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Guest Post: The Coming Collapse Of The Petrodollar System

Tyler Durden's picture




 

Authored by Andrew McKillop,

PETRODOLLAR WAR

The theory of Petrodollar Warfare can be attributed to US analyst and author William R Clarke, and his 2005 book of that title which interpreted the US-UK decision to invade Iraq in 2003. He called this an "oil currency war", but the concept of the petrodollar system and petrodollar recyling dates back to the eve of the first Oil Shock in 1973-1974. The role of the petrodollar system as a driving force of US foreign policy is explained by analysts and historians as basic to maintaining the dollar's status as the world's dominant reserve currency - and the currency in which oil is priced.

The term "petrodollar warfare" as used by William R. Clark says that major international war, legal or not, was seen as justified to protect the petrodollar system. Over and above the loss of human life, the combined costs of the Afghan and Iraq wars for the US are controversial like the interpretation of these wars as "oil wars", but analysts like Joseph Stiglitz and Linda Bilmes put the total combined war cost at above $4 trillion. This can be compared with - and totally dwarfs - the annual cost of US oil imports, which are now sharply declining on a year-in year-out basis as domestic shale oil output ramps up, and US oil demand stagnates.

Clarke's theory, like the explanation of the role and power of the "petrodollar system" depends on two basic drivers. Most major developed countries rely on oil imports, which are purchased using dollars, so they are forced to hold large stockpiles of dollars in order to continue importing oil. In turn this also creates consistent demand for dollars, and prevents the dollar from losing its relative international monetary value, regardless of what happens to the US economy.

 

Variants of the Petrodollar War concept include the role of oil currency conflicts and rivalry, notably concerning US relations with Iran, Venezuela and Russia, and possibly with Europe concerning the gradual replacement of US dollars with the euro, for oil transactions. More important, the entire petromoney system and the potential for Petrodollar War hinges on global oil import demand and the oil price. Both of these have to hold up. When or if they do not, foreign oil importer nations who formerly found it beneficial to hold dollars to pay for oil, would have to find some other (unexplained) reason for huge holdings of dollars, when their oil imports decline and-or oil prices also decline.

The "currency war" variant of the petrodollar system theory, holding that a shift to notably euros or gold for oil payments would undermine the system, is unrealistic when given any serious analysis, because all world moneys are interchangeable or convertible, and gold is priced in US dollars.

 

THE THREE PHASES OF THE SYSTEM

These are easy to define.

1974-1986 The first phase. The 1972 start of "petrodollar recycling" initiated by Nixon and Kissinger  just before the fivefold rise in oil prices of 1973-74, set the process of US-Saudi Arabian cooperation for the near-exclusive benefit of these two players. The US dollar was "backstopped" by the transfer of Saudi liquidities to the US Federal Reserve system banks, especially the Federal Reserve Bank of New York.  A small number of other chosen central banks, especially the Bank of England, and the central banks of Germany, France, Italy and Japan also benefitted.

1986-1999 The second phase. This also featured US and Saudi control, but under Clinton's two mandates the focus radically changed to the controlled deflation or reduction of both oil prices and the world value of the US dollar. While the US continued to benefit from "petrodollar recycling", Saudi Arabia was the major loser, undoubtedly changing its perceptions of the system's utility to KSA.

2000-2013 The third and last phase. This period featured a major longterm rise in oil prices and the entry not in force, but progressively of the euro currency into the now enlarged "petromoney recycling" process. Euros now cover about 25% of global oil transactions, for an annual value of around €700 billion, with about the same amount of back-to-back additional lquidities. The massive growth of QE and central bank "easing", from 2008, has heavily reduced the role of "petromoney recycling".

Among the major changes of the petromoney system during these 3 phases, the first phase set the basic political concept among US deciders that "petrodollar recycling" could at one and the same time enable the US to run huge trade and budget deficits, low or very low interest rates, and prevent the collapse of the dollar's value due to the forced need of all world buyers of oil to hold US dollars to make purchases of oil. By the second phase, this underlying concept shaded to including non-oil assets as the focus of value manipulation, controlled inflation and controlled deflation of value. In the third phase, massive increases of the oil price to 2008 played a major role in enabling the continued depreciation of the dollar's world value as US sovereign debt also massively increased, but since 2008 and the start of central bank QE the need for, and role of the petrodollar system have heavily contracted.

 

THE SYSTEM IS NOW MENACED

Estimates of the exact size and role of petrodollars and petroeuros in the international money system, finance system, and economic system are varied. Many analysts however say the minimum role of the petrodollar system is to create, back-to-back, liquidities at least equivalent to the transaction value of the world oil trade, which for crude and products is about $3.4 trillion-a-year. Combined, the approximate minimum total $6.8 trillion annual value of oil trade plus the petromoney system is about 10% of world annual GNP, equivalent to about 45% of US annual GDP. This may appear as still large and important but has to be compared with, for example, the exposure of national private banks only in Europe in relation to national GDPs, which is often 300% - 400%.

Only QE can "plaster over" these liabilities.

Petromoney recycling is still treated by "the elites" as a critical prop to monetary system integrity, and explains why the USA is far from the only country depending on the system holding up. All oil producers, even smaller-sized, are beneficiaries the same way as all major developed nations' central banks, but the US is still the prime beneficiary. However, the basic supports for the system's operation - continuing high oil demand, high oil prices, and oil priced in dollars -  have all weakened or are threatened, today. In particular when global oil demand declines or stagnates, and when oil prices decline, the dollars that will no longer be needed for global purchases of oil will return in massive amounts back to their country of origin, the USA. The consequences can only be dramatic, and threaten the start of a process completely unlike the Clinton-era controlled devaluation of the dollar's value along with the decline of oil prices consented by Saudi Arabia.

The now-menaced "petrodollar system" is also weakened because of worldwide change in the perception of oil and oil energy. From the dawn of the petroleum age to its accelerating twilight, today, geopolitical strategies concocted by developed nations featured the maintenance of secured access to world oil supplies. This was believed to be a win-win strategy for developed nation policy makers, and especially for US policy makers. From the 1970s and the first Oil Shock of 1973-1974, the only "morph' in this policy and strategy was to substitute expensive oil, for cheap oil.

For the USA's ability to run deficits and the petrodollar system, much higher oil prices were a major gain, not a loss, and this is almost surely still the perception of the Obama administration today.

