myth. It has become less effective in the past because of organizations like BRICS and other countries willing to defy the United States order to trade in oil.
How the Dollar is Weaponized
https://youtu.be/vML2g0DBiYo