Tech Revolution
Nov 11, 2022
The current pattern of dollar domination in oil pricing and trading dates back to 1974.
This was in the stormy aftermath of the Arab Oil Embargo, the 1973 oil crisis, and the 1971 abandonment of dollar linkage to gold and fixed exchange rates for many currencies to the dollar.
Saudi Arabia agreed to price oil in dollars and retain reserves partly in Treasury bonds, in exchange for US military and political security and purchases of its oil.
Other oil exporters quickly followed. The Saudis also kept their currency pegged to the US dollar. The Mideast Gulf oil states became wealthier as a result of those “petrodollar” arrangements.
The US was able to finance large trade deficits with ease. A generally strong dollar encouraged the export of manufacturing from the US to China and other countries by making US goods relatively expensive.
Trading dollar-denominated oil and gas futures cemented the United States’ position as the world’s superpower.
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