Investing Future
Nov 6, 2022
Why is Saudi’s distancing with the US significant enough to completely dent the US petrodollar?
The Organization of Petroleum Exporting Countries and its allies, including Russia, decided on October 5th, 2022, to reduce oil production by 2 million barrels per day. The world’s economies, particularly those of the US, UK, and India, might suffer greatly from this large amount of oil, which makes about 2% of the global oil supply. Now that both the US and the UK are on the verge of recession, this oil price increase might make things much worse for them!
Because of this, the NOPEC law is being passed in the US as retaliation! and the UK government is implementing a Price limit plan!! Consequently, Russia,
High energy prices, caused by Russia’s U-----e invasion, mean the Organization of the Petroleum Exporting Countries (OPEC) will earn $907 billion from oil exports this year, according to the US Energy Information Administration (EIA), compared with $577 billion on average since 2000. Saudi Arabia, the United Arab Emirates, Qatar, and Kuwait will collectively have a $409 billion current account surplus, reckons Capital Economics, or almost three times last year’s total. Russia’s current account surplus so far in 2022 has also tripled, year-on-year.
In previous petrodollar booms, energy producers have recycled their windfalls into the Western financial system. Saudi, for example, racked up a cumulative $160 billion current account surplus between 1974 and 1982, according to economist David Lubin’s book “Dance of the Trillions”, almost all of which went into the eurodollar market, a term for dollar-denominated deposits held outside of America, for example in European banks or the European branches of US lenders. The banks in turn lent those deposits to Argentina, Chile, and others in an emerging-market debt boom.
Finally, OPEC countries face huge domestic investment requirements to reduce their reliance on selling fossil fuels as the world moves towards renewable energy. For Saudi, that could mean spending more on education to boost its services sector, or building up the non-oil portion of its manufacturing industry, like solar power.
A ‘strong BRICS’ is all set to annihilate the hegemony of the Petrodollar;
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BRICS is the powerful association of five major emerging economies namely Brazil, Russia, India, China, and South Africa; The group represents 41 percent of the global population, 24 percent of the global GDP, and around 16 percent of the global trade; All the member nations have been holding annual meetings since its formation in 2009; This year the 14th annual meeting of BRICS nations was held virtually in China;
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