Petrocurrency (or petrodollar) is a word used with three distinct meanings, often confused:
Main article: Petrodollar recycling |
"Petrocurrency" or (more commonly) "petrodollars" are popular shorthand for revenues from petroleum exports, mainly from the OPEC members plus Russia and Norway. Especially during periods of historically expensive oil, the associated financial flows can reach a scale of hundreds of billions of US dollar-equivalents per year – including a wide range of transactions in a variety of currencies, some pegged to the US dollar and some not.[4][5]
As the world's dominant reserve currency, the United States dollar has been a major currency for trading oil (sometimes the term 'petrodollar' is mistakenly used to refer to this concept).[10][11] In August 2018, Venezuela joined the group of countries that allow their oil to be purchased in currencies other than US dollars, thus allowing purchases in Euros, Yuan(Petroyuan) and other directly convertible currencies.[3] Other nations that permit this include Iran.[12]
After WWII, international oil prices were for some time based on discounts or premiums relative to that for oil in the Gulf of Mexico.[13]
After the Bretton Woods conference in the year 1944, the UK and its allies discontinued linking their currencies with gold; however, the US dollar continued to be pegged to gold, at $35 per ounce—from 1941 to 1971.
President Nixon cancelled the fixed-rate convertibility of US dollars to gold in 1971. In the absence of fixed value convertibility to gold, compared to other currencies, the US dollar subsequently deteriorated in value for several years, making fixed USD to local currency exchange rates unsustainable for most countries.[14]
Since the agreements[15] of 1971 and 1973, OPEC oil is generally quoted in US dollars, sometimes referred to as petrodollars.
In October 1973, OPEC declared an oil embargo in response to the United States' and Western Europe's support of Israel in the Yom Kippur War.
See also: Central Bank of Iran § Payment systems |
Since the beginning of 2003, Iran has required payment in euros for exports to Asia and Europe. The government opened an Iranian Oil Bourse on the free trade zone on the island of Kish,[16][17] for the express purpose of trading oil priced in other currencies, including euros.
The unconventional tight oil (shale oil) boom in the USA starting in the early 2000s through 2010s (as well as increased production capacity in many other countries) greatly limited OPEC's ability to control oil prices.[18][19] Consequently, due to a drastic fall in Nymex crude oil price to as low as $35.35 per barrel in 2015, many oil-exporting countries have had severe problems in balancing their budget.
Thirty years from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.
— Sheikh Ahmed Zaki Yamani, former oil minister of Saudi Arabia and an active minister in OPEC for 25 years, in 2000[20]
By 2016, many oil exporting countries had been adversely affected by low oil prices including Russia, Saudi Arabia, Azerbaijan, Venezuela and Nigeria.[21][22]
Main article: Petro (cryptocurrency) |
The petro, or petromoneda,[23] launched in February 2018, is a cryptocurrency developed by the government of Venezuela.[24][25] Announced in December 2017, it is claimed to be backed by the country's oil and mineral reserves, and it is intended to supplement Venezuela's plummeting bolívar fuerte currency, purportedly as a means of circumventing U.S. sanctions and accessