The petrodollar system is an area of particular interest to me and it has been for a very long time. I am fascinated by the secrecy which surrounds the system, the massive political implications of the system, why it was created in the first place, and why it plays, I believe anyway, an important roll in monetary policy. (Though some disagree with me.)
I even wrote 3/4 of a reasonably good novel focused on the petrodollar.
If you are interested in learning more I recommend reading the book Petrodollar Warfare. The video below is an excellent starting point also. And you should know SOMETHING about the petrodollar. It affects your life.
The petrodollar is vitally important to how our world economy operates, though few even know that the system exists. And Ron Paul is right. Watch the petrodollar.
(From the International Man)
From 1972 to 1974, the U.S. government made a series of agreements with Saudi Arabia. These agreements created the petrodollar system.
The U.S. government chose Saudi Arabia because of its vast petroleum reserves, its dominant position in OPEC, and the (correct) perception that the Saudi royal family was corruptible.
In essence, the petrodollar system was an agreement that the U.S. would guarantee the survival of the House of Saud. In exchange, Saudi Arabia would:
- Use its dominant position in OPEC to ensure that all oil transactions would happen in U.S. dollars.
- Invest a large amount of its dollars from oil revenue in U.S. Treasury securities and use the interest payments from those securities to pay U.S. companies to modernize the infrastructure of Saudi Arabia.
- Guarantee the price of oil within limits acceptable to the U.S. and prevent another oil embargo by other OPEC members.
Oil is the world’s most traded and most strategic commodity. Needing to use dollars for oil transactions is a very compelling reason for foreign countries to keep large U.S. dollar reserves.