Recently, I talked about the petrodollar in my weekly OAN segment.
I explained to the host, Alicia Summers, that this is the biggest story that the media is ignoring…
The U.S. dollar is under attack.
And that means a huge danger to the U.S. economy, impacting you and your future.
Here are the key questions:
- Will Saudi Arabia keep trading in petrodollars?
- If they don’t, what will happen?
- Will it spur a major economic depression?
- Cause hyperinflation?
- Destroy America’s standing as the world’s economic powerhouse?
Let me explain the petrodollar before we get into the possible economic ramifications.
The term “petrodollar” refers to the U.S. dollars oil-exporting countries use to price and trade their oil. This system has been a global finance and trade cornerstone since the mid-20th century.
The concept of the petrodollar emerged in the early 1970s following the collapse of the Bretton Woods system, which had pegged the U.S. dollar to gold.
In 1971, President Richard Nixon wrongly and dangerously ended the dollar’s convertibility into gold, leading to the adoption of a fiat currency system.
In 1973, amidst the OPEC oil embargo, the United States and Saudi Arabia reached an agreement that would shape global economics for decades.
Saudi Arabia, the world’s largest oil producer at the time, agreed to price its oil exclusively in U.S. dollars. In return, the U.S. provided the Kingdom with military protection and economic incentives. Over time, this arrangement extended to other OPEC countries, effectively cementing the U.S. dollar as the standard currency for global oil transactions.
Currently, there is a deal in place with the Saudis. In exchange for our military support and protection from Iran, the Saudis will continue to use the petrodollar.
Since the money goes to the U.S. Treasury, this helps our economy and helps us finance our deficit.
The petrodollar’s impact on oil prices…
The petrodollar system has significant implications for oil prices. Since oil is priced in dollars, fluctuations in the U.S. dollar’s value directly affect oil prices.
A stronger dollar generally leads to lower oil prices, making oil more expensive in other currencies and reducing demand. Conversely, a weaker dollar tends to push oil prices higher, as it becomes cheaper for countries using other currencies to buy oil.
Additionally, the petrodollar system creates a high demand for U.S. dollars, as countries need to hold substantial reserves to purchase oil. This demand stabilizes the dollar and, by extension, influences global oil prices.
What does this mean to investors investing in oil and gas?
The petrodollar ensures a steady demand for U.S. dollars, which supports the financial health of U.S. oil companies and, by extension, their stocks and bonds.
What would be the potential impact on the American economy if countries abandon the petrodollar?
A shift from the petrodollar system poses significant risks to the American economy.
If the Saudis decide to end their deal with the United States to trade with petrodollars, demanding payment for oil in their own currency, it could have devastating effects on our economy, especially if they join BRICS.
The BRICS alliance (Brazil, Russia, India, China, and South Africa) is growing and gaining other member countries, forming a strong coalition to counter the petrodollar.
China and India are already converting their domestic currency into Saudi currency (riyals), leaving America out in the cold.
If other major oil-producing countries begin pricing oil in other currencies, several key impacts could ensue, including:
- Decreased Demand for U.S. Dollars: Moving away from the petrodollar would reduce the global demand for U.S. dollars. This could lead to a dollar depreciation, making imports more expensive and potentially leading to inflation.
- Higher Borrowing Costs and interest rates: The reduced demand for dollars would likely lead to higher interest rates as the U.S. government and businesses would face increased borrowing costs. This could slow economic growth and increase the national debt burden.
- Financial Market Volatility: The stability provided by the petrodollar system to financial markets would be disrupted. Investors might seek safer assets, leading to increased volatility in stock and bond markets.
- Geopolitical Shifts: The strategic geopolitical influence that the U.S. wields through its control of the petrodollar could diminish. Other currencies, such as the euro or the Chinese yuan, might rise in prominence, leading to a shift in global economic power.
The petrodollar system has been a pillar of the global economic order for decades, deeply influencing oil prices, investments, and the American economy.
A shift from this system would weaken America’s geopolitical and economic dominance and spark an economic recession or even a depression—especially with our already shaky economy thanks to Biden’s disastrous economic policies, which have caused record-high inflation, high interest rates, a weaker dollar, and ballooned our national debt to over $35 trillion.
Currently, only 40% of the world’s trade is in US dollars… and it’s shrinking.
The end of the petrodollar would be the end of America as the world’s economic and military superpower.
What do you think? Leave a comment in the comment section below or email me at [email protected]
Action Steps:
1) Pray for our country.
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