PNN – One of the terms that is being heard a lot these days is the “petrodollar,” a tool that Iran is said to be able to exploit to change the course of the war in its favor. What is the petrodollar system and what is its significance in the US-Israeli war with Iran?
The Americans first launched the “petrodollar” system in the 1970s with an agreement between the United States and Saudi Arabia. According to the agreement between the United States and Saudi Arabia, the Saudis agreed to price their oil exports exclusively in US dollars.
In return, the United States pledged to bring Saudi Arabia under its military and economic umbrella. The agreement between the United States and Saudi Arabia was not limited to these two countries. Soon, other oil-producing countries also joined the agreement. Thus, the petrodollar is a system in which oil-exporting countries receive US dollars in exchange for the sale of their oil. The petrodollar increased global demand for the US dollar and ultimately helped the dollar become the preferred and primary currency for international oil trade.
The core of the petrodollar system is that oil-exporting countries use dollars to sell their oil instead of their own local currencies. This is important because it forces oil-demanding countries to first obtain dollars to buy oil. In this way, the United States faces a surge in demand for its value on world markets without having an economic need of its own.
How does the US benefit from the petrodollar? Countries like Saudi Arabia, Kuwait, and the UAE receive dollars in exchange for their oil sales. This way, huge amounts of dollars end up in the hands of these countries. Imagine if these countries were to receive many dollars in exchange for their oil, instead of their own currency, what would they do with all these dollars? They can’t spend them all at home and in their own countries. Some of the dollars are used for imports, but they still need their own domestic currency, such as the rial and the dinar, for domestic spending. In this way, they use the rest of the dollars they have to invest in other countries, the best place being the United States, which uses the dollar. These countries buy US government bonds, which are similar to loans to the US government. Sometimes they may invest these dollars in the real estate market, American companies, and bank deposits.
The US government is effectively borrowing by selling Treasury bonds. The money and capital of oil-exporting countries are being used to finance US debt. In simple terms, the petrodollar provides a safe and stable way for the US government to finance its military and economic sectors. When more countries apply for US bonds, this increased demand leads to a decrease in interest rates. In this way, the US can borrow more cheaply. Ultimately, the petrodollar system has helped increase America’s economic and geopolitical power in the world. The US can print dollars with ease because the world needs them. In addition, the petrodollar also increases America’s power to impose sanctions. Any country that does not join will face the threat of sanctions.
Iran War and Attack on Petrodollar One of the geopolitical issues raised in the Iran War is the attack on the petrodollar, meaning that Iran has created an environment where the US dollar is used less for oil trade in the world and alternative currencies enter the field, such as the Chinese yuan! The closure of the Strait of Hormuz, which is the artery of oil transportation in the world, has disrupted oil trade in the world. Proposing options such as using the Chinese yuan or the euro or even bartering is considered a kind of weakening of the petrodollar. In fact, the war has changed the pattern of global oil trade. One of the interesting points is that most of the oil that passes through the Strait of Hormuz is the oil that is traded with the petrodollar system. The closure of the Strait has disrupted oil supply and made the oil market unstable. That is why, in this situation, there is an opportunity for alternative currencies such as the yuan instead of the dollar. In fact, countries can sell oil directly to their friendly countries in a way other than the dollar. In this way, in the US-Israeli war with Iran, the petrodollar has become an economic weapon that can change the balance of power in the world.