Grant Williams: The Death Of The Petrodollar, And What Comes After

Tyler Durden's picture

In December, Grant Williams, author of "Things That Make You Go Hmm..." offered the most comprehensive analysis yet of the rise and inevitable fall of the petrodollar (and implicitly US hegemony). In the following presentation, from Mines & Money Conference in London in December 2016, Williams focuses on gold's performance in 2016, the reaction to Donald Trump's election and joins a series of dots that may lead to the end of the petrodollar system and a new place for gold in the global monetary system.

Grab a glass fo wine - turn off Trump's twitter feed for 30 minutes and enjoy. Here is the full presentation - "Get It. Got It. Good"

This presentation follows on from his "Nobody Cares" analysis.

*  *  *

The story begins in the 1970s when Henry Kissinger and Richard Nixon struck a deal with the House of Saud — a deal which gave birth to the petrodollar system.

The terms were simple The Saudis agreed to ONLY accept U.S. Dollars in return for their oil and that they would reinvest their surplus dollars into U.S. treasuries.

In return, the U.S. would provide arms and a security guarantee to the Saudis who, it has to be said, were living in a pretty rough neighbourhood. As you can see, things went swimmingly (chart below)

Saudi purchases of treasuries grew along with the oil price and everyone was happy.  (We’ll come back to that blue box on the right shortly)

The inverse correlation between the dollar and crude is just about as perfect as one could expect (until recently that is... but again, we’ll be back to that).

And, as you can see here, beginning when Nixon slammed the gold window shut on French fingers and picking up speed once the petrodollar system was ensconced, foreign buyers of U.S. debt grew  exponentially.

Having the world’s most vital commodity exclusively priced in U.S. dollars meant everybody needed to hold large dollar reserves to pay for it and that meant a yuuuge bid for treasuries. It’s good to be the king.

By 2015, as the chart on the next page shows quite clearly, there were treasuries to the value of around 6 years of total global oil supply in the hands of foreigners (if we assume a constant 97 million bpd supply which I think is a pretty reasonable estimate).

Now... with that brief background on the petrodollar system, here’s where I need you to stick with me. I promise you it’ll be worth the mental effort

Ready? Here we go.

Now, back in 2010, then-World Bank President Robert Zoellick caused something of a commotion when he suggested that an entirely new global monetary system maybe wasn’t such a bad idea.

The system he had in mind involved a freely-convertible Yuan and, controversially was constructed around gold as its central reference point:

(Robert Zoellick, November 8, 2010): …the G20 should complement this growth recovery programme with a plan to build a co-operative monetary system that reflects emerging economic conditions. This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account.


The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old  money, markets are using gold as an alternative monetary asset today.

In seemingly unrelated news, two years later, Iran began accepting Yuan in payment for its oil amid US sanctions. The transactions were conducted through Russian banks:

(Financial Times, May 2012): Iran is accepting renminbi for some of the crude oil it supplies to China…


…Tehran is spending the currency, which is not freely convertible, on goods and services imported from China…


The trade is worth as much as $20bn-$30bn annually according to industry estimates…


The renminbi purchases began some months ago…much of the money is transferred to Tehran through Russian banks, which take large commissions on the transactions…


Beijing has been trying to get its trading partners to use the renminbi, in effect transferring the exchange rate risk to its counterparties, since the price of crude is set in US dollars. It also frees Beijing of the need to hold as many dollars in its reserves.

The crucial part of this deal was that, by diversifying their purchases in this way, the Chinese had found a path towards not only needing to hold fewer U.S. dollar reserves, but to circumventing the petrodollar system altogether.

By 2013, the penny had clearly dropped at the PBoC who declared an end to the era of their accumulation of U.S. treasuries:

(Bloomberg, November 2013): The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation.


“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range

Yes, it was, apparently “no longer in China’s interest” to accumulate foreign exchange reserves.

