The Petrodollar's Biggest Challengers

Tyler Durden's picture

Authored by Michael Kern via CryptoInsider,

Established in the early 1970s, the petrodollar has secured the United States’ influence over the oil trade for over 40 years, but recently, it is clear that this monopoly is slowly beginning to fall apartin some part due to the influence of Bitcoin and other emerging cryptocurrencies.

Background

Due to the plummeting value of the dollar, the debt from the Vietnam War, and excessive domestic spending, President Nixon abruptly pulled out of the Bretton Woods Accord, which pegged the dollar to the price of gold and based the value of other currencies on that of the dollar. Labeled the “Nixon Shock,” these actions left the country bursting with debt and low on cash, with many of its key allies such as Britain, France, and Germany questioning whether the U.S. was justified in its position as the leader of the global economy.

While the U.S. economy entered a nose dive, another geopolitical event was unfolding which exacerbated the economic free fall.

In 1973, Syria and Egypt, backed by several other Arab Nations, launched an attack on Israel which marked the beginning of the Yom Kippur War (or Ramadan War). The war placed increased pressure on oil prices, and when the United States provided Israel with financial aid and arms, the Arab Nations responded.

In 1960, the Organization of Petroleum Exporting Countries (OPEC) was formed. At the core of this organization were Kuwait, Iran, Libya, Qatar, Saudi Arabia, Iraq and the United Arab Emirates – countries which were strongly opposed to U.S. interference in the 20-day war.

Following U.S. provisions to Israel, resource rich OPEC placed an oil embargo on all those thought to have aided Israel, including the United States, Britain, Canada, Japan, the Netherlands and later South Africa and Portugal. By 1974, the price of oil quadrupled.

With the success of the embargo, and cartel’s new role as an oil price influencer, Saudi Arabia became the de facto leader of OPEC.

In 1974, desperate to return value to the U.S. dollar, President Nixon and Secretary of State Kissinger entered negotiations with the Saudi Royal Family. In the agreement, the United States would provide Saudi Arabia with arms and assist with the protection of oil fields. In exchange, Saudi Arabia was to price all oil sales in U.S. dollars and invest surplus oil proceeds in U.S. debt securities. And by 1975, all oil-producing members of OPEC followed suit. This began the reign of the petrodollar.

The petrodollar has since elevated the United States economically and politically throughout the world, but after years of unprovoked wars and geopolitical belligerence, U.S. influence is beginning to fade.

Through the years, there have been a number of attempts to move away from the petrodollar system, especially within OPEC, in which many of its members are not particularly friendly with the United States. Another strong advocate of change is Russia, which suggested to China and Japan to purchase oil in yen or yuan.

Bitcoin, the Russian Miner Coin and the Cryptoruble

A Kuwaiti finance firm, however, took this debate a step further, suggesting in 2014 that the Gulf Cooperation Council could benefit from trading oil for bitcoin. The suggestion was based on the idea that the GCC could save time and money with faster, cheaper, and more efficient transactions.

This idea has been debated back and forth for some time, with some even suggesting that the “anonymity” factor could usher in a new era of world peace. The idea is that, using a neutral “petro-bitcoin,” countries would be immune to currency manipulation from governments, which has clear global impacts. In an unbiased-blockchain could act as a great medium for doing business on a global scale.

While this is all well and good, neither the U.S. or China are looking to ease up on their power push.

China, indeed, has taken the lead in the fight against the petrodollar. In 2012, Iran began trading oil in yuan,  and earlier this year, in response to U.S. sanctions, OPEC member Venezuela began pricing its oil sales in Chinese yuan, as well. China’s biggest move, however, was its push for Saudi Arabia to do the same. One of the most notable efforts from China to tackle the petrodollar was the country’s yuan-priced crude oil benchmark, which it recently unveiled.

While China pushes for the petro-yuan, Russia is also making moves which could have serious implications for the U.S. dollar.

In addition to the Russian Miner Coin, the Kremlin announced that it will be creating a new state-endorsed cryptocurrency backed by gold. The goal of this coin is to allow free exchange between the cryptoruble and the ruble, and to reduce dependence on foreign currency while stimulating the domestic online economy.

While few details of the cryporuble are known, the technology does seem to be blockchain-based, as Putin has met with Ethereum and WAVES advisors to build the platform.