In its first phase and last phase, the economic and political incentives for ensuring national access to oil supplies, and the existence of the petrodollar system as a monetary and finance tool - unrelated to the economy - worked better with higher oil prices. Today however, with the major and massive changes of oil resource availability revealed by the shale energy revolution, rising global oil production capabilities, stagnating oil demand, and rising renewable energy supplies in all major developed countries, and the constantly declining role of oil in the economy, the Petrodollar System's days are surely numbered, like the notion that $100-oil prices are "normal".

The impact of this will be massive.

 

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Mon, 05/20/2013 - 22:54 | 3582880 disabledvet
disabledvet's picture

we got QE and a War Machine now. Move along...

Mon, 05/20/2013 - 23:09 | 3582907 otto skorzeny
otto skorzeny's picture

The war machine will bleed the $ machine to death.

Mon, 05/20/2013 - 23:14 | 3582915 The Thunder Child
The Thunder Child's picture

I have to give this article by Andrew McKillop a 1 out of 5 because so many details are left out and overlooked nor does it make the apprpriate connections concerning the petrodollar, Sauda Arabias/USTs as well it does not cover the SWIFT payment system, Libya's gold Dinar and the banking cartel which perpetuates this scam. If you want the best analysis on the petrodollar without BS and propaganda I would recommend these 3 articles by Jim Willie.

The Coming Isolation of USDollar

http://news.goldseek.com/GoldenJackass/1356642000.php

USDollar: Ring-Fenced & Checkmate

http://news.goldseek.com/GoldenJackass/1364846400.php

Financial Treachery & Harsh Consequences

http://news.goldseek.com/GoldenJackass/1367352000.php

Mon, 05/20/2013 - 23:15 | 3582920 HeavyShadow
HeavyShadow's picture

These were not wars. Just enhanced interrogation techniques.

Tue, 05/21/2013 - 03:02 | 3583182 TwoShortPlanks
TwoShortPlanks's picture

BRICS Currency: Gold and Debt Based Money

The executive Life Boats are now loaded with Gold, and will depart for China/Asia as soon as the going gets tough...so long Muppets, and thanks for all the Fish!

http://twoshortplanksunplugged.blogspot.com.au/

It's too long to write in here!

Tue, 05/21/2013 - 05:51 | 3583274 disabledvet
disabledvet's picture

actually no it's not too long to write here. the Spanish imperial system was always superior to the English one...so how did the English one "win out" so to speak in the end? "Blood, sweat and tears" in my opinion...and so it is with this "American (French?) thingy" currently going on in the Eastern Med and Mali. it has to be financed of course so the "easiest" way is to limit the scope and scale of the war effort itself. good luck with that. wars are inherently expansionary in a fiat world...there's always a bid in the market by their very definition thus vast speculations (most not successful i might add...although this one sure is beyond belief doing well) arise. they are not based on anything really...just the supposition that "by definition no one can turn a war machine off" and "no one will either." the economists "job" as it were then is merely to "trim the cream off the excess" (for himself of course) and that "cream" is oil, natural gas, distillates, etc that appear for all intents and purposes to have "immutable" pricing power. of course this is a highly diversified economy here in the USA..."not our first rodeo" when it comes to the World War thingy...so there is a lot of accounting involved in paying for these things...something Wall Street is VERY good at. so sure...oil companies have done a great job...amazing job actually...of creating product...but it will never show up in the stock price the way it does in a railroad stock because railroads are in fact "the war effort." God forbid if they become the means to pay for said activity. you know as in "they'll buy your gold mine, they'll buy your oil wells, they'll buy your utility" etc. all with zero debt of course. did i mention Government subsidies?

Tue, 05/21/2013 - 06:25 | 3583295 BigJim
BigJim's picture

 The "currency war" variant of the petrodollar system theory, holding that a shift to notably euros or gold for oil payments would undermine the system, is unrealistic when given any serious analysis, because all world moneys are interchangeable or convertible, and gold is priced in US dollars.

er... what? How can the author write an entire article confirming the petrodollar thesis and then write that?

Of course 'world moneys are interchangeable'... that's beside the point. They're interchangeable for dollars, which are required to buy oil (at least 75% of it, according to this article) thus propping up the value of the USD and supporting the whole petrodollar system/world 'reserve' (LOL) currency thingy.

 

Tue, 05/21/2013 - 06:49 | 3583312 disabledvet
disabledvet's picture

this is my whole purpose for "smack talking" by the way. "to generate interest within an otherwise pretty boring...but smart...article." this is how we humans actually communicate. we need to be smart...but in the end it's all about chasing tail.

Tue, 05/21/2013 - 08:55 | 3583521 jbvtme
jbvtme's picture

local currencies, local production, local control.  all else is slavery

Tue, 05/21/2013 - 13:16 | 3584524 hardcleareye
hardcleareye's picture

The question is who's tail are you chasing and have you considered the possibility it might be your own?

"Circular logic aka mental masturbation......"  lol

Tue, 05/21/2013 - 10:31 | 3583884 Weisshaupt
Weisshaupt's picture

 I don't think the author is just talking smack to generate interest. His assertion is that the lessening supply is forcing dollars home, and that a switch to gold wouldn't matter because you would still have to purchase gold with dollars in order to purchase the oil.  The Euro is being largely propped up by Dollar swaps and other such schemes so much the same argument could be made for that as well. The Collusion of central banks in the "race to the bottom" is effectively making all fiat currencies "interchangeable"  But,  I think he, like a lot of others, just refuses to understand "money" -- In  any free exchange, the commodity or service is priced in terms of what the exchange medium represents - commodities or services provided in the past. Gold for Oil and Oil for Gold is  a Barter transaction  when the gold or the Oil   cannot be directly traded for other goods.  The second you CAN use gold or Oil for a future exchange of other goods  without exchanging it for some "money"  then the commodity becomes "money" - and that changes the entire nature of the transaction. The  directly exchangeable commodity is no longer priced  in terms of dollars, but will float against other currencies just as the dollar floats now.  The concept of the Petrodollar is based on the fact that OIL is a required commodity, and  Like Salt in the ancient world, Oil would be money - and directly traded between countries - if it were more directly portable and consumable.   The Powers that Be have placed an articfical restriction that prevents oil from being used directly, and mandates the dollar be used as a proxy in those transactions.  The Euro ( mantinained in collusion with the Dollar)  probably isn't a threat to the system if it is used as the proxy instead - since the Euro is effectively now a proxy for the dollar. If Gold becomes money again, and is increasingly used as "money" in international trade, it will become impossible to mandate any fiat currency (Euro, Dollar, Yuan, etc)  be used as a proxy for the oil. Gold, unlike the oil, is portable (though not really consumable)  and therefore could be used just as easily as any Fiat coinage.   Gold also isn't "contolled" in the way a Fiat is.. There is only one source od dollars in the world. There are multiple sources of gold. . China is pulling ( and keeping) piles of it that they pulled from the ground. They certainly didn't pay "dollars" to get it. For this reason Gold is always the currency of last resort- when no one's Fiat can be trusted. 