Sure enough, in 2014, global FX reserves began to decline at the fastest rate in 80 years as you can see from this chart:

That same year, another piece of the puzzle was laid in place when Xu Luode, the Chairman of the newly-founded Shanghai Gold Exchange, explained that gold would be priced and sold in Yuan as a step towards what he called the “internationalization of the renminbi” (for those of you confused by Yuan and Renminbi, just think of them as the Chinese equivalent of ‘Pound’ and ‘Sterling’):

(Xu Luode, Speech to LBMA, May 2014): Foreign investors can directly use offshore yuan to trade gold on the SGE international board, which is promoting the internationalization of the renminbi…


Shanghai Gold will change the current gold market “consumption in the East priced in the West” situation.


When China will have a right to speak in the international gold market, pricing will get revealed…


Interestingly, Luode acknowledged what he accurately described as the “consumption in the East, priced in the West” situation and assured the world that the ‘real’ price of gold would become apparent once China took its rightful place at the centre of the gold market.

We can but hope he is correct. When that day comes, the change on the world's gold markets will be unprecedented.

In 2015, another announcement slipped by the world when it was revealed that Russia’s Gazprom would also begin selling oil to the Chinese in exchange for yuan and that they were negotiating further agreements to use rubles and yuan to settle natural gas trading directly, without the need for dollars:

(Moscow Times, June 2015): “Two state energy companies, gas producer Gazprom and its oil arm Gazprom Neft, said they would use more Chinese currency in trade, while Russia’s largest bank, Sberbank, has also promoted the use of the yuan…


Gazprom Neft announced that it began settling shipments of oil to China in yuan. And previously, the head of Gazprom, Alexey Miller, said in a TV interview that the company was negotiating with China to use yuan and rubles for gas deliveries via a planned pipeline in Western Siberia.

OK... hands up if you’re still with me... great!

Oh... you’re reading this so I can’t see you but hopefully you’re following the dots...

For those of you who aren’t, here’s a little recap of where we are so far to help you get things into the right order before we push on to the end:

Get it? Got it? Good.

So... here we are, in 2016 and, as it turned out, April was a hell of a month if you were paying attention.

Firstly, the Saudis threatened to sell almost a trillion dollars of U.S. assets—including over $300 billion of treasury bonds—should a bill be passed by the congress allowing the Saudis to be held responsible for the 9/11 attacks:

NY Times, April 16, 2016): Saudi Arabia has told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars’ worth of American assets held by the kingdom if Congress passes a bill that would allow the Saudi government to be held responsible in American courts for any role in the 9/11 attacks.


Adel al-Jubeir, the Saudi foreign minister, delivered the kingdom’s message personally last month during a trip to Washington, telling lawmakers that Saudi would be forced to sell up to $750B in treasury  securities & other assets in the US before they could be in danger of being frozen by American courts.

In a rare show of bipartisanship, the bill was subsequently passed before being vetoed by President Obama who then had to watch in ignominy as he suffered the first veto override of his presidency.

Just days later, the Saudis were the cause of a seemingly surprise failure by OPEC to agree a production cut as the oil price languished in the low-$30s:

(Wall Street Journal, April 17, 2016): DOHA, Qatar—Oil producers that supply almost half the world’s crude failed Sunday to negotiate a production freeze intended to strengthen prices.


The talks collapsed after Saudi Arabia surprised the group by reasserting a demand that Iran also agree to cap its oil production.


Oil prices had rallied in recent weeks on speculation that Saudi Arabia might successfully lead an initiative between members of the Organization of the Petroleum Exporting Countries and Russia, which joined the talks. 


A deal would have marked a new level of cooperation between non-OPEC countries and OPEC members that producers hoped would keep prices above January lows of $26 a barrel.

Just 48 hours after that surprise, the Chinese finally launched their twice daily gold fixing, setting the price at 256.92 yuan per gram:

(Bloomberg, April 19, 2016): China, the world’s biggest producer and consumer of gold, started a twice-daily price fixing on Tuesday in an attempt to establish a regional benchmark and bolster its influence in the global market.