With these major moves from China and Russia, there is no doubt that the dollar will see downward pressure in the near future. As the world’s major economies vie for geopolitical power, it is worth following the growing role of bitcoin and cryptocurrencies in this story.

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HRClinton's picture

"In addition to the Russian Miner Coin, the Kremlin announced that it will be creating a new state-endorsed cryptocurrency backed by gold."

I told you lot WEEKS ago that this makes sense:  Gold-backed Crypto.

I got no votes.  Goes to show what you lot know.  I used to hold many of you in high regard, but now realize that this place has devolved into a little more than a popularity forum.  Best days of ZH are in the past.  Not for its owners though.

OpTwoMistic's picture

Nothing slow about it.  In your face Jan 2018

WallHoo's picture

A crypto currency issued by a gorvement, how ironic is that??Thanks but no thanks...

OverTheHedge's picture

I was under the impression that the whole benefit of a cryptocurrency was lack of counterparty risk. Someone will have to have a vault, and an audit, and the market will have to have faith in this party honouring their (((promise))). How will it look if it is backed by gold, unless dollars or roubles can be substituted in its place a la Comex?

I'm all for backing things with gold, but Oswald Mosley may have few things to say about it not being a "proper" cryptocurrency.

ali-ali-al-qomfri's picture

you,...... you throw that word 'audit' around like it means something.

 

Have your Reps/Sens voted for or against auditing the FED?

How can any budget be made without knowing what's in the account.

Who approves spending and then disapproves auditing the check book,

Vote Them Out.

No incumbents.

messystateofaffairs's picture

It is very clear that a large chunk of ZH commenters understand neither the nature of money nor the natural mechanics of free will mainstreet commerce.

Winston Churchill's picture

So you're saying we  need a return to capitalism and free markets for CCs to work ?

I'm all in favor of that,its been a long time.Something else to put on the to do list

for the crypto fans, right after they build their own processors,computers,bios.firmware and internet.

Get back to us when all thats done,I won't hold my breath.

IronForge's picture

Watch the CHN Bourse Pricing for Petrol Contracts.

Victor999's picture

Cryptocurrencies have negligible effects on curency valuation today.  The author is living in his own world.

messystateofaffairs's picture

Author never claimed present effect of crypto on fiat value but was pointing out emerging potential to affect fiat value. Expandable govt crypto will have to be backed by gold or bitcoin to be credible to those who understand fiat risks.

ThinkAgain's picture

The biggest threat to the petrodollar is BCS (http://www.planck.org/publications/BQE-Bilateral-Currency-Swaps) also called TQE (Trade QE) of BQE (Bilateral QE). Bypassing the dollar by using own and trade counter party's currency. That reduces the demand for USD far more than any oil currency denomination. The world is de-hubbing. At fast pace. The world is tired of bullies and certainly unipolar bullies that set the rules at their convience. See http://www.planck.org/publications/CIRI-China-India-Russia-Iran-Avoids-D.... See http://www.planck.org/publications/Global-East-Driven-Globalization-2-0 and http://www.planck.org/publications/What-Ended-Global-West-Dominance.

konadog's picture

If the cryptoruble was freely convertible to gold, that would be terrific. It does beg the question - if Russia genuinely supports a gold backed currency, then why not also back the ruble with gold?

Miss Informed's picture

At this time no one can resist the allure of paying in fraudulent paper rather than in valuable gold.

Illuminattus Rex's picture

Because the ruble cannot be tracked like a digital ruble.
The cryptorubble will be a weapon of social control and command by hands of the state, something the russians have already experience not so many years ago, during the USSR human experiment.
By backing it by gold, the Master will make the common man go for it, like moths to a flame.

May knowledge set us free.

alphasammae's picture

 A coin MNTN is being issued as an ICO  in goldmint.io

 

Miss Informed's picture

Crypto-Rubles, backed by gold. If that gets off the ground I wonder how long it will take to turn that into a fractional reserve scheme.

Davidduke2000's picture

BITCOIN VS PETRODOLLAR ??? LOL, LOL, LOL

MansaMusa's picture

When I can buy a bbj with Bitcoin, then I'll be sold; otherwise keep stacking and BTFD !

fattail's picture

using a neutral “petro-bitcoin,” countries would be immune to currency manipulation from governments, which has clear global impacts. In an unbiased-blockchain could act as a great medium for doing business on a global scale.

