Let's Talk About the Petrodollar!

Most of the oil sales throughout the world are purchased with USD (known as the Petrodollar). And let's face it, because the majority of the countries in this world are reliant on oil imports, they have to maintain a stockpile of U.S. currency in order to purchase these imports. This in turn allows the United States government to gain revenues through using bonds at lower interest rates than we otherwise would be able to. As a result we can run higher budget deficits than most other countries.
So why should it matter to the U.S. citizen if the 'Petrodollar' suddenly disappeared?

1. It strikes at both the heart of the U.S. dollar and today's high tensions with Iran. With the sanctions against Iran it forces them to be isolated in the sense that it depresses the value of  'their' currency. How can Iran compete in the world market without the use of the Petrodollar?

2.  Iran is far from isolated from it's friends, however. Countries such as India will stand with their oil producing friend until the U.S. either backs down or at least acknowledges the real matter at hand and that matter is the U.S dollar and its role in the global reserve currency.

So how about we get away from the theoretical rhetoric and talk some deductive common sense?

First and foremost, why doesn't the United States just drill and get away from it's dependency on Middle Eastern oil? Could it be that an agreement was made between the Middle East and the United States that if we don't drill they'll make sure that the only currency that can be used to purchase their precious crude is the U.S. buck? Could the reason be we agreed to this deal was our lack of manufacturing/exports and so the "deal" was the only thing keeping the dollar afloat?

Currency trading is a billion dollar a day business. Still, it's speculative and as with any market it can be risky. But, if you've got a lock on a particular currency that 'has' to be used in order to purchase a certain commodity such as oil, well, where's the risk? The answer to that question is Russia and China. They're getting beyond a "little" tired of this arrangement.

Sound absurd? Check it out!

MJC