What’s Really Happening With the Petrodollar

“There is no free market for oil.”
– T. Boone Pickens

[Special Reminder: In case you missed our recent announcement, The Essential Investor has merged with legacy contributors to Agora Financial. The new, larger, more inclusive project is called The Grey Swan Investment Fraternity. If you’re interested in the scope and benefits of our new endeavor, please see what prompted us to merge here. If you’ve been a member of The Essential Investor, please keep an eye out for your new benefits.]

June 21, 2024—

With all the talk of the petrodollar the past few days, it may be best to further separate fact from fiction. To that end, today we turn to a friend of Grey Swan, Michael Snyder.

We’ve known Michael for a couple of decades now.

More recently, we’ve been re-acquainted with his work through an off-hand quote in Marc Faber’s June 2024 Gloom Boom Doom Report.

In today’s guest essay, Michael will separate the facts from the fiction surrounding the petrodollar.

The good news? We’re still looking at a “death by a thousand cuts” scenario for the U.S. dollar, not an immediate crisis. Enjoy ~~ Addison

CONTINUED BELOW…

>>>>>SPONSORED<<<<<

This New Idea is Set to Shock the World

PayPal was not a popular idea at first.

In the late 1990s, when most people were still mailing checks, Elon Musk’s idea of making payments over the internet was unimaginable.

Now, though, PayPal is a promising contender in the ever-competitive AI boom.

It seems that everything Musk has done throughout his career sounded insane at first…

Which is why it’s important that you pay attention to his latest, strange invention.

It’s an AI device that could be the most powerful technology ever created.

This new idea is set to shock the world once again – and this time, you don’t want to be a nonbeliever.

CONTINUED…

The Truth About What Is Happening To The Petrodollar

Michael Snyder, Michael Snyder’s Substack

This month, rumors about the petrodollar have spread like wildfire all over the Internet. Some of what is being said is true, and some of what is being said is false. When other sources were reporting on “the death of the petrodollar,” I was asked why I was not writing about it.

Well, the truth is that I was not writing about it because the petrodollar is not dead. It is certainly in trouble, but it is not dead. Today, most oil continues to be sold in U.S. dollars, and most global trade continues to be conducted in U.S. dollars. But that could change as other countries lose faith in our currency.

In particular, we will want to carefully watch what the BRICS nations choose to do. 45 percent of the world’s inhabitants live in the BRICS nations, and they have been implementing strategies that are designed to promote their own currencies and reduce dependence on the U.S. dollar. As U.S. relations with leading BRICS nations continue to deteriorate, I would expect that trend to accelerate.

So I am not optimistic about the future of the petrodollar at all.

But what some other sources reported about the petrodollar earlier this month was simply not accurate.

Let me start at the beginning. According to Investopedia, petrodollars are “simply U.S. dollars accepted as payment by an oil exporter…”

Petrodollars are oil export revenues denominated in U.S. dollars. Petrodollars are not a distinct currency; they are simply U.S. dollars accepted as payment by an oil exporter.

Global crude oil exports averaged approximately 88.4 million barrels per day in 2020. That pace would generate annual global petrodollar supply of more than $3.2 trillion a year, assuming an average price of $100 per barrel.

Petrodollars are the primary source of revenue and wealth for many members of the Organization of Petroleum Exporting Countries (OPEC) as well as non-OPEC oil and gas exporters including Russia, Qatar, and Norway.

The fact that so many other countries all over the globe use the U.S. dollar to buy and sell oil is a major advantage to us.

Earlier this month, there was a flood of reports that the “50 year petrodollar agreement” between the United States and Saudi Arabia had expired and that the petrodollar was now dead.

But that wasn’t true.

As Peter C. Earle has accurately pointed out, there never was a formal treaty, there never was a formal expiration date, and Saudi Arabia has been trading oil for other currencies for a very long time:

Last week several reports suggested the termination of a US-Saudi petrodollar agreement, and speculated a Saudi Arabian move to sell oil on world markets in various currencies, including the Chinese yuan. The accounts were rife with inaccuracies: the Saudis’ have transacted in non-dollar currencies for decades, and there has never been a formal treaty, much less with a specified expiration date, governing the loose arrangement that has come to be called the ‘petrodollar system.’

Unfortunately, many of the false reports went viral, and Google searches for “petrodollar” spiked to unprecedented level. Per Morningstar:

Almost immediately, Google searches for the term “petrodollar” spiked to the highest level on record dating back to 2004, according to Google Trends data.

But as speculation about an imminent end to the U.S. dollar’s global dominance intensified, several Wall Street and foreign-policy experts emerged to point out a fatal flaw in this logic: The agreement itself never existed.

At least, not in the way it was being described in the posts that had gone viral on social media.

This is why I take my time and do my research before I report something.

It is so easy to be wrong, but it takes real work to develop a reputation for accuracy.

According to UBS Global Wealth Management chief economist Paul Donovan, the false story about the expiration of the petrodollar agreement “seems to have started in the crypto world.”