The Shanghai Gold Exchange set the price at 256.92 yuan a gram ($1,233.85 an ounce) at the 10:30 a.m. session after members of the exchange submitted buy and sell orders for metal of 99.99 percent purity.


“This is a very important development and will obviously be very


closely watched,” said Robin Bhar, an analyst at Societe Generale SA in London. “But as long as it exists inside a closed monetary system it will have limited global repercussions. It could be a very important development if the new benchmark is a precursor to greater use of gold in the Chinese monetary system, Kenneth Hoffman…said by e-mail on Monday. It may also boost interest in the Shanghai free-trade zone, he said.

As Soc Gen’s Robin Bhar correctly identified, if the ability to trade gold for yuan exists within a closed monetary system, its importance will be limited BUT, as Bloomberg’s Ken Hoffman also correctly pointed out, if this was the thin end of the wedge, things could get very interesting indeed. Now, this chart shows the oil price going back to before the U.S. Civil War:

Between 1865 and 1973, the price of oil was incredibly stable against a backdrop of perhaps the greatest simultaneous economic, demographic and technological expansion in human history.

How was that possible?

Well simply put, because oil was effectively priced in gold.


Once the gold window closed and the petrodollar system was implemented, the price of oil soared 50-fold in just 35 years.

The move on the right? With the question mark against it? We’re getting there, I promise.

Now, you remember this next chart and the yuuuuuge supply of treasuries which exists compared to oil now? Well, when we add in the roughly $100 trillion in boomer entitlements that will need to be paid for by issuing—you guessed it, more treasuries—the chart changes somewhat:

That red circle down at the bottom of the second chart is the spike you see on the first chart.


It’s safe to say that, relative to even oil, and without any infrastructure spending by Donald Trump, treasuries are going to be.... abundant in the coming years.

Conversely, if we look at the value of gold relative to foreign-held treasuries, we see an altogether different story unfold.

During Reagan’s presidency, US treasuries were backed 132% by the market value of the country’s gold reserves.

Today, that number has fallen to just 4.7%

If we do the same thing and account for the $100 trillion in entitlement promises, as you can see from the chart on the next page, the number falls to 0.3% in 2025.

So the second chart (below, right) should come as no surprise to anybody.

Yes, the Chinese have started to do what they promised to start doing, when they promised to start doing it.

Now, this next part of the presentation was a rattle through a whole bunch of charts showing the recent activity in the U.S. treasury, corporate bond, agency bond and securities markets so you’ll have to brace yourself.

The charts will appear on the next page.

Chinese sales of US treasuries (1) have been consistent for the last three years... have their sales of US securities (2) since 2015 after plateauing in 2013 when treasury divestiture began Concurrently, Chinese sales of corporate bonds (3) have accelerated over the same period...

...though agency sales (4)—despite a few periods of consistent selling—have yet to follow suit.

But now, as tensions rise and the cross-currents get harder to discern, guess who else has showed up as a seller?

That’s right, the Saudis are now steady sellers of US treasuries (5)...

...and even more aggressive sellers of U.S. securities (6)...

Meanwhile, taking a broader view, net foreign purchases of treasuries, according to the TIC data, have been in a clear downtrend since 2009 (7) and have been largely outflows for the last three years.

If we look at the 12-month sum of sales (8), we see an even sharper decline...

...and if we take the trailing net official demand chart for treasuries back to 1979, the scale and extent of the change is evident—as are the catalysts for the acceleration (and we’re back on this page once  again):

Take a long, hard look at that last chart folks—particularly within the context of the bond bull market and the ‘bid’ for treasuries we’ve seen throughout 2015 and 2016...

Meanwhile, the Russians—who, as we’ve seen are now selling oil for yuan to the Chinese, remember?— have been picking up the pace of their accumulation of gold reserves yet again, with the most recent monthly data setting yet another record...

