the year 1973, Secretary of State Henry Kissinger secured a deal with Saudi Arabia to exclusively sell oil globally in dollars, boosting demand for the weakening currency. This strategic move allowed the U.S. to sustain trade deficits, as countries exchanged dollars for oil.
In 1973, the petrodollar system was created through a deal between the US and Saudi Arabia. The countries agreed to price and trade oil in US dollars. With oil standardized in terms of dollars, any country that purchased oil from Saudi Arabia would have to use dollars
Petrodollars are crude oil export revenues denominated in U.S. dollars. The term gained currency in the mid-1970s when soaring oil prices generated large trade and current account surpluses for oil exporting countries.
One of the earliest forms of petrodollar recycling was a deal between the US and Saudi Arabia that allowed the oil-producing country to invest their petrodollars in US treasuries. Many oil-producing countries have established sovereign wealth funds that are in charge of recycling their petrodollars.
During the 1973 Arab-Israeli War, Arab members of the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo against the United States in retaliation for the U.S. decision to re-supply the Israeli military and to gain leverage in the post-war peace negotiations.
The 1973 crisis resulted from cuts in domestic oil production, whereas the 1979 crisis was the result of the Yom Kippur War. The 1973 crisis was more severe than the crisis of 1979. Both crises led to reduced regulations to expand domestic oil production.
Middle East & North Africa. When Saudi Finance Minister Mohammed al-Jadaan announced in January 2023 that Saudi Arabia is open to using currencies other than the U.S. dollar in oil contracts, he probably did not expect his comment to attract so much media attention. He should not have been surprised that it did.
This system dates back to the early 1970s after the collapse of the Bretton Woods gold standard. This period saw the rise of the petrodollar system, which promoted the U.S. dollar’s rise as the world’s reserve currency. Oil producers and purchasers use this system to trade in the commodity in U.S. dollars.
The U.S. dollar is still king today, despite recent challenges. In addition to accounting for the majority of global reserves, the dollar remains the currency of choice for international trade. The US Dollar enjoys the prestigious status of being the world’s primary reserve currency. Central banks worldwide hold significant reserves in dollars, providing a solid foundation for global transactions.
There are three primary reasons the U.S. dollar continues to be the reserve currency of choice globally. One is that the U.S. is a traditionally strong sovereign nation, backed by robust, persistent economic growth. Another is the democratic nature of the U.S. government and its institutions
The top five destination countries of U.S. total petroleum exports by export volume and percentage share of U.S. total petroleum exports in 2023 were: Mexico—1.17 million b/d—11% China—0.98 million b/d—10% The Netherlands—0.86 million b/d—9%
The BRICS nations, originally comprised of Brazil, Russia, India, China and South Africa, are looking to establish a new reserve currency backed by a basket of their respective currencies.