Paul Donovan, the chief economist at UBS Global Wealth Management, in a blog post said that the story had gained unexpected traction, serving as yet another example of the dangers of “confirmation bias.”

“The story seems to have started in the crypto world. Many crypto speculators desperately want to believe in the dollar’s demise,” said Donovan.

It is true that a “Joint Commission on Economic Cooperation” was established in 1974.

Originally it was only supposed to last for five years, but it was “repeatedly extended”…

The agreement referred to by Donovan is the United States-Saudi Arabian Joint Commission on Economic Cooperation. It was formally established on June 8, 1974, by a joint statement issued and signed by Henry Kissinger, the U.S. secretary of state at the time, and Prince Fahd, the second deputy prime minister (and later king and prime minister) of Saudi Arabia, according to a report found on the Government Accountability Office’s website.

The agreement, as initially envisioned, was intended to last five years, although it was repeatedly extended. The rationale for such a deal was pretty straightforward: Coming on the heels of the 1973 OPEC oil embargo, both the U.S. and Saudi Arabia were eager to flesh out a more formal arrangement that would ensure each side got more of what it wanted from the other.

At that time, the U.S. and Saudi Arabia very much needed one another.

Today, circumstances are quite different.

The U.S. is now much less dependent on foreign oil, and the Chinese have become one of the primary purchasers of oil from the Middle East.

Over time, more oil will be bought and sold in other currencies, but for the moment it is pretty much business as usual.

However, as I noted earlier in this article, we need to keep a very close eye on what the BRICS nations are doing.

Saudi Arabia has been deepening relationships with China, Russia and India, and that is definitely bad news for the U.S. dollar.

Of course the truth is that if we want to find the biggest enemy of the U.S. dollar all we need to do is to look at ourselves.

The rest of the world is rapidly losing faith in our currency because of what are own leaders are doing to it.

The U.S. dollar is no longer a stable currency. We are creating, borrowing and spending trillions upon trillions of dollars, and if we continue to act with such extreme irresponsibility everyone else will eventually be forced to switch to new reserve currencies.

According to USdebtclock.org, our national debt will hit 46 trillion dollars on this day in 2028 if we continue to borrow money at the rate we are right now.

That is madness.

We are literally committing economic suicide, but most of the U.S. population is not interested in such warnings.

They just want our leaders to keep flooding the system with more money so that the party can continue.

Yes, the party will continue for a little while longer, but once the lights are finally turned off nobody will ever be able to turn them back on again. ~~ Michael Snyder, Michael Snyder’s Substack

So it goes,

Addison Wiggin
Founder, The Wiggin Sessions

>>>>>SPONSORED<<<<<

2024 – The Real Election Year Surprise

In 2016, the October Election Surprise was Hillary Clinton’s email scandal…

In 2020, the October Election Surprise was the suppression of all the dirty material on Hunter Biden’s “forgotten” laptop…

Now, in 2024, we’re forecasting an October Election Surprise that almost no one sees coming — and this time it’ll be way more devastating than anything you’ve seen before.

Click here to learn about 2024’s real October Election Surprise »

It’s not at all what you think.

P.S.: Still wondering how we got here?

We’ve spent two decades running our own business, parsing data and talking to money managers, analysts, financial “gurus”, economists and historians. The result of our work is an alternative view of the financial, economic, and political history of the United States from Demise of the Dollar through Financial Reckoning Day and on to Empire of Debt — all three books are available in their third post-pandemic editions.

(Or… simply pre-order Empire of Debt: We Came, We Saw, We Borrowed, now available at Amazon and Barnes & Noble or if you prefer one of these sites:Bookshop.org; Books-A-Million; or Target.)

Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com

“There is no free market for oil.”
– T. Boone Pickens

June 21, 2024—

With all the talk of the petrodollar the past few days, it may be best to further separate fact from fiction. To that end, today we turn to a friend of Grey Swan, Michael Snyder.

We’ve known Michael for a couple of decades now.

More recently, we’ve been re-acquainted with his work through an off-hand quote in Marc Faber’s June 2024 Gloom Boom Doom Report.

In today’s guest essay, Michael will separate the facts from the fiction surrounding the petrodollar.

The good news? We’re still looking at a “death by a thousand cuts” scenario for the U.S. dollar, not an immediate crisis. Enjoy ~~ Addison

CONTINUED BELOW…

>>>>>SPONSORED<<<<<

This New Idea is Set to Shock the World

PayPal was not a popular idea at first.

In the late 1990s, when most people were still mailing checks, Elon Musk’s idea of making payments over the internet was unimaginable.

Now, though, PayPal is a promising contender in the ever-competitive AI boom.

It seems that everything Musk has done throughout his career sounded insane at first…

Which is why it’s important that you pay attention to his latest, strange invention.

It’s an AI device that could be the most powerful technology ever created.

This new idea is set to shock the world once again – and this time, you don’t want to be a nonbeliever.

CONTINUED…

The Truth About What Is Happening To The Petrodollar

Michael Snyder, Michael Snyder’s Substack

So I am not optimistic about the future of the petrodollar at all.

But what some other sources reported about the petrodollar earlier this month was simply not accurate.