...and the pick up in pace is evident when we look at average monthly purchases prior to 2013 and post the agreements put in place around that time between the various parties. Now, the next chart (top of the following page) is crucial to understand because a look at the market value of Russia’s gold reserves shows just how crucial their ongoing accumulation of bullion has been for the country’s finances over the last two years...

...and that increase in value has cushioned the effects of, amongst other things, the bailing out of the ruble.

As you can see from the green line, Russia’s gold reserves in Ruble terms have soared as the country’s currency has weakened—something which confounded all the doommongers who called Game Over for Russia amidst sharply declining oil revenues:

(Bloomberg, April3, 2015): Here’s why Governor Elvira Nabiullina is in no haste to resume foreign-currency purchases after an eight-month pause: gold’s biggest quarterly surge since 1986 has all but erased losses the Bank of Russia suffered by mounting a rescue of the ruble more than a year ago.


While the ruble’s 9 percent rally this year has raised the prospects that the central bank will start buying currency again, policy makers have instead used 13 months of gold purchases to take reserves over $380 billion for the first time since January 2015.


Now, crucially, being given the ability to sell oil to the Chinese for yuan and buy gold with that same yuan directly through the Shanghai Exchange has completely changed the game for the Russians and those changes are being reflected where they matter most—in the energy markets, the supply/ demand dynamics of which are quietly morphing in plain sight.

By August of this year, Russia had overtaken Saudi Arabia as the largest exporter of oil into China...:

(Al Awsat, August 3, 2016): During the first seven months of this year, China imported about 30.5 million metric tons of Saudi oil, a 0.4% decrease than that of last year. Whereas, China imported about 29.5 million metric tons of Russian oil with 27% increase than last year.

...and that wasn’t something the Saudis could take lying down:

Amid this fierce competition, it is important for Saudi Arabia to fortify its oil position in China with more political and strategic support

On the contrary, they rededicated their efforts to increase what they call “political and strategic support” for China.

Now, I hope you’re all still with me because here’s where we get to the final piece of this glorious puzzle—the piece that ties all these seemingly unrelated threads together: China’s own crude oil futures contract, to be priced in Yuan and traded at the Shanghai International Energy Exchange—a yuan contract which will be made fully-convertible:

(Bloomberg, November 5, 2015): By the end of 2015, China, the world’s No. 1 oil importer as of April, may start its own crude futures contract.


The idea is to establish a Chinese rival to the world’s two most traded oil contracts: West Texas Intermediate, housed on the New York Mercantile Exchange, and Brent Crude Futures, owned by ICE Futures Europe in London.


The yuan-based contract will trade on the Shanghai International Energy Exchange and will be among the first Chinese commodity contracts available to foreign investors as China promotes global use of its currency…


Participation will be open to all foreign investors and the yuan will be fully convertible under the contract, according to Song Anping, the chairman of the Shanghai Futures Exchange.

As you can see from the date of the article, this contract has been postponed several times— ostensibly for reasons such as stock market volatility in China, but perhaps there is more going on behind the scenes that is causing the delay because, once this contract is in place, things change.


In the interim, China has supplanted the U.S to become the world’s biggest importer of oil, which serves to increase both its importance in the oil markets and the likelihood of it launching its own yuan-denominated contract at some point in time:

(Bloomberg, October 13, 2016): China is now the world’s biggest oil importer, unseating the U.S. The country’s crude imports climbed to a record 8.08 million barrels a day in September, a year-on-year increase of 18 percent, customs data released Thursday showed.

So, the world’s largest exporter of oil is now dealing with the largest importer directly in yuan and it has the ability to convert those yuan proceeds into physical gold through the Shanghai exchange— which the data suggest it is doing as fast as possible.