The Author is right - as long as Gold is a commoidity priced in dollars, a switch to gold will be meaningless.  However the second that gold becomes money, freely exchangeable for other things as a currency, not as a barterable commodity, the Dollar ( and other fiats ) are done.  However, gold arising as  currency probably requires that the dollar decend - and the process could happen quickly or slowly -  but happen it will because the US Government has ensured it via QE.  The Dollar was originally backed with Gold, and the world used it and trusted it because  it was freely exchangeable for the currency of last resort. Then once the world was hooked,  FDR pulled the rug out  and Nixon finished the job after another generation.  If and when Gold gains traction as a currency,  I  fully expect China to "back" their currency with some amount of gold  - effectively making thier fiat the new "proxy" for gold,  and attempt to use that same trick, in a bid for the worlds new reserve currency. None of that will matter much to those in the United States of course, as the Dollar collapse will bring massive poverty,  social turmoil and probably a civil war. 

Tue, 05/21/2013 - 13:14 | 3584510 hardcleareye
hardcleareye's picture

Great post, but the US is not going to sit back and allow this to happen.  They will use the military force to maintain the dollars reserve currency status.  My gut tells me that before the dollar collapse occurs all hell will break lose in a major world war.  The outcome of this future conflict will determine the fate of the dollar.

Tue, 05/21/2013 - 00:23 | 3583054 JOYFUL
JOYFUL's picture

While it's true that noooobody does it like Jimbo....

Andrew McK is a whole big cut above ....Oil Dr[umb]... Strat[poor] and the usual implants from the MSM inserted here...

I say .... welcome aboard Andy!*

*besides, he's Flakey's worst warmist nightmare!

Tue, 05/21/2013 - 00:57 | 3583087 DavidPierre
DavidPierre's picture

“A bank run in gold bullion banks.  It’s a vault run.

Wealthy investors are asking for their gold, and some are finding out it’s not there. 

Back in 2011 and 2012, you had an important event every three of four months.  Now, it’s every two or three weeks.  So, the mean time between failures is rapidly declining. 

Before, they were talking about stress tests.  Now, they realize that all of them in the past were a fraud.  So, they are talking about ‘bail-ins’ because they are expecting failures

It’s all coming to a climax where gold is going to be central with a gold-trade central bank and gold priced at $7,000 per ounce.”

http://usawatchdog.com/bank-run-happening-in-bullion-jim-willie/

Tue, 05/21/2013 - 02:39 | 3583180 TwoShortPlanks
TwoShortPlanks's picture

Same article as mine above. LOL

Tue, 05/21/2013 - 05:55 | 3583277 disabledvet
disabledvet's picture

if i put my gold on a railroad car (a very secure rail car i would hope) is that gold accounted for? (i would imagine i would a: have to own the gold and b: have to pay the railroad a large sum of money to keep it "off the books" as it were.) i imagine banks can do the same thing of course. or can they? you all are the experts on this stuff...you tell me?

Tue, 05/21/2013 - 00:32 | 3583063 mr. mirbach
mr. mirbach's picture

This article is a terse yet concise summation of many years of the NWO chess game for world domination to anyone that has been keeping track of history, details are for noobs.

Tue, 05/21/2013 - 04:39 | 3583247 Urban Redneck
Urban Redneck's picture

The details determine the timeline of life-expectancy.  It's not just the petrodollar and (physical oil vs. paper oil volumes) inflating demand for USD, all commodities traded in dollars do this (which are dwarfed by paper counter parts), and the banksters then inflated this demand with the explosion of currency and interest rate derivatives. 

Tue, 05/21/2013 - 05:58 | 3583278 disabledvet
disabledvet's picture

on a roll...keep it coming. totally spot on.

Tue, 05/21/2013 - 08:37 | 3583469 auntiesocial
auntiesocial's picture

I remember when I used to think $60.000.00 annual was a benchmark. If you are making 60K, you aren't THE MAN, but you are getting by just fine. Now, if you are making 60K and the only one pulling in a check in your house, you are screwed. How did that happen. Then, it gets better. All the jobs that the job creators create--- THEY AIN'T PAYIN' NO 60K. No Sir. So let's break this down. 60K = 5K a month. Then 20% of that is for FICA, WICA, STATE, FED, BLAH BLAH BLAH. OK, now out of that whoping 4K, you have to pay rent, groceries, car payment, utilities, gas, etc, etc. OK, now how much do you have left? HMMMMMMM? and now you are telling me that the dollar is about to be devalued? If we lose our place as world reserve currency, then how much does "average joe" really make and take home? yeah, this ain't going to end well when... this guy, average joe, is not even the worst case scenario. What is going to happen? You are going to have a nation of average joe's losing their marbles and flipping out coz they can't keep their worlds glued together...

NOW DO THE DHS BULLET PURCHASES MAKE SENSE!?!?!?

Tue, 05/21/2013 - 08:39 | 3583482 hivekiller
hivekiller's picture

Not to worry. The dollar will soon be backed by agriculture. You can't eat gold. China is accumulating gold but needs food. America will get their gold by selling them food. Americans can all get jobs as peasants tilling the land of the Rockefellers et al. See, it's all working out.

Tue, 05/21/2013 - 09:23 | 3583626 LawsofPhysics
LawsofPhysics's picture

Well, this is my plan anyway, now about that fresh water, honeybees and other essential nutrients...

Tue, 05/21/2013 - 01:01 | 3583079 Lore
Lore's picture

Re: "The impact of this will be massive."

Talk about a cliffhanger!  The article seems like a preamble, stopping abruptly just as you're thinking "Yeah, we get that; NOW what?!" 

He needs to take it to the next stage by outlining the decisions that need to be made quickly by major participants. 

