The information in this article will be a short synopsis of how the Petrodollar was created, in order to allow the readers to tie in an understanding to the bigger picture we face today. We have all seen the volatility in the oil markets and the steady, daily decline in the BDI (Baltic Dry Index), both of which indicate the disease affecting the global economy. That disease is almost terminal; the policies surrounding the Petrodollar and its influence are major contributing factors to the rapidly-deteriorating world economies that are on the brink of crashing.
Oil is the most important commodity from an economic perspective, and from the drilling of the first oil well in 1846 in Azerbaijan, formerly known as Baku, the world has embraced the search for and use of it. Today oil is to be found in every facet of life, from the plastic spoon to the gasoline pump. John D. Rockefeller built an oil refinery in Cleveland, Ohio in 1863 and subsequently formed Standard Oil of Ohio in 1870. At its peak, the company controlled the market domestically, owning 90% of the U.S. oil industry until the company was broken up in 1911. The Supreme Court had deemed it a monopoly, and it separated into smaller firms.
Shortly after World War II, the oil-rich governments around the world began to despise American control over their resources; therefore, the largest producers nationalized the oil fields and their own levels of domestic production. Saudi Aramco formed in Saudi Arabia became the recognized leader of crude oil production in the world. Then in 1949, U.S. domestic production of crude oil could no longer keep up with the country’s industrial demands. For the first time, the U.S. became an importer of crude oil.
In July of 1944, the Bretton Woods Conference (officially the United Nations Monetary and Financial Conference) took place in New Hampshire. The conference lasted for almost a month, and 730 representatives from the 44 allied nations participated in it. After the conference was concluded, the postwar global financial structure had been decided: gold had been fixed for delivery by the United States at $35 per ounce, and each signing member of the participants agreed on a fixed rate of exchange for currencies.
Meanwhile for the next several decades, the deficit in trade rose in the U.S., along with price inflation that began to erode the confidence in the American structure. As a result, France withdrew its gold stored with the Federal Reserve in 1967. Then in 1971, Nixon closed the door by removing the ability of any member nation to convert into gold. The dollar (used as the world’s reserve currency) was still the reserve; however, it was completely fiat at this point. At this time, President Nixon dispatched Kissinger to Saudi Arabia with a scheme that made extortionists pale in comparison.
The ruling House of Saud in Saudi Arabia was offered a deal by Kissinger with four parts.
- America’s military would guarantee protection of Saudi Arabia and her oilfields.
- The U.S. would also sell the Saudis any weapons needed.
- The U.S. would furthermore guarantee protection from Israel and the other countries of the region.
- Finally, the Saudi family was ensured that they would rule in perpetuity.
In return for such “magnanimous” services, the Saudi Arabians would make sure that all oil sales were done only in U.S. dollars. In addition, the Saudis promised to take their profits and invest them in U.S. treasuries.
The gold would not be needed. With all oil being sold in U.S. dollars, the other nations were obliged to build up a supply of dollars on the fixed currency exchange to buy the oil. The Saudis signed on to this in 1974, and shortly thereafter in 1975, the other oil producing countries of OPEC followed suit. You may notice there was roughly a three-year hiatus for the former, a four-year gap in the latter.
There was a fly in the ointment: The Yom Kippur war of 1973, in which these previously-hesitant nations realized that Israel was a threat to them. Immediately following this conflict, OPEC raised its price of crude oil by 70% and then cut levels of production by 5%, taking oil from $3.00 per barrel to $12 per barrel virtually overnight. The embargo lasted from October 1973 to March of 1974, before pressure from the Nixon administration and the threat of Israel and other potentially threatening nations took effect.
So in 1975, the world’s demand for oil was skyrocketing, and all sales were now conducted in U.S. dollars, placing the U.S. over all of the world’s economy for decades. The underlying illness was the festering fiat currency and the accompanying paradigm shift that saw the decline in American domestic manufacturing and the reduction of our economy to one that was consumer-based, until we reached the point we are today. In the next article we will examine where the Petrodollar stands as the world’s currency reserve, and cover actions and leading indicators that help to forecast what will be coming down the pike.