Currently, the bilateral oil for gold trade is only available to what the U.S. would no doubt consider a 'basket of deplorables' in Iran and Russia...but just think what happens once that fully convertible oil contract is up and running...?

Suddenly, the availability to price oil in gold is available to everybody and, given rising Saudi/U.S. tensions and the Middle East nation’s recent rededication to providing “political and strategic support” to China it’s easy to see why this would be attractive to the Saudis, for example.

Whatever happens, opening that contract creates a market-wide arbitrage opportunity which affords anybody with oil to sell the ability to exchange said oil for gold and anybody wanting oil to acquire it cheaply by buying cheap gold in the West and shipping it to Shanghai or HK where it can be sold for yuan.

Already, places like Tokyo, Seoul and Dubai are opening physical gold markets and discussing linking their nascent markets for bullion to the Shanghai exchange which has rapidly become the largest physical delivery market in the world.

Now, were this arbitrage to begin happening in any meaningful size, with the market for oil far bigger than that for gold, it would immediately be evident in the ratio between the two commodities...

...which, interestingly, is precisely what has happened since the peak of global reserves in 2014 and the Sino-Russian agreement to essentially transact oil for gold. With those conditions in place, the gold/oil ratio has broken out to its highest level in 80 years (chart, next page):

...which brings us right back to the question mark on the second chart which we left hanging like a matzah ball earlier in this presentation

The recent move in the oil price looks to me suspiciously like a sign that a move has started to return to pricing oil in gold.

That move, if indeed it is happening beneath the surface, allied with the endless possibilities enabled by the potential full convertibility of the yuan under the Shanghai-based oil contract leaves oil producing nations with a rather obvious choice for the first time in almost half a century—a choice made perfectly clear by the two charts on the next page:

If you are an oil producing country, do you...:

MINIMIZE your production in order to MAXIMIZE your holdings of one of the most abundant and easily-produced commodities in the world—U.S. treasuries—as has been the case for the last 40 years... knowing full well that, with the level of entitlements due in the next decade, more will need to be printed like crazy?


Do you MAXIMIZE production in order to gain the largest possible market share in the biggest oil market in the world and, through the ability to buy gold for yuan, thereby maximize your reserves of a scarce, physical commodity which is impossible to produce from thin air and which happens to be not only the most undervalued asset on the planet, but is trading at its most undervalued relative to U.S. treasuries in living memory?

With an annual production of $170bn, gold is by far the largest metal market by value.

However, that figure is dwarfed by the oil market which is 10x the size of the gold market on an annual production basis.

If we throw in the average annual foreign holdings of U.S. treasuries over the last 2 years, we see that the ‘other’ commodity is at a different magnitude altogether.

So, which one of these commodities has any scarcity value? Given the choice, which one would you seek to maximize your holdings of?

U.S. treasuries which can be conjured out of thin air by the U.S. government and which, are described thus by The Securities Industry and Financial Markets Association:

Because these debt obligations are backed by the “full faith and credit” of the government, and thus by its ability to raise tax revenues and print currency, U.S. Treasury securities – or “Treasuries” – are generally considered the safest of all investments. They are viewed in the market as having virtually no “credit risk,” meaning that it is highly probable your interest and principal will be paid fully and on time.

Or how about oil? Which the Saudis, for example, can simply print pull out of the ground at will at a cost of a little under $10/barrel?

Or gold? A commodity which is limited in availability, trading at its all-time low relative to U.S. treasury supply and is not only getting harder and more expensive to produce, but which is also catching the eye not only of the central banks of the world’s two largest producers, but of the largest importer and largest exporter of oil?

* * *

Much more in the full PDF below

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No OB Wan Kenobe's picture

Love it. Grant Williams is one smart dude.

So Close's picture

This is a VERY compelling peice.  Great work Grant.

xythras's picture
xythras (not verified) So Close Feb 9, 2017 7:49 PM

We'll get to a GOLD DOLLAR and stick it to every globalist. But now we have more urgent problems: SOME SOCIALIST JUDGES who think are above Trump's LAW

FULL RECORD of the arguments stated in front of the Court.

