Petrodollar Mercantilism Explained In One Chart

Tyler Durden's picture

Over the past several months, with the price of crude plummeting to half where it was compared to a year ago, we have written much about the monetary reality of the Petrodollar (and more importantly, its recent disappearance), the socioeconomic implications for oil/commodity exporters, the liquidity considerations for the those who create the "recycled" currency in question, and the resultant demand for assets created by public and private entities sold by the currency creator, in the process boosting the "value" of both the commodity, the demand for the currency (usually the world's reserve at any given moment), and the assets of the currency host.

We have explained this cycle and more importantly, what happens when this cycle goes into reverse, in "How The Petrodollar Quietly Died, And Nobody Noticed" and "The Death Of The Petrodollar Was Finally Noticed" (not to mention "Russia Just Pulled Itself Out Of The Petrodollar").

Still, the underlying concept of how Petrodollar recycling, or as some call it, petrocurrency mercantilism works, leaves some confusion. So in order to alleviate that, here courtesy of Cult State, is a quick and simple primer that should hopefully answer all questions.

From CultState:

So what is petrocurrency mercantilism?

It’s when a national bank and an energy producer collude to generate artificial demand for a currency at the expense of the purchasing power of other currencies.

 

The flowchart below shows how it all works.

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Cognitive Dissonance's picture

Where is the barrel of the gun, aka the US Military, in that chart?

TeamDepends's picture

'Cause Fed is dead
If you wanna be a junkie why?

CrazyCooter's picture

I bet the apex of global oil production is approximately now. All those oil companies are going to hit the brakes on capital spending with all these low prices and after that works through the system for a few years they will never be able to get production back up to today levels given the natural decline rate of conventional fields.

That probably isn't good for the petro dollar either, but on a different timeline too I suppose.

Regards,

Cooter

sunaJ's picture

@CD

 

You (and Mrs. Cog) can check out any time of night but you can never leave.

 

But still call it a "free market" or you are a terrorist.

 

StupidEarthlings's picture

Check out any time of night?..  

Hmm.. I guess..if thats the time you' like'

sunaJ's picture

Well, if you are trying to escape, yes, but I get your point.

 

disabledvet's picture

The US military is much smaller now.

 

We can barely field a battalion in Ukraine right now.

 

"Anything new will cost an extra...ten,  nay...one hundred BILLION of those dollar thingy's you call money."

sunaJ's picture

Don't forget that malinvestment (ie. hyperinflated credit) has been extended to the industry, which is a compounding magnifier of bubble collapse.  When credit comes due to infrastructure malinvestment, well, nobody will be there to run the companies, they will just part-out the assets and walk away.  Though, I think those giant dump trucks that they built are as big as houses, so maybe you can make an affordable residence of one on a fire sale.

 

TeamDepends's picture

We're all built up with progress
But sometimes I must confess
We can deal with rockets and dreams
But reality
What does it mean?
Ain't nothing said
'Cause Freddy's dead

Ness.'s picture

+100 for the Curtis.  

Harbanger's picture

We've lost the moral high ground because we've turned from God and our founding principles.  Modern mercenaries do not fight from love and therefore will never win the bigger battle.  As bad as things may look, there is still much faith, hope and love left in this country and we will be restored after the fall.

Squid-puppets a-go-go's picture

appreciated, but how do we turn back to God when the churches are brimming with kiddy fiddlers?

Cognitive Dissonance's picture

Don't ask, don't tell. Worked for centuries untill someone told. /sarc

Ness.'s picture

Faith, hope and love don't come from a dude speechin' in a church about a book.  I have all three and I haven't stepped foot inside a church in decades.  To each his own.  Peace.

 

TeamDepends's picture

You may be attending the wrong congregation. You never have to "go to church". You NEVER walk alone. GOD is ALWAYS with you....

Harbanger's picture

True that Brother. The Lord promised us the Holy Spirit.  And when it moves and guides you, nothing, nothing can stop you.

JuliaS's picture

That's the black circular thing dead center. You're staring right down it.

MontgomeryScott's picture

'REALITY' is something best left to conceptualists (I.E., 'educated idiots') who still think that borrowing money to pay debts is a 'good thing'.

For everyone else, there's 'MasterCharge' (the 'Interbank Card'). Accepted in over 170 nations. Don't leave 'home' without it. What's in YOUR wallet? Earn 'skymiles' by using it. Sign up NOW for your exclusive 'Rewards Program' points!

p00k1e's picture

Do you mean the local police?  

q99x2's picture

Make mine bitcion thankyou. Last Price $283.57

mass1q's picture

The BRICS have their own currency exchange, the petroldollar scam is over but the EU institutions still want the TTIP instead of looking at Russia as their primary business partner... Pure suicide

Money_for_Nothing's picture

Russia has been dangerous for more than 200 years. Every country wants them at arms length.

