How long will the petrodollar remain a thing with the current diversification of energy sources proceeding apace internationally?

Listening to Americans talk about energy and vehicles feels like going back in time, they’re stuck in the past and things that worked then and the world is rapidly routing around them. Quite sad to see.

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tim333 12 hours ago | parent | next [-]

The petrodollar thing always seemed overhyped by people who don't understand economics that well. It was just a term for the dollars received by oil producing countries like Saudi Arabia.

People used dollars rather than yen or pounds because it the US was the largest and a rather free and stable economy. That still mostly applies.

The argument in the linked article:

>Since the 1970s, global oil transactions have been priced and conducted almost exclusively in U.S. dollars. That arrangement has given America an unparalleled advantage, effectively creating an economic blackmail chip.

I think is bunk. A country pricing in Euros would make no difference apart from traders needing to check the dollar euro rate.

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ethbr1 6 hours ago | parent | next [-]

> A country pricing in Euros would make no difference apart from traders needing to check the dollar euro rate.

You can't clear nation-scale oil purchases by looking at the exchange rate, which is predicated on there being sufficient liquidity at that price for the transaction you're looking to make.

The petrodollar is both a demand and supply solution, and you're looking at this in micro rather than international macro terms.

The demand explanation is simplest -- the largest producers of a limited-source, universally-required commodity demand that purchases be made in US dollars.

As a result, all countries need access to dollars in order to make those purchases at scale.

Enter the supply side, where dollars both aren't and kinda-are physical. They aren't, in that international transactions are obviously executed with digital balances. They are, in that arbitrary countries can't just "create" dollars as needed: they must get those dollars from someone who has them.

Ultimately... the US Federal Reserve, who is empowered to create new dollars.

Putting all of this together, you have an aggregate demand for dollars of {US federal budget, similar to other countries' monetary demand} plus {international float for transacting dollar-denominated commodities}.

It's that second piece that people are really referring to when they say things like 'the petrodollar allows the US to run deficits that would negatively impact other countries' currencies'.

Because as Doctor Strangelove quipped, it is not only necessary but essential for this system's smooth functioning that the US produces large enough numbers of excess dollars to meet international demand.

The fly in the ointment, so to speak, has been the 00s+, initially War on Terror, now War on Et Al., US weaponization of the dollar against countries doing things it doesn't like.

Hence Russia/China's dream of breaking the petrodollar.

	▲	tim333 4 hours ago \| parent [-]
		I'm skeptical. One piece of evidence - around 2020 the US went from being an oil importer to an oil exporter and people hardly noticed. I also think if Saudi asked to be paid in Euros rather than USD it wouldn't make much difference. People just change currencies into what they need. They are just tokens to facilitate the trade of goods and services like oil for Ferraris in Euro or oil for Boeings in USD. The forex markets are huge.

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xquce 8 hours ago | parent | prev [-]

Abit glib to call it hyped when the US has started multiple wars to protect the petrodollar. Trying to do business any other way puts targets on whole countries, much less the speaker and their family. Many attempts were made in the middle east and Africa to make that change, and those people and governments were wiped out.

While the argument can be made for it's economic effect and power today vs 20 years ago, I don't think it was overhyped then.

	▲	tim333 8 hours ago \| parent [-]
		I'm a Brit and we've done business other ways for centuries without issues. At least not issues due to using pounds rather than dollars. Who got wiped out?

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dofm a day ago | parent | prev [-]

Trump just threatened to bomb Oman.

Oman!

It’s not possible to make any predictions about the petrodollar in this context.

We know what should happen. But it is like trying to predict earthquakes.