Ian Shilling -- The Petrodollar System and the Petrodollar Wars Explained

The Petrodollar System and the Petrodollar Wars Explained

The PetroDollar Economy

The petrodollar system was set up by Kissinger in circa 1975 to drive up the demand for U.S. dollars.

In 1971 the U.S. went bankrupt from the costs of the Vietnam War and the U.S. could no longer afford to pay its foreign creditors in Gold at $35 per ounce. So Nixon took the U.S. off the Gold Standard and floated the dollar.

Over the next few decades this led to massive printing of paper dollars, enabled massive increases of Federal government deficits and is a major factor in the massive wealth redistribution from the Middle Class to the Super Rich Oligarchy in the top 0.01% over the last 30+ years.

In 1973 the price of oil quadrupled as a result of the Saudi led oil embargo, due to U.S. support of Israel in the 1973 Arab-Israeli War.

Kissinger then did a deal with the Saudis to ensure all OPEC's oil was only traded in U.S. Dollars and that Saudi and OPEC oil profits would be recycled back into the U.S. by buying U.S. assets (Treasuries, Stocks, Real Estate etc.) and U.S. weaponry.

America's largest net export by FAR, are paper dollars with zero intrinsic value.
America currently runs a circa $600bn a year trade deficit.
I.E. it exports $600bn a year of intrinsically worthless paper dollars (or digits in electronic bank accounts) and net imports $600bn a year of manufactured goods and raw materials from the rest of the world.

The U.S. Federal government also currently runs a $600bn to $1tn a year budget deficit.
This is scheduled to get much worse over the coming years and decades as a much higher proportion of its population reaches retirement age and there are fewer workers per retiree to pay their pensions, their medical costs and the much higher interest costs on the exponentially increasing National Debt, which is currently at $20tn.

N.B. The National Debt at $20tn is equivalent to nearly $200,000 for each and every American household.
This debt will NEVER be able to be paid off and at some point the Federal government will default on its debts. This will cause a massive financial crisis - see Venezuela now, or Argentina or Zimbabwe in the recent past, or the hyperinflation in the Weimar Republic in 1923 for what previously happened when printing massive amounts of paper currency to finance massive government borrowings no longer works.

The current U.S. system of ever increasing debt is unsustainable - nobody and no institution can go on massively increasing their borrowing (or selling their assets) for ever. Eventually the rest of the world will call foul and no longer bankroll Americans living beyond their means.

The PetroDollar Wars

Every country that has dared to challenge the current fatally flawed PetroDollar system has faced intense antagonism from the U.S. government.

In 2000 Saddam Hussein said he would start selling oil in Euros not Dollars.
(In circa 1990 Saddam Hussein refused to do an oil for weapons deal with HW Bush like the Saudis had done with Kissinger circa 1975 and this is the real reason why Iraq suddenly went from being a U.S. sponsored ally in the 1980's war against Iran to being a U.S. enemy and pariah by 1991.)

In 2006 Gaddafi said he wanted Libya to trade oil in Gold Dinars and pushed for the Gold Dinar to be used in all kinds of trade across Africa, the Middle East and Muslim S.E. Asia, instead of U.S.Dollars.
By 2010 Gaddafi's plans for the Gold Dinar were starting to get some serious traction.

Syria has always maintained an independent Central Bank not under the Rothschild and Federal Reserve controlled Bank of International Settlements (like Iraq and Libya once had before U.S. regime change).
N.B. the only countries that currently have an independent non Rothschild controlled Central Bank are Syria, Iran, North Korea, Cuba and Iceland.

In 2011 China and Russia embarked on a program to marginalize the U.S. Dollar in international trade with a medium term view (say 20 or 30 years) of replacing the U.S. Dollar as the Global Reserve currency.

Iran has been trading oil in something other than dollars since circa 2011 (Yuan with China, Gold with India, Rubles with Russia etc.).

ALL of the current Neocon wars and recent antagonism towards Russia and China are a desperate (and futile) attempt by the bankers on Wall Street and in the City of London to maintain the current hegemony of the current privately owned Western banking system based on the primacy of the U.S. Dollar.

Geopolitics - China, Russia and the end of American Hegemony

http://ian56.blogspot.com/2015/05/geopolitics-us-china-and-russia-main.html

So what are the real reasons the US and UK governments are waging war in Syria?
http://ian56.blogspot.com/2016/09/why-are-us-and-uk-governments-waging.html

The Real Reasons the US Invaded Iraq in 2003
http://ian56.blogspot.com/2015/05/the-lies-still-being-told-in-media.html

How and Why the Libyan Civil War of 2011 Happened
http://ian56.blogspot.com/2014/07/why-libyan-civil-war-of-2011-happened.html

It has to be remembered that there have been several Global Reserve Currencies over the last 500 years with an average life span of about 100 years.
The U.S. Dollar became the official Global Reserve currency in 1945 with Bretton Woods.

Notes in the Margin

America's second largest net export is arms sales, which is currently on average around $30bn to $60bn a year.
When your largest exports are weaponry, your business model is creating conflict and war to increase the demand for that weaponry.
Arms sales and the U.S. military budget have dramatically increased since Bush/Cheney launched the Neocon wars in 2001.
Of course the downside of running a $1tn a year National Security State is that the National Debt increases even faster and the rest of the world will stop bankrolling America and stop supporting the U.S. Dollar earlier than they otherwise would have.

The Petrodollar system of Gulf and other OPEC countries buying Western assets with massive oil profits effectively ended in 2014 with the halving of the oil price. Saudi Arabia and most of the other major oil exporting countries are now running massive government deficits. Instead of buying massive amounts of U.S. Dollars they are now selling them.

The U.S. is no longer dependent on Gulf oil supplies as it was in 1975. It is now largely self sufficient in oil and gas, with the massive 4 millions of barrels a day increase in shale oil production since circa 2010.
In the world economy in general there is now a massive oil glut and a massive over supply of oil at $60 a barrel. Short of WW3 breaking out, oil prices are likely to remain roughly in the $40 to $50 a barrel range for many years to come.
The Gulf and other OPEC countries cannot suddenly stop selling oil at $50 a barrel (or less) to try and drive up the price as their economies would collapse and there would be revolution on the streets.
As we have already recently seen, even minor OPEC production cuts result in compensatory increases in non OPEC production (largely from increased U.S. shale production).

Saudi Arabia has burned though over a third of its Foreign Reserves in the three years since the oil price started to drop in mid 2014.

Posted 20th June by Ian Shilling