Why the End of the Petrodollar Spells Trouble for the US Regime
The comments below are an edited and abridged synopsis of an article by Ryan McMaken
On January 17, the Saudi minister of finance Mohammed Al-Jadaan announced that the Saudi state is open to selling oil in currencies other than the US dollar.
If the Saudi regime commences trading oil for currencies other than the dollar, this would be a shift away from the dollar as the dominant currency in global oil payments, an end to the so-called petrodollar.
There have also been an increasing number of pundits announcing the collapse of the dollar or the imminent implosion of the dollar’s global power.
It’s likely that a shift away from the dollar in the global oil trade will lead to a decline in the greenback, but a number of other dominoes need to fall first, especially in Eurodollars.
The status of the petrodollar has geopolitical implications. Saudi comments signal that they no longer consider their alliance with the US to be as important as it was previously. What’s not an immediate economic problem for the US or the dollar may nonetheless be an immediate geopolitical problem.
Since the 1950s, the dollar has had immense support in terms of global trade and investment, and in terms of dollar reserves held globally. This has propped up demand for US debt and for dollars, and has had disinflationary effects in the US economy. But if global dollar dominance is in decline, expect higher domestic price inflation and higher interest rates than Americans have become used to over the past thirty years; as the dollar declines, the US will no longer be able to monetize debt and pile up new deficits without fear of inflation or falling Treasury prices. The end of the petrodollar is the latest sign that America’s power via the dollar is being reined in.
Up for discussion: What is the petrodollar; the petrodollar is a form of Eurodollar; and the geopolitics of the petrodollar.