VIDEO: Halt on Trump Travel ban Upheld by 9th Circuit Court

Xatos's picture

Great great article. I've shared 3 times already. 

Escrava Isaura's picture

This presentation, unfortunately, I must say, lost credibility when I got to the last chart: Oil Production Cost.


BaBaBouy's picture


US Debt Increases By ~ $1 Trillion / Year.

New GOLD Produced $170B / Year.

CALC... (1000 / 170 = 5.88) X 1230. = $7235 GOLD/Oz.

SO... Just to cover the new US Debt issued per year, GOLD would have to rise to at least $7235.
This doesn't even take into account that OTHERS own most this $170B of the New GOLD produced.

squid's picture


16T of world wide USD deposites.

US gold hodlings, 261 million oz,

US$61,300 per oz.


if you try and cover all outstanding credit + the above, you get 250,000 per oz.


The numbers are staggering.



glenlloyd's picture

We knew this was coming and we've known it for a long time. When it becomes common practice will be anyone's guess but it will get very bad if you start to deny SS benefits to boomers who fully expected that they wouldn't need anything else besides SS to exist on in their 'golden' years (pun intended).

Ron Paul warned of this years ago and people called him a crank. The best word I can come up with ATM is VINDICATED, which he will be when this all happens and US hegemony goes to hell in a hand basket in front of retiring boomer eyes.

As I've said to people now since 2008 it won't matter how many dollars your SS checks (or any retirement accounts) are written for if the value of that dollar is worthless.

Obadiah's picture

Unfortunately the value of the debt has to go DOWN to reach 3,000 in gold

sinbad2's picture

What is wrong with the oil production cost chart?

The chart is by the EIA

Oracle of Kypseli's picture

You can also use your treasuries to buy gold. Can you not? 

pliny the longer's picture

He is smart.  He has to know he's smartest guy in the room, but somehow he can explain things without talking down to anyone.  do yourself a favor, listen to every interview, podcast, etc. you can find of him on youtube.  you'll walk away smarter than you were before. 

Kirk2NCC1701's picture

Sure. What comes after the Petrodollar, is the Treasury Dollar.

Backed by... Precious + Strategic + Energy Assets of the USA.

   1. The Treasury will let the Free Markets decide the fate of the fiat currencies and over-leveraged bets in the FX and Derivatives Markets. They are on their own.

   2. The Treasury will fully back all currency and bank deposits (M1 and M2).

   3. The Treasury will issue new currency Notes, in large denominations, to create Demand for the New USD. These Denominations will include:

$50, $100, $500, $1000, and $5000 US Dollar Notes.

The populations will clamor over each other for these Notes, to sidestep the Crash & Burn of the fiat Bankster Ponzi.

"We don't need no stinking Audit!  Burn, Fed, burn!  Roast, you fuckers!"

Dragon HAwk's picture

Kudos for keeping it simple enough for people to understand and follow! well written and logical.

halcyon's picture

Grant is probably quite right (nobody really knows for sure), but he is too early.

You can still bet not against, but in favor of dollar for  quite some time.

After that last swan song and a seismic event (not a shift, but an event) in the bond markets (in some years to come), you can start shorting dollar if you have a long time horizon and lots of time to wait.

Reserve currency changes are not seismic sudden changes, but long, drawn-out battles.


I Feel a little Qeasy's picture

.'Grant is probably quite right (nobody really knows for sure), but he is too early.'

I think you're talking nonsense. The timeline is in the hands of others, they'll do what they can when they can and as soon as they can, the longer they wait the more damage will be done to the worlds economies to suit the US. This is unacceptable to these nations and they will hasten the change to secure their future.

ParkAveFlasher's picture

I even like the fonts on these graphs.  +1

BabaLooey's picture


Grant Williams A+

This is why I come to Zero Hedge.

jesse_james's picture

Best article I've read here in the last month by far. Excellent indeed!

yellensNIRPles's picture

I echo your sentiment. It has been a long time since I had an 'ah ha' moment. The video above was absolutely excellent and filled in a few missing answers to questions I have had for some time. 

Big deal. 


Jultorsk's picture

Fully agree. Also the Luke Grommen / Forest For The Trees letter Grant was referring to was a great follow-up read.

unlock your mind's picture

Solution: another war in the MiddleEast, which explains Trump's interest in Elliot Abbrams.

booboo's picture

The United States largest export commodity is war, ergo, when things get tough they will be selling war hand over fist and everyone is lining up to punch us in the kisser and it won't be pretty.

halcyon's picture

Elliot Abbrams is another Israel-hugging CFR neocon war-hawk, wanting to bomb everybody who does not "respect his authority."

Graham Fuller (google him) will do a stealth comeback with some CIA backed (again) muhajeed islamists terrorists doing "evil deeds", which will enable Trump administration to bomb the shit out of another muslim country and steal their oil, pull anothe oil pipeline thorugh it, prevent the Iran-Russia-China energy deal and install another military base abroad.

Another day, different talking sock-puppets, same bullshit.

Only a fool thinks the US defense budget will shrink or that US will let other countries to handle their own affairs by themselves.


I Feel a little Qeasy's picture

Yes, but you'll only get away with it until you don't. Hope you're good at sewage surfing as you swirl around the toilet bowl of history, bon voyage!

pitz's picture

Oil can be bought and sold in any currency you want.  Just because they're quoting USD$ doesn't mean that settlement of actual contracts is in USD$. 

"Petrodollar" is just a conspiracy theory.  Nothing more.

You Only Live Twice's picture

I don't think that is the case. Iraq wanted to sell Oil in Euros - they got invaded, Hussein was killed and the sales switched back USDs. Libya wanted to sell Oil for Gold via a Pan-African Gold Dinar. It was bombed, Gaddafi was killed, and a Central Bank installed that took away the Gold reserves and sold the Oil in USDs. Iran tried to sell Oil in non-USD with its own Oil bourse. It got sanctioned. Russia, same thing when it signed an Oil and Gaz Deal with China for sales in national currencies.

The Petrodollar is a system that allows the US to maintain a large debt without hyperinflation or defaulting as it is spread out around the World via the system (until its ends that is). And it is backed by the full might of the West's armies.

Kyddyl's picture

I like your comment as far as it goes. You "get it". However this seems to be much, much bigger this time. It won't be quite so simple as kill of the right persons, this time. The US is massively unpopular, oil that's easily refined is ever scarcer and we're not the only cocks in the loft. Russia, Iran and China can and probably will bring us down, especially while the US is making a huge ass of itself over so much. The refugees just want to go home and be peaceful, they're very tired and poor. Our wars for profit are going to end with the US getting itself in over it's head and it the average US citizen that's going to get it in the neck. 

You Only Live Twice's picture

An excellent comment and points! The current situation is indeed far more serious this time, and the prolonged period of low Oil prices is weakening the system and straining it to its limits. Russia, Iran and China have been moving and preparing for what seems to be a return to some form of Gold-standard for many years now. The citizens of the Middle East that have become refugees are indeed tired of being in these situations. All the OPEC countries are bleeding trying to keep alive a system that is currently no longer working. If they unite and decide that they will no longer support the system and reject the Petrodollar, the average US citizen will indeed pay the price for what the Bankers have done. At this point, it looks like less and less a matter of if, but rather of when. And when the debt floods back with it... frightening...

stecha's picture

ok, so that strat is over as of brics central bank and its funding. u better get a grip cause the new power in the world is china and the BRICS relation. They are starting to flex thier muscles (south china sea). Game over for us.

konadog's picture

Yes. In short you are saying the dollar is backed with bullets. That's true and it worked for Iraq and Libya, but the US can't invade Russia or China. They have nukes and lots of soldiers. Also the US continuing to spend more than the rest of the world combined on its military is ludicrous and unsustainable. The on-balance sheet debt is $20T with another $100T off-balance sheet. Both continue to grow with no end in sight. I've been dumping my treasury bonds for quite some time in favor of PMs and other assets because real interest rates are dismal and I know the US can't possibly pay me back. It won't be long before other investors throw in the towel and refuse to loan the US any more money. China has and they have started dumping treasuries.