You can fire all the cannons and missiles you like, but at some point, YOU HAVE PRODUCE SOMETHING THAT OTHER PEOPLE WANT. Banksters seem hellbent to prove otherwise, but the fact remains that DEBT IS NOT WEALTH.  YOU CAN PRINT UNTIL YOU'RE BLUE IN THE FACE, BUT IT WILL NEVER REPLACE A REAL ECONOMY.  LET MARKETS WORK.  STOP TRYING TO PLAY GOD.

Tue, 05/21/2013 - 03:33 | 3583206 Herd Redirectio...
Herd Redirection Committee's picture

The crazy thing about manufacturing... All America still manufactures is high tech weapon systems.  And by definition, you can't really be exporting that. 

Tue, 05/21/2013 - 04:04 | 3583223 Lore
Lore's picture
Interesting documentary, helps to understand policy decisionmaking that doesn't make sense to a 'normal' No idea as to accuracy of content... It was sent to me by a third party...DYODD "Psychopaths" (38 min) http://www.youtube.com/watch?v=Gd6P1Ue2aGg&feature=player_embedded
Tue, 05/21/2013 - 06:28 | 3583298 BigJim
Tue, 05/21/2013 - 08:47 | 3583503 Jack Sheet
Jack Sheet's picture

@ Lore

very interesting video, thanks

Wed, 05/22/2013 - 15:36 | 3589139 cape_royds
cape_royds's picture

While I agree with your sentiment, to understand Empire, ask the question:

Producing what, that who wants?

The USA produces a wide and complex array of products for a sector of the global economy which we might call, "the market for Global Enforcement Services."

The USA is the world's foremost provider of Global Enforcement Services. Not only do they produce the most, they also are regarded as a reliable and credible producer of armed force for export, world-wide.

No other Enforcement Services provider can offer the quantity, quality, and variety of Enforcement Services offered by the USA. The USA has a superb track record of being able to promptly and dependably blow people up, or lay waste to towns, or blockade harbours, or kidnap and torture people, anywhere on the planet, at any time. Given just a few weeks' notice, the USA can invade and occupy any non-nuclear country.

Who else in the world can offer Enforcement Services with comparable speed and reach? Not Russia. Nor China. Nor the lesser NATO allies. The USA has no peer competitor in the Global Enforcement Services market.

So when global capitalists, from time to time, require Enforcement Services to keep their planetary wealth redistribution model running smoothly, they look to the world's foremost provider of such services: the USA.

Third World country defaulting on debt? Hire the USA to blow them up.

Minor powers trying to preserve sovereignty in the face of the globalization juggernaut? Hire the USA to sanction them, and perhaps blow them up later, if they don't have some sort of arranged "colour revolution" first.

Now non-USA elites do have some mixed feelings about these transactions. They understand that USA elites are taking advantage of the USA's near-monopoly position in Global Enforcement Services. probably think the prices are too high, and that the provider is not sufficiently sensitive to their needs. Some non-USA elites would prefer to be able shop around a bit.

But it's hard to become a Global Enforcement Services provider. The initial capital investment required is enormous. The lead time is very long. Even if the investments are made, consumers might be reluctant to take a risk on purchasing services from an unproven provider.

e.g. would European bankers want to risk hiring China to sanction, blockade, invade, occupy and torture a Middle Eastern country? First of all China would have to build a blue water navy and a proper orbital surveillance platform. Then China would have to demonstrate to the customers' satisfaction its ability and will to spend years in demolishing other countries, and to abduct and torture people around the world in support of a geopolitical goal. Aside from Tibet, China lacks that sort of credibility. Indeed, the USA itself had to spend several decades establishing its brand identity in the Global Enforcement Services marketplace.

So when you ask the question: what does the USA produce, and for whom, the answer is that the USA produces Global Enforcement Services, and the consumers are not only the imperial US elite, but imperialists around the world also purchase the USA's enforcment services. Payment is rendered in the form of the USA's "exorbitant privilege."

Things only get really interesting if there is a groundswell of interest in alternative providers, or if there is widespread nuclear proliferation which would obsolete many parts of the enforcement services package.

Shale oil? Yeah, right...

Tue, 05/21/2013 - 05:35 | 3583268 jcmiii
jcmiii's picture

Mr Willie has equal amounts of "BS and propoganda" in his perspective peppered with comments "The United States and its fascist allies" or "the events of September 2001 were the syndicate coming out party and the Patriot Act their Nazi Manifesto"

Tue, 05/21/2013 - 07:22 | 3583343 JOYFUL
JOYFUL's picture

Whoa.... dude, BS & propoganda???  Jim's indeed a peppery\spicy taco.... but what BS could you be referring to?

oh.... I gets it now... propoganda... apropos of Pogo... you be prop-0-sin that Jimbo be closin in ...

on the enemy within! http://www.youtube.com/watch?v=I06T6M6R0Cc   ....we have met the enemy... and he is....????

"BIG" Jim Willie.... talking with Greg Hunter... on a thread of Andy McKillop - "NAZI BANKERS" says JIM>

with soundtrack by RUSH!.....Phukkin A dude! ....it doesn't get any better than this!

you some kinda retard dude?

 

 

Tue, 05/21/2013 - 08:55 | 3583522 Jack Sheet
Jack Sheet's picture

A subscription to JWs newsletter for 6 months costs 110 USD and I have just renewed. It is better then any other of the "big picture" newsletters because it pulls no punches and is well argued. None of what he writes is in any way implausible. Other newsletter writers don't want to scare their subscribers off, or they fear "reprisals". His big edge are the "sources" - I have so far seen no evidence that they are implausible, either.

Tue, 05/21/2013 - 06:38 | 3583304 Jack Sheet
Jack Sheet's picture

Jim Willie's Golden Jackass website appears to be down since yesterday. Hacked?

Tue, 05/21/2013 - 08:40 | 3583484 trentusa
trentusa's picture

ZH is the only one to comment on the petrodollar system. If not for ZH i would not even know it existed. Still, for the lack of info and what was not said i give this article a 3. Tyler is getti ng soft now that ZH is so big. At least specify the usa invaded Iraq bc he refused to sell oil in us dollars. Tell the wholr story tyler dont wimp out on us.