Let me start at the beginning. According to Investopedia, petrodollars are “simply U.S. dollars accepted as payment by an oil exporter…”

Petrodollars are oil export revenues denominated in U.S. dollars. Petrodollars are not a distinct currency; they are simply U.S. dollars accepted as payment by an oil exporter.

Global crude oil exports averaged approximately 88.4 million barrels per day in 2020. That pace would generate annual global petrodollar supply of more than $3.2 trillion a year, assuming an average price of $100 per barrel.

Petrodollars are the primary source of revenue and wealth for many members of the Organization of Petroleum Exporting Countries (OPEC) as well as non-OPEC oil and gas exporters including Russia, Qatar, and Norway.

The fact that so many other countries all over the globe use the U.S. dollar to buy and sell oil is a major advantage to us.

Earlier this month, there was a flood of reports that the “50 year petrodollar agreement” between the United States and Saudi Arabia had expired and that the petrodollar was now dead.

But that wasn’t true.

Last week several reports suggested the termination of a US-Saudi petrodollar agreement, and speculated a Saudi Arabian move to sell oil on world markets in various currencies, including the Chinese yuan. The accounts were rife with inaccuracies: the Saudis’ have transacted in non-dollar currencies for decades, and there has never been a formal treaty, much less with a specified expiration date, governing the loose arrangement that has come to be called the ‘petrodollar system.’

Unfortunately, many of the false reports went viral, and Google searches for “petrodollar” spiked to unprecedented level. Per Morningstar:

Almost immediately, Google searches for the term “petrodollar” spiked to the highest level on record dating back to 2004, according to Google Trends data.

But as speculation about an imminent end to the U.S. dollar’s global dominance intensified, several Wall Street and foreign-policy experts emerged to point out a fatal flaw in this logic: The agreement itself never existed.

At least, not in the way it was being described in the posts that had gone viral on social media.

This is why I take my time and do my research before I report something.

It is so easy to be wrong, but it takes real work to develop a reputation for accuracy.

According to UBS Global Wealth Management chief economist Paul Donovan, the false story about the expiration of the petrodollar agreement “seems to have started in the crypto world.”

Paul Donovan, the chief economist at UBS Global Wealth Management, in a blog post said that the story had gained unexpected traction, serving as yet another example of the dangers of “confirmation bias.”

“The story seems to have started in the crypto world. Many crypto speculators desperately want to believe in the dollar’s demise,” said Donovan.

It is true that a “Joint Commission on Economic Cooperation” was established in 1974.

Originally it was only supposed to last for five years, but it was “repeatedly extended”…

The agreement referred to by Donovan is the United States-Saudi Arabian Joint Commission on Economic Cooperation. It was formally established on June 8, 1974, by a joint statement issued and signed by Henry Kissinger, the U.S. secretary of state at the time, and Prince Fahd, the second deputy prime minister (and later king and prime minister) of Saudi Arabia, according to a report found on the Government Accountability Office’s website.

The agreement, as initially envisioned, was intended to last five years, although it was repeatedly extended. The rationale for such a deal was pretty straightforward: Coming on the heels of the 1973 OPEC oil embargo, both the U.S. and Saudi Arabia were eager to flesh out a more formal arrangement that would ensure each side got more of what it wanted from the other.

At that time, the U.S. and Saudi Arabia very much needed one another.

Today, circumstances are quite different.

The U.S. is now much less dependent on foreign oil, and the Chinese have become one of the primary purchasers of oil from the Middle East.

Over time, more oil will be bought and sold in other currencies, but for the moment it is pretty much business as usual.

However, as I noted earlier in this article, we need to keep a very close eye on what the BRICS nations are doing.

Saudi Arabia has been deepening relationships with China, Russia and India, and that is definitely bad news for the U.S. dollar.

Of course the truth is that if we want to find the biggest enemy of the U.S. dollar all we need to do is to look at ourselves.

The rest of the world is rapidly losing faith in our currency because of what are own leaders are doing to it.

According to USdebtclock.org, our national debt will hit 46 trillion dollars on this day in 2028 if we continue to borrow money at the rate we are right now.

That is madness.

We are literally committing economic suicide, but most of the U.S. population is not interested in such warnings.

They just want our leaders to keep flooding the system with more money so that the party can continue.

Yes, the party will continue for a little while longer, but once the lights are finally turned off nobody will ever be able to turn them back on again. ~~ Michael Snyder, Michael Snyder’s Substack

So it goes,

Addison Wiggin
Founder, The Wiggin Sessions

>>>>>SPONSORED<<<<<

2024 – The Real Election Year Surprise

In 2016, the October Election Surprise was Hillary Clinton’s email scandal…

In 2020, the October Election Surprise was the suppression of all the dirty material on Hunter Biden’s “forgotten” laptop…

Now, in 2024, we’re forecasting an October Election Surprise that almost no one sees coming — and this time it’ll be way more devastating than anything you’ve seen before.

Click here to learn about 2024’s real October Election Surprise »

It’s not at all what you think.

P.S.: Still wondering how we got here?

Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com