Archibald Buttle's picture

this all comes as a relief! i must admit, i've been having a difficult time saving up for the vacation in venezuela i so wish to take. it seems permanently out of reach at this point, and lo and behold, without me so much as asking them for help, the "best and brightest" have arranged to bring venezuela to me! i feel like the kid with cancer that gets to meet derek jeter, and throw out the first pitch!

monk27's picture

You should go back to commenting on Vancouver RE "non-bubble". Used to be funnier back then, though equally wrong...

Duc888's picture

You do so at your own risk. Just ask Gadaffi, or Saddam, or Hugo....oh wait, you can't.

Snaffew's picture

those were peons compared to China, Russia and Saudi Arabia.  The US is like the bully in school who's really a pussy and nobody has stood up to him...but when they do--he crumbles like a cookie and cries like a little girl---that's the sad truth.

Nobodys Home's picture

I stood up to the bully and got my ass kicked every day for a year by him and his henchmen. Then I threw him down a flight of stairs, spit on him and laughed as I left. Never got beat again. That's a true story. The moral of it is this...
Either way the outcome usually takes a while.

gigalax's picture

The petrodollar is basically what replaced the gold-backed dollar after the end of Bretton Woods. Problem is that the party is coming to an end soon.

gatorengineer's picture

Ok, lets assume for a moment, how come the dollar didnt collapse when Oil Prices did?


Tick Tock....

DontWorry's picture

Because Saudis were being paid in oil and gold.  read FOFOA.


gigalax's picture

Because you have to buy oil using dollars or else America will bomb you. This scenario is what occcured in many Middle Eastern countries. The petrodollar system is a huge part of what keeps the American economy alive and is also the main reason why gas is so cheap in America compared to the rest of the world. America never has to to exchange its dollars for any other currency before buying oil.

sinbad2's picture

The US dollar didn't collapse because lots of countries bought more dollars, after the 2008 crash and oil price crash, even though they didn't need them. 

The US puts the squeeze on countries like Australia to buy US treasury bonds, to prop up the US dollar. If other countries had not bought trillions of dollars, the dollar would already be cactus.

delacroix's picture

the dollar didn't collapse, because it can be propped up with the huge increase in interest rate derivatives, which create an artificial demand for 10 year bonds

gigalax's picture

The petrodollar is basically what replaced the gold-backed dollar after the collapse of Bretton Woods. Problem is that the party is ending soon for America.

lakecity55's picture

Exactly! We replaced Gold with Saudi Oil!


besnook's picture

the petrodollar is a sledge hammer on world commerce if you understand it correctly.

Wee_littte_dogee's picture

And I just explained to you why. You must be a humanities student.

besnook's picture

you'll get along here without the ad hominems. mr. 2 weeks.

Wee_littte_dogee's picture

Yes and NO. Oil is priced in dollars it is true and you are welcome to pay in another currency but you have to do it at the current exchange rate. So if you tender currency unit "x" and its exchange rate with the dollar is 5.0 = $1.00 and oil is $50/bbl you have to tender 250 units of currency "x," so you are not getting around anything. You don't understand what it is your talking about and you sound stupid; sorry no insult intended, you are just ignorant.

DontWorry's picture

You don't understand what it is you're talking about and you sound stupid; sorry no insult intended, you are just ignorant.

There, fixed it for you smart guy.