Tue, 05/21/2013 - 09:49 | 3583698 JOYFUL
JOYFUL's picture

This is not Tyler's story... it's Andrew McKillops'. And people need to do a little diligence on who dude is. I've enjoyed his pieces on Market Oracle for the last year or so, because he brings a fresh perspective into the energy side of things that is not available from anywhere else. Anywhere.  Get it? We actually do have a good mix of people bringing the perspective which you(and others here) claim to be fatallly absent from this piece. Too much shallow static in the background here ...

The inclusion of this author in the mix here would be a major win for everybody... except 'the usual suspects'... whose modus operandi is to stifle that which threatens their primacy.

I smell a rat.. and I'm calling it out.  This guy is best in category. Somebody(or other) doesn't wish to see him here. You know where I stand on the whole middle eastern issue. Now stand and deliver naysayers.

"ZH is the only one to comment on the petrodollar system".... you need to get out more.

Welcome aboard, Andrew McKillop.

Tue, 05/21/2013 - 10:37 | 3583909 JimBowie1958
JimBowie1958's picture

The coming introduction of LENR technology in the form of Rossi's Hot-Cat is likely to make the US dollar lose a lot of its value in the global markets as it devalues petroleum itself.

http://www.forbes.com/sites/markgibbs/2013/05/20/finally-independent-testing-of-rossis-e-cat-cold-fusion-device-maybe-the-world-will-change-after-all/

http://arxiv.org/ftp/arxiv/papers/1305/1305.3913.pdf

 

 

Tue, 05/21/2013 - 15:01 | 3584988 Flakmeister
Flakmeister's picture

Read and understand the fine print.... at worst it is a scam, at best it is merely a fuel cell... The longer things go on, the more likely it is the former even it does prove to be a fuel cell...

Wed, 05/22/2013 - 16:16 | 3589258 JimBowie1958
JimBowie1958's picture

Dude, I have read it. and some other engineers I know have read it, and a few that are scientists.

The seven scientists who were involved in the test have professional careers at stake and they wont destroy those careers for Rossi.

The tests are legit as a scientist can do them or they wouldnt have released this report.

And the report uses low-ball estimates throughout, getting a COP of 6 then running the machine under slower conditions got a COP of 3. And they ran it for four days then five, which is way too long for a fuel cell to run and be hidden inside that tube.

This thing does much better than a COP of 6, and a COP of 3 is truly revolutionary.

Thu, 05/23/2013 - 09:18 | 3591688 Flakmeister
Flakmeister's picture

It ain;t what it is advertised to be.... The fact that a former con artists is involved should be a tell.., That is all...

Thu, 05/30/2013 - 12:36 | 3610737 JimBowie1958
JimBowie1958's picture

Rossi is not a con artist, and has no criminal record. The charges against him were concocted by corrupt officials who were trying to shake Rossi down.

He was sent to prison but later acquitted of ALL charges.

Dont buy the bullshit that TPTB are selling. They want to monopolize this before the public is even aware of it.

Tue, 05/21/2013 - 13:47 | 3584659 LauraB
LauraB's picture

The End of Dollar Hegemony by Ron Paul (2006): http://www.lewrockwell.com/paul/paul303.html

Tue, 05/21/2013 - 02:37 | 3583178 angel_of_joy
angel_of_joy's picture

we got QE and a War Machine now. Move along...

 

Both are way overrated.

No dice.

Tue, 05/21/2013 - 06:03 | 3583281 disabledvet
disabledvet's picture

"they are not a benefit" i agree. in fact i would argue they are a detriment...but in order to do this we must define a benefit first. for example "palliative care." by definition this is a LEGAL and Governmental enterprise then yes? "shall we talk entitlements as well"? these simple words can have POWERFUL meanings.

Tue, 05/21/2013 - 10:19 | 3583825 Parabox
Parabox's picture

It's the Iron Patriot now.  still fitting...

Mon, 05/20/2013 - 22:57 | 3582883 Xrated
Xrated's picture

Saddam Hussien and Kadaffi both wanted to go  to the gold only standard for oil, look what they got.

It's only a matter of time with the idiot Obama running this country.

Mon, 05/20/2013 - 23:21 | 3582933 otto skorzeny
otto skorzeny's picture

Obama is just a cog in the machine.

Mon, 05/20/2013 - 23:25 | 3582941 AldousHuxley
AldousHuxley's picture

Obama running the country?

CEO running the company?

Kings running the kingdom?

 

The advisers do. Top guys are figure heads to calm the masses.

 

Tue, 05/21/2013 - 01:43 | 3583138 prains
prains's picture

Obama is just a cog in the machine.

 

not even, he's a mustard installer on the hot dog of life

Tue, 05/21/2013 - 01:12 | 3583107 RebelDevil
RebelDevil's picture

Will the Petrodollar system simply die if the rest of the world simply priced oil in terms of gold?

I think so.

Tue, 05/21/2013 - 13:04 | 3584481 hardcleareye
hardcleareye's picture

Hmmm, if you priced oil in gold what would happen?

The oil importers would have to balance the oil they purchased with the goods they sold (which would have to be priced in gold).  If that didn't happen then the importers gold would be quickly depleted..... and gold would be amassed by the oil exporters, the oil exporters would have to purchase goods from other countries in lines with the amount of gold they acquired in selling the oil or they would end up holding most of the worlds gold....

A little food for thought.... until 1973 a bushel of corn sold for the same price as a barrel of oil.. 

That the petro dollar system will die is not in doubt, but replacing the "same system" with gold will also fail...  unless you address the trade imbalances.......

Tue, 05/21/2013 - 15:02 | 3584994 Flakmeister
Flakmeister's picture

Yep.... and by trade it boils down to the flow of food stuffs which in turn is closely tied to the flow of oil..

Mon, 05/20/2013 - 22:57 | 3582885 DIgnified
DIgnified's picture

As long as the US can manipulate through media, it can perpetuate the false narratives needed to conduct a campaign of endless warfare, to keep possible wayward nations on the $usd.  Ala Libya, Iraq, Afghanistan etc...

Mon, 05/20/2013 - 23:16 | 3582924 noless
noless's picture

The proxy states between the real powers listen to american media?

Mon, 05/20/2013 - 23:34 | 3582967 The Thunder Child
The Thunder Child's picture

Their media is failing, people are turning over to alternative media in droves.

