Questions4Thoughts

What is PetroDollar?

A petrodollar is a U.S. dollar earned by a country through the sale of petroleum, which is deposited into a U.S. bank.

The term was coined by Ibrahim Oweiss, a professor of economics at Georgetown University, in 1973. Oweiss felt there was a need for a word to describe a situation then occurring in OPEC countries in which an imbalance of trade largely utilizing a single currency was largely offset by that currency’s role as a reserve currency.

The idea of petrodollar is based on a mutual understanding between the oil producing countries (especially the OPEC) and the U.S., where U.S. gain the advantage of having their currency (the dollar) being used as the primary currency for trading petroleum, and in return, the oil producing countries are provided with investments/funding, supplies, security, support, etc. by the U.S.

Since long, Petroleum has been a major consumable by all countries, other than food and clothing. But unlike food and clothing, all countries cannot produce petroleum because it’s a natural resource whose availability depends on geographic locations. This brought up a major difference between the economies of petroleum producer countries (exporters) and petroleum consumer countries (importers). The introduction of PetroDollars in the early 70’s forced an automatic dependency on the U.S. dollars for the consumer countries, which slowly brought up the value of American dollars. Also the Petrodollars became one of the reasons for making U.S. dollars as the primary currency for international trading.

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