Jeremiah Johnson is the Nom de plume of a retired Green Beret of the United States Army Special Forces (Airborne). Mr. Johnson is also a Gunsmith, a Certified Master Herbalist, a Montana Master Food Preserver, and a graduate of the U.S. Army’s SERE school (Survival Evasion Resistance Escape). He lives in a cabin in the mountains of Western Montana with his wife and three cats. You can follow Jeremiah’s regular writings at SHTFplan.com.
This article may be republished or excerpted with proper attribution to the author and a link to www.SHTFplan.com.
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so…whats the point? Fiat has surpassed/printed/circulated gold so much, it will never be backed by gold.
60% of illegals caught by INS are released onto our streets.
They cost YT about $120 billion a year.
This is what happens each and every time women and minorities are in charge. They don’t give a shit about maintaining civilization. They just want to steal YT’s money. Women and minorities are a plague of locusts.
What the fuck will it take for you idiots to admit that white supremacy is the only way forward?
Non white men have never in history built a first world country. They don’t know how to do it.
First of all your ignorant rant of racist belligerent nature is unneeded specially when it comes to a topic like money, and the history of the petrodollar. What you are also missunderstanding in this ludicrous argument that you deploy is that the first world countries hold down the second world or third world countries for just the same reasons this article is explaining. Illadvised, missinformed, and otherwise stupid racist remarks of your spweing are unwanted, counter poductive and prove your ignorance on these or any other matter. A mind clouded with racism is a closed mind ignorant to how the world works.
you might want to look in the mirror as many times the truth is not a comfortable one ? Just look at europe and tell me if that multiculturalism is a good thing ? he made some points that are painfully real and valid. No need to claim full on racist if some of it is factual as a first response or defense ?
I can’t speak for other places but I just returned from a trip to Japan. Their society is far more advanced and far more civilized than the United States. You would be impressed if you visit there. Oh, and they are non whites.
Dave:
Gresham’s Law: Bad money drives out good
https://en.wikipedia.org/wiki/He_who_does_not_work,_neither_shall_he_eat
JOHN SMITH
YOU DONT WORK, YOU DONT EAT
Actually, that was the Apostle Paul in his letter to the Romans. It may have been another congregation but it was Paul who penned those words. Just sayin
Fiat currency is backed by two things. By what it’s made of, and trust that the stuff it’s made of will hold up under pressure.
The problem is, we’re now witnessing increasing pressures on ALL fiat currencies around the world.
it is a good read and interesting read. this year the ban on USA oil exportation has been lifted. If they can get more $$$ per barrel for oil, our local pump prices will go up.
All good points in the article. But the real underlying issue is simply the fractional reserve banking system and our ability to always spend more than we can actually back up? So it is a two tiered problem, an out of control government spending mindset and the federal reserve which was created to enable fractional reserve banking here in USSA. All of which is based on the petro dollar which is of course doomed. China, Russia and others have been leaving it and creating a new world trade currency for a long while now and our own governments ignorance has exacerbated this issue. The other underlying matter is our massive debt which few ever speak of or understand. We will see a RESET and that is already in motion.
Iran is demanding that payment for their oil be made in Euros! This will alleviate the impact of future sanctions that will are likely to come in the future. Also, it takes a shot at the petro-dollar.
We have some interesting time ahead folks.
Considering Iran and Libya did the same and immediatly got the shit bombed out of them, interesting times indeed.
probably should be saving every cent you currently are not spending on gas..because when this gets corrected , your wallet is going to get the raping of its life
Well, misery loves company.
The deep state/military industrial complex needs to go. They of course will resist for quite some time longer; please don’t underestimate their capacity to lie, cheat, steal, and stretch things out for some time longer.
Think Saudi Arabia might abandon the petrodollar? There’s a lot of Saudi princes out there and it’s amazing how often accidents happen.
Of course there’s always the threat that any given nation is harboring terrorists or trying to make WMD . . . we can trump up any reason we need to declare war.