Tue, 05/21/2013 - 03:37 | 3583210 Herd Redirectio...
Herd Redirection Committee's picture

What I realize is, all the talented people are on our side.  The real investigators, the real thinkers, are all working for the good guys.    Sure, the banksters have some talented guys too, but once you know their playbook its not all that special.  They recycle SO many plays!  (Divide and Conquer is a favorite)

Tue, 05/21/2013 - 15:01 | 3584992 Chaos_Theory
Chaos_Theory's picture

Oh please...are you forgeting the sheer brilliance of the White House Press Corps?  I mean on a daily basis they are practicing hard-hitting investigative journalism every time they ask Jay Carneyvale a question, he answers and they "report" it. 

Then the next day they ask a question some other media source developed that proves Jay Carneyvale just gave them BS, and he tells them "no, what I said was correct...you misquoted me."  They then report that hard-hitting fact.

(do I need a sarc/off here????)

 

Tue, 05/21/2013 - 12:49 | 3584450 hardcleareye
hardcleareye's picture

Good luck with that.... media  is owned by a handful of corporations—Viacom, General Electric, Rupert Murdoch’s News Corp., Clear Channel and Disney.

Most of those corporation have control of internet acess, should a large portion of the "people" turn to alternative media it will be stopped.

Furthermore, our eduction system has basically stunted the minds of most young people such that they do not possess the skills necessary to critically reason and comprehend what is occurring.

ZH is a "fringe" site with (for the most part) highly literate people, people with these skill sets and interest are very much a minority in our society.

While we will be aware of what is happening and why, it will not make a difference, the die is cast.

"God, grant me the serenity to accept the things I cannot change,
The courage to change the things I can,
And wisdom to know the difference."

Tue, 05/21/2013 - 15:05 | 3585008 Flakmeister
Flakmeister's picture

No, it was once as you say, now there is a large minority that are simply conspiratorial ideators, i.e. whackadoos with no ability to discern utter bullshit from any form of reality...

Consider Greshams Law applied to posts....

Mon, 05/20/2013 - 23:16 | 3582923 DaveyJones
DaveyJones's picture

"Today however, with the major and massive changes of oil resource availability revealed by the shale energy revolution, rising global oil production capabilities, stagnating oil demand, and rising renewable energy supplies in all major developed countries, and the constantly declining role of oil in the economy, the Petrodollar System's days are surely numbered, like the notion that $100-oil prices are "normal".

really? but you said this in 2010:

"Oil prices of US$ 90 a barrel are now both rational and sustainable, but in a context of currency war and competitive devaluation, this price level is almost surely going to be surpassed, in a generalised process I call Petro Keynesian Growth which will lever up all commodity prices."

Mon, 05/20/2013 - 23:25 | 3582926 otto skorzeny
otto skorzeny's picture

The US is pulling its usual bully-boy methods to get Turkey and the UAE to stop their banks and private gold brokers from  shipping gold to Iran for oil-contract settlement starting on July 1. I have a feeling that it won't be very effective and we know how this will end.

Mon, 05/20/2013 - 23:19 | 3582932 buyingsterling
buyingsterling's picture

didn't you get the memo? There's no more cheap oil, it's all icky and sandy and shaley, and no one wants oil unless the ORI is low, and we're going to be bicycling everywhere, and the end is near. At least that's what I've been reading on this site for about 5 years now. We hit 'peak oil' a long time ago, so any notion of decreasing demand, substitutes etc. is just fantasy, and the whole thing has been unravelling for years. Any closed system will invariably collapse even if it's impossible to ever get anywhere near its carrying capacity (all the stress factors are geometric, even when they're falling (like population in energy intensive countries)).

Just being snarky, not trying to pick a fight with the peaksters. When will we hit peak silver? A long time ago?

Mon, 05/20/2013 - 23:23 | 3582939 otto skorzeny
otto skorzeny's picture

There may not be peak oil-but peak "cheap to extract" oil.

Tue, 05/21/2013 - 00:59 | 3583089 WAMO556
WAMO556's picture

Multi million or billion dollar gas-oil platforms (GOPLATS) doing offshore drilling in DEEPWATER. These monster goplats haven't even found oil and they are in the RED.

Spot on!

Chris Martenson has some very good points in regards to PEAK OIL and input/output costs.

Tue, 05/21/2013 - 01:06 | 3583099 Lore
Lore's picture

The thesis is valid. The timing is HIGHLY SUSPECT.

Tue, 05/21/2013 - 09:26 | 3583632 LawsofPhysics
LawsofPhysics's picture

Not a question of timing so much as the 7+ billion (and growing) number of souls competing for a better quality of life.  Plenty of demand.  Throw in the petrochemical derivatives of oil that help maintain that statndard of living and you have an exponentially increasing problem.

Tue, 05/21/2013 - 21:05 | 3586206 Lore
Lore's picture

Examine where the Seven Sisters have drilled and produced, but more importantly, where they haven't. 

You've just been given the key. 

"Exponentially increasing problem" = Malthusian Agenda 21 bullcrap. 

Tue, 05/21/2013 - 01:15 | 3583114 gorillaonyourback
gorillaonyourback's picture

Thats the point of peak oil ................

There comes a time where the energy excerted to get the oil out of ground is more than the energy u get out of the ground. Peak oil defined

EROI=0

There is oil down there but it is worthless.

This guy who wrote the article has a pathetic understanding of the oil industry

Mon, 05/20/2013 - 23:44 | 3582990 the Absurd
the Absurd's picture

Decreasing demand is due to demand destruction.

If gasoline fell to $1.20/gallon or wages rose to make $5.00/gallon the equivalent, people would drive more, for instance.

Tue, 05/21/2013 - 01:20 | 3583120 RockyRacoon
RockyRacoon's picture

A large part of that driving was to WORK.  Since there are no jobs, your thesis falls apart.

Tue, 05/21/2013 - 01:35 | 3583129 the Absurd
the Absurd's picture

So, people who don't have jobs still drive to work?

Or what are you saying?

Demand has been destroyed, yet prices remain high.

Tue, 05/21/2013 - 12:34 | 3584412 hardcleareye
hardcleareye's picture

RR, Deman destruction is still on going and the fact that we have high unemployment contributes to that, or have I miss understood?

Mon, 05/20/2013 - 23:26 | 3582940 worbsid
worbsid's picture

I believe the author does not really understand that the shale revolution is a very expensive method to get oil out of the ground.  Further, the amount of oil used is not a leasurely decrease in demand because of other products like wind and solar are making great strides of cheaper energy but all fuels are damned expensive and so people are cutting back, big time. 

Tue, 05/21/2013 - 00:42 | 3583070 mr. mirbach
mr. mirbach's picture

Keep in mind that shale and sands are domestic and the production cost is way lower when you subrtact the cost of the Army, Marines, Air Force, Navy, Coast Gaurd and all of their toys and kinetic actions to secure the safe extraction and transportation of the crude into the US.

Tue, 05/21/2013 - 00:59 | 3583086 otto skorzeny
otto skorzeny's picture

Shale and sands need a massive input of energy to extract the oil- much more than simply drilling from a land surface rig. Not to mention the incredible enviromental destruction.

Tue, 05/21/2013 - 06:15 | 3583288 disabledvet
disabledvet's picture

first off this is a wonderful thread...one of many these days. second "the war effort exists to support the financial system." (not a very friendly...but much SMALLER financial system now apparently.) third "indeed it is expensive and that's exactly how we want it." once Tesla rock stars the world with it's all electric car the USA will...FOR THE MOST PART...be done with oil. but that does not mean that it is done with PRODUCING oil. the goal is to produce EXPENSIVE OIL that the rest of the world will buy (IMHO). and indeed..."there are many inputs into the light sweet SHALE crude oil" and one of them is "potential environmental damage for said activity." never said i had a problem environmental factors as part of price either. "that pays for things too." (beautiful creeks and rivers for example) of course nothing is being paid for right now but MONETIZED so....

Tue, 05/21/2013 - 08:24 | 3583414 TrumpXVI
TrumpXVI's picture

Shale oil is also plagued with very rapid per well depletion rates.  More and more holes have to be punched into the ground to maintain production (expensive).  The term for it is, "The Red Queen Syndrome"; the need to run faster and faster just to stay in place.

I think Kunstler is correct, the North Dakota shale oil boom is a phenomenon with about a ten to fifteen year life expectancy.

It is important to keep things in perspective.  The shale oil situation needs to be compared with what we are use to.  Giant, highly productive, very low cost fields like Ghawar in Saudi Arabia (brought on stream in 1949) and Abqaq.  Fields that yielded daily production in the MILLIONS of barrels per day at a cost of pennies per barrel.  Versus shale oil production that is a tiny fraction of that, almost stripper well capacity after the first couple of years.

The shale oil boom/boon is a delusion.

Tue, 05/21/2013 - 11:00 | 3584017 DaveyJones
DaveyJones's picture

that's what we export - delusion   or is that an import?

 

Mon, 05/20/2013 - 23:33 | 3582965 cloudybrain
cloudybrain's picture

next will be petroyuan

Mon, 05/20/2013 - 23:50 | 3582999 joego1
joego1's picture

I think it's more a function of the U.S. being able to whoop ass than anything else. Just hold the world for ransom.

Tue, 05/21/2013 - 00:15 | 3583040 otto skorzeny
otto skorzeny's picture

If that's the case then the Roman Empire should still be running things.

Tue, 05/21/2013 - 00:55 | 3583084 the Absurd
the Absurd's picture

Romans didn't have these.

In any case, no civilization can survive forever. But, the globalized world cannot exist like this without cheap energy. At best, nations will kind of just go back to their own little corners of the world. At worst, the Minuteman Missiles will do what they were designed to do.

See the first comment by GungHo1032 for an indication of which scenario I think is more likely.

Tue, 05/21/2013 - 02:04 | 3583161 TheMerryPrankster
TheMerryPrankster's picture

explosion or implosion? the tax assesor just devalued my house by 50k year over year. and this is a recovery? Another 2 years of this and my house will be worth what i bought it for 25 years ago.

2 more forced foreclosures this month on my street. the poor bastard nextdoor is underwater 35k, not counting capital improvements like the new hvac and wooden frences, new roof and deck.

the recovery is mythic and as tangible as bernankes' goodwill.

Tue, 05/21/2013 - 03:19 | 3583198 lesamourai
lesamourai's picture

Agreed.  The Petrodollar is what it is because it is backed by the full faith and credit of the US Military (-Industrial-Congressional-Complex).

Tue, 05/21/2013 - 10:55 | 3583998 InTheLandOfTheBlind
InTheLandOfTheBlind's picture

don't forget the house of saud

Tue, 05/21/2013 - 11:04 | 3584034 DaveyJones
DaveyJones's picture

honor amongst thieves. can't last much longer

Tue, 05/21/2013 - 00:19 | 3583048 U4 eee aaa
U4 eee aaa's picture

That reminds me of an old joke:

You see someone sneaking around in your back yard. How can you tell that it's a US soldier?

You left a can of motor oil out there

Tue, 05/21/2013 - 01:51 | 3583149 Harbanger
Harbanger's picture

Some jokes don't translate well.  It's probably funnier in your native language.

Tue, 05/21/2013 - 09:46 | 3583691 moonman
moonman's picture

And that language probably sounds like a blender full of marbles.

Tue, 05/21/2013 - 00:39 | 3583066 Unpopular Truth
Unpopular Truth's picture

petro-bitcoins anybody?

Tue, 05/21/2013 - 06:19 | 3583291 disabledvet
disabledvet's picture

that would be interesting actually. another interesting concept is "what does bitcoin 2.0 look like" as the current one does indeed have a shelf life..."an end to its existence" as all paper or fiat regimes do as well.

Tue, 05/21/2013 - 00:52 | 3583078 Tic tock
Tic tock's picture

"... the dollars that will no longer be needed for global purchases of oil will return in massive amounts back to their country of origin," - the rub, there's no way to recycle these dollars out to the rest-of-the-world, and the concomitant manipulation makes things messy. 

Tue, 05/21/2013 - 00:58 | 3583088 gorillaonyourback
gorillaonyourback's picture

Total lack of understanding of the oil industry, pathetic not even worth my time to educate this author.

Tue, 05/21/2013 - 00:59 | 3583090 dunce
dunce's picture

The petro dollar was never more than a conspiracy theory. The facts changed so another theory must be put forward and the laws of economics must be denied.

Tue, 05/21/2013 - 11:06 | 3584050 DaveyJones
DaveyJones's picture

you're right, two nations have never colluded to control an important resource

Tue, 05/21/2013 - 01:06 | 3583096 WAMO556
Tue, 05/21/2013 - 01:38 | 3583131 q99x2
q99x2's picture

Right on. And, when the end of the petro dollar reaches a certain point elites will hire people against other elites. It will be the main reason for Obama and Holder's  ousting.