 

Crypto currency can not take over until there is some semblance of stability in the price.  Why would you pay for anything in bitcoint if it goes up 2% a month?  Who can live with the 40% drawdowns on the currency you just received for your oil?  How many additional forks can bitcoin have?  How many more cryptos can be created?  Can a crypto be created for bilateral trade for each country controlled by said governments?  Why does any government need to use a crypto they don't control?  

The problem with software is it keeps getting cheaper, and it can replicate infinitely.  To me, that does not make it a basis for a medium of exchange that can hold its value?

King of Ruperts Land's picture

1. Hedging can nullify volatility.
2. An oil coin could be created that is an oil IOU.
3. Your "software" argument is bogus. Money is already made from software, electricity, and 1s and 0s. Go to a store, bank or gas pump and have a good look.

Son of Captain Nemo's picture

Hey Mike.

Sorry to inform you but crypto currency is the hired proxy terrorist minion of the "Petrodollar" until an international network gets built that tells me "where" that crypto comes from... "how" it got to me... and "what" it's "BACKED WITH"!

Until then... If your attention span and euphoria doesn't allow you to go back before the first of this month, read these (http://www.zerohedge.com/news/2013-12-30/how-nsa-hacks-your-iphone-prese...), (http://www.zerohedge.com/news/2014-02-28/mt-gox-files-bankruptcy-after-4...), (http://www.zerohedge.com/news/2017-06-27/petya-ransomware-cyber-attack-g...) and keep telling yourself you have nothing to worry about with your $6,400 digital packet that just keeps "GIVING"!...

King of Ruperts Land's picture

Nemo, Get a clue. You can still be angry, but at least you will have a clue.

VW Nerd's picture

I suspect so much of the wealth concentrated on Wall Street and NYC is derived from the parasitic USD system.  From money changing fees charged on all global oil transactions, corporate contracts imposed on foriegn governments around the world to management fees charged to the USG/taxpayer for handling the trillions of government payments.  The emergence of alternative payment systems will put a huge squeeze on the parasitic wealth sloshing around Wall Street.  The parasites know it! If I was one of those downstairs lunch venues on Wall Street charging $100+ per plate and $35+ beverages, I'd be looking for a buyer.

Madcow's picture

If 1 BTC = $5000 USD

 

And 1BTC = 20BBL

 

And 1 BBL = $50 USD

 

Then … something is busted.

 

Either Bitcoin is overvalued by over 50%

 

Or USD price of oil is undervalued by over 200%

+++

Bitcoin price in USD

https://www.coindesk.com/price/

 

USD Price of Oil

http://oiloilprice.com/

 

BTC Price of Oil

https://www.huffingtonpost.com/entry/how-many-barrels-of-oil-are-needed-to-mine-one-bitcoin_us_59f343c0e4b06ae9067ab802

IronForge's picture

The PetroDollar was an imposing Scheme; but we didn't have an Eurozone or a present-day CHN with their consumer currency nexus back in the '70s.

Once everyone had a chance to observe the Hegemony betray and destroy Hussein and Quaddafi for their Non-USD Schemes in an effort to force the World into Slavery, Non-Vassal Nation-States made their move.

The jig was up when IRN started asked Clients to pay in their own Currencies.  CHN, now the World's largest consumer of Petroleum, will launch a Bourse which will permanently break the PetroDollar and OPEC. Others may introduce more Bourses, which will simply add to the versatility of the Petroleum Trade. RUS' position as one of the largest Petroleum Producers backing CHN will invite other Producers to join in.

The CHY to Au Exchange mechanism assures the CHN Bourse's sustained viability for years to come and serves as a defense mechanism from Currency Malfeasance by the Hegemony.

 

Brave New World.

King of Ruperts Land's picture

The criminal elites may be forced into Bitcoin in an attempt to escape with their loot. Everything else will be subject to forfeiture and claw back as their schemes are exposed and unraveled.

Trump is letting Mueller set the boilerplate for a shakedown. When that has set the president, then automated scripts will instantly scan the NSA records and print out indictments for all the corrupt swamp creatures.

The people should probably consider front running the elite and get a little bit of Bitcoin and stuff it away.