I fear that concerning Russia or China the DS/MIC will be willing to use this tactic and say Russia is siding with terrorists in Syria, attacked our NATO ally Turkey, or whatever, and that China attacked our ships in international waters, shot down our peaceful F-18s overflying disputed islands, or whatever, because they have to. Remember they don’t care about us or their country, they just want to remain in power.
A devastating war that kills millions and ruins life for the bottom 90% means little to them so long as they remain the power elite.
Does the ‘M’ in DS/MIC stand for Mutt or Mulatto?
Um.
Did you not read the deal Nixon made?
If we dismantle our military and pull out of the Mideast it’s going to be the Petro-Yuan or Petro-Ruble in about 5 seconds flat.
Damned if we do damned if we don’t.
Thorium might be nice about now… not that we wouldn’t suffer but at least we’d suffer less…
RIO – well said. I wish every adult in the West would read and understand your comment.
All the oil producing countries vying to get their share of a diminishing market. Demand is down. Saudis in trouble because they have to fund their internal social problems to avoid an Arab spring. Iran allowed to play in the game again. Russia suffering too despite the military pomp and presence in Syria. Venezuela, a socialist nightmare, onetrick pony.
My father worked in the Gulf, gauging oil output for a well known oil company. Back in the early 70s I remember him coming home one day and putting his hand to his forehead and declaring worriedly that we (the US) was running out of oil. His wells, the ones he checked, were petering out at the time. Oil, by its very nature is a product that is “used up”. There is still a lot of it around though, but since the 70s, we all have been paying through the nose for other people’s oil. We were willing to do this because of the petrodollar… and I believe to a great degree, the move was strategic as the fact that we had untapped or “tappable” resource via fracking was known to higher ups a long time ago. The palpable desparation on the part of these oil producing countries is what leads me to believe that war is the attractive option for boosting their faltering economies. And they will seek to drag us into it… can we please stay out of it this time??? Wishful thinking, I know.
Another 24 – 1 OZ. Sunshine Minting Silver bars coming in tomorrow’s mail. Someday that may be just enough to fill the tank of my Trailblazer.
Thank you, JM Bullion
The rounds are cheaper.
The rounds are cheaper and I have many of those, but the bars have the added advantage of the security code. Don’t know if it’s a advantage if I have to sell or not, but I’ll cover myself either way.
The sunshine rounds do as well but what it all will come down to is purity and weight and you can bet they’ll know how to determine both.
They don’t call it Black Gold for nothing!
Sgt.
Sweaty friggin’ Arabs… Nothing but trouble.
Squash ’em underfoot as you would a roach.
Pests.
At one time the US was the world’s largest oil producer.
It powered up the modern industrial economy with cheap oil. It’s cheap oil is gone. Expensive oil sands and tight oil will not power the current economy. The EROEI is too low.
The ME has the world’s last cheap oil and this is where the resource wars are being fought.
Better hope the corporate US .gov can keep control over the sweet spots. It’s what keeps you in the lifestyle you now have.
The common man is led around by the nose to believe this is a religious war.
The bosses know it’s all about oil and power.
“There was a fly in the ointment:”
No ‘Fly In The Ointment”; the end result was a 400% increase in demand for US dollars as the price of oil quadrupled. US inflation increased but was more than offset by this USD demand. The money was coming back to the US anyway with Treasury Purchases fueling the debt and allowing the evisceration of US manufacturing.
They are slick, very very slick. TPTB don’t get caught with their pants down; they pull them down and moon the world saying, “Kiss my ass suckers”.
I’ll go as far as saying that the 1973 oil embargo was planned to increase demand created for the USD via the oil peg.
Gas here went down another penny today to $1.53 per gallon.
I like oil it’s cheap. Can’t beat it. Still not consuming any more than I was before though. It’s not like I’m gonna turn up the thermostat or go on a road trip. The oil industry is the ones losing out lowering the price. Fools gas should be like $4.25 a gal. Giving the shit away now.