The arming of DHS against the population of the US is misplaced. The status quo has the most to fear from others of their own kind.

Tue, 05/21/2013 - 03:45 | 3583216 Herd Redirectio...
Herd Redirection Committee's picture

Look at the security for their upcoming Bilderberg meeting, at 'The Grove' in Milton Keynes, London.

They are violent sociopaths, so of course what they fear most is violent retribution.  Personally, I'd like to see them in court.  Preferably in front of a jury.

Tue, 05/21/2013 - 01:41 | 3583137 Flakmeister
Flakmeister's picture

Well written but none the less it is cornucopian claptrap...

Why has world production of crude oil stagnated since 2005? And unless you are prepared to discuss the BTU content of  NGLs and API > 45 condensates from the Eagle Ford that is passed off as oil, you really should just stay on the sidelines...

As for the shale "revolution", remind me of what the world crude oil production from shale plays outside of the Bakken and EFS is...   

Tue, 05/21/2013 - 12:27 | 3584388 hardcleareye
hardcleareye's picture

I thought it was a interesting read, and concur with your insight. 

However, even in the "peak oil" scenario there may be excess petro dollars/reserve currency, in a very volatile system.  How is all that "excess" reserved currency going to be mopped up?  Reminds me of the chart on Hussman site showing the monetary base and interest rates....  Hussman hints (in other writings) that  one possibility is that the central banks (euro is now part of the "petro dollar") will lose control of interest rates.

http://www.hussmanfunds.com/wmc/wmc130520.htm

Anybody got "good" links/reads for "better minds" that have reasoned this scenario out?

Tue, 05/21/2013 - 12:53 | 3584463 Flakmeister
Flakmeister's picture

I don;t think *anyone* knows the path that the endgame will take.. For example, what happens when foriegn holds in US denominated debt spins off more new dollars than is required to purchase all oil for sale denominated in US dollars, i.e. net oil exports?  Clearly this is a limiting scenario unlikely to be realized as the system will crack before then, (I estimate that the limit will be reached in 2030)...

Tue, 05/21/2013 - 02:44 | 3583183 devo
devo's picture

A lot of talk, but still no collapses.

Tue, 05/21/2013 - 03:47 | 3583215 q99x2
q99x2's picture

Gravity causes things to rise; the sun darkens the sky and 

behold another CNBC headline with the facts to slap you in the face for visiting..

Gold, Silver Fall as Dollar Gains; ETF Holdings Drop

Gold 1389.80 +5.70 .0.41%

Tue, 05/21/2013 - 04:55 | 3583254 chaartist
chaartist's picture

Hong Kong Mercantile Exchange to Close Monday, Gold and Silver Paper Contracts will have Cash Settlements

http://news.goldseek.com/GoldSeek/1369077753.php

Tue, 05/21/2013 - 06:19 | 3583292 forrestdweller
forrestdweller's picture

it all reads like an advertisement. you want to know the truth behind the petrodollar. buy the fucking book!

somebody trying to make money, nothing more.

Tue, 05/21/2013 - 10:54 | 3583990 InTheLandOfTheBlind
InTheLandOfTheBlind's picture

could not even get past the first sentence with out questioning their sources and information

Tue, 05/21/2013 - 06:53 | 3583317 Gumbum
Gumbum's picture

Oh wauw. Even Zerohedge seem to have fallen for the shale oil propaganda.

In the big picture, shale will be nothing more then a tiny fart.

The petrodollar is about to come to an end, but it's NOT because of domestic production.

Tue, 05/21/2013 - 09:21 | 3583620 RallyRoundTheFamily
RallyRoundTheFamily's picture

It's a guest article, not ZH's official stance.

Tue, 05/21/2013 - 07:50 | 3583385 jimijon
jimijon's picture

The E-Cat dollar bitchez!

http://pesn.com/2013/05/20/9602320_VINDICATION--3rd-Party-E-Cat_Test-Res...

LENR-CANR-SOLAR-GRAPHENE-???  

After the collapse... a renaissance.

 

 

Tue, 05/21/2013 - 09:58 | 3583724 MFLTucson
MFLTucson's picture

 

Nice to know that we have sacrificed American lives to line the pockets of American Jewish bankers who have manipulated the Oil markets for the past 40 years.  Time to take their kids out of Ivy League schools and hand them guns to defend the actions of their greedy fathers in the deserts of Saudi Arabia or Iran.  They can also defend their homeland because this entire BS about how close a friend Israel is, I see nothing but a one Way Street to dollars paid to them and nothing in return. Let their kid’s die just like all the (underprivlideged) American kids who buy in this fight in Arab countries for the war on terror when it is a war to preserve the Petrodollar, the terror came after we invaded and killed so many innocent people and hung Hussein and butchered Kaddafi.  They are not our business; we don’t belong in any of these countries.  Drill in the US and this would be over but, no, Obama Millhouse  knows better than all of the American people.  Ron Paul is right!

 

Tue, 05/21/2013 - 10:53 | 3583985 InTheLandOfTheBlind
InTheLandOfTheBlind's picture

The theory of Petrodollar Warfare can be attributed to US analyst and author William R Clarke, and his 2005 book of that title which interpreted the US-UK decision to invade Iraq in 2003  -

 

what bullshit... there were many before Clarke that developed this concept.  Sherman Skolnick is one of the first to come to mind.  i find it hard to finish the first paragraph, let alone the article, when it starts out with such stupidity.

Tue, 05/21/2013 - 11:12 | 3584073 DaveyJones
DaveyJones's picture

exactly, It came with the very concept of the petrodollar itself. People were writing about this in the seventies - Ibrahim Oweiss. It has been pretty obvious to anyone paying attention.

Wed, 05/22/2013 - 03:12 | 3586825 yt75
yt75's picture

The last paragraph shows that the author doesn’t understand much, even if previous ones kind of make sense.

Also strange to have the beginning at 74

When the actuel beginning (and basic reason for the first oil shock) is the US production peak in 1970.
This “doubled” by dropping of Bretton Woods in 1971.

 

About the first oil shock check James Akins (US ambassador in Saudi Arabia at the time) interviews below in part 2 of "la face cachée du pétrole" (unfortunately dubbed) :

http://iiscn.wordpress.com/2011/05/06/bataille-et-lenergie/

Do NOT follow this link or you will be banned from the site!