Harbanger's picture

Russia only describes a physical place. Why don't you discuss the human ideology that has infested the modern west?

Squid-puppets a-go-go's picture

Russias estern border has not appreciably expanded in 200 years. Russias western border has extended and contracted somewhat - sometimes of their own agression and sometimes in response to the aggression of western or ottoman powers. But have russian troops ever swept through paris? Rome?  No

Expansionary? somewhat. Megalomaniacal? No evidence to support this. 

Compared to the imperialistic and increasingly erratic and belligerent USA? Positively benign. Who are you?  a leftover from the hoover administration?

Redneck Hippy's picture

Even Russians are afraid of Russia.  USA is also very scary.

JuliaS's picture

Is that the House Of Saud top of the chart? The font's too small, I can't tell.

If you have trouble seeing, here's an enhanced version:

http://s13.postimg.org/f4u7aqudz/oil.jpg

Proofreder's picture

Certainly could be the Royal Bank.  IIRC, there was and perhaps still is an agreement whereby the Royal House of Saud receives gold bullion coins for however many barrels of oil.  Saw it on TheOildrum, I believe, but the site is no longer there.  Good things never last forever.

The Saudi Monetary Agency (SAMA) took over Saudi central banking in the mid-50's from the Netherlands Trading Society Saudi Hollandi Bank.

The kingdom is the 3rd highest holder of foreign-exchange reserves, as measured in US Fiat - about 732 Billion presently. # 17 in gold reserves with 323 or so tons. 

Curiosity prompted research - 

The US is responsible for most of the 20th Century coinage in the Kingdom by first loaning (lend-lease) KSA 9.3 million ounces of silver and then arranging with Aramco and the Philadelphia Mint in the 1947 - 61 era for gold coins for oil revenues, packed in kegs and flown to Jeddah monthly.  These were 32gram sovereign gold coins issued on behalf of Aramco for the Saudi government, which also ordered millions of Arabic-inscribed silver riyals to increase local trade in the Kingdom.  American Gold and Silver are tied at the hip to a bunch of camel humpers wearing sheets and head towels.

WTF  words fail me.

Yen Cross's picture

 I'm on Linux right now.

  Let's go back to the Johnson & Nixon administrations. ( Gerald Ford was never qualified to make the decisions that set current precedent in fiscal policy)

  JFK assassinated just before Nixon get's inpeached?

 Every leadership makes changes abruptly? They call it transitory.

pachanguero's picture

Bit-con = taxed to death.....

p00k1e's picture

She be a seesaw'in, fellas. 

Yen Cross's picture

  People , unless they're .gov have "zero access" to any sort of dispute. Explaine that?

combatsnoopy's picture

I'm looking for the connection between ENI and the ECB liquidity.  

I'm also wondering where Japan's liquidity ends.    China and Japan don't have petrodollars (or control thereof) to finance liquidity, right? 

 

 

Stay Frosty's picture

Change the lower title from "The Energy Producers" to Higher Education, Automobile Industry, Big PHARMA, Military Industrial Complex...and my mind begins to dissolve.

Proofreder's picture

What bullshit !

ALL of these are Energy Users, not producers ...

Logic fail - 

MontgomeryScott's picture

Meanwhile, in 'Eastern Ukraine', the shelling continues despite the 'ceasefire'. CONUS fracking rigs are moved in, expecting to be utilized right after Poroshenko and Nuland declare that it is 'safe to surf'.

It's been over a year and a half, now, since the Russians 'invaded' Ukraine.You'd think that the 'communist threat to world peace' would have gotten their shit together by NOW, for God sakes!

(Come to think of it, it's been 34 years since Iran was 'weeks away' from getting a 'nuclear weapon', Bibi...)

https://www.youtube.com/watch?v=a4sk-WJAr4I

 

 

luckylogger's picture

like it or not boys and girls...

Petrodollar is king and will be for our lifetimes unless Obummer fuks up everything.

Which hopefully he does not have the time to do it....

Russia and China want to be rulers of the seas but have so far to go that it is just not possible for them to take over...

Just the facts guys....

You can shit in one hand and hope in the other and tell me which one fills up faster..

:)

MontgomeryScott's picture

Yo, Meshuginah,

My grandma is a Kike, as well!

A pot watched never boils, and all that shit!

(I appreciate your 'emoticon' 'smiley facey-thingie'), Bibi.

luckylogger's picture

please explain...........

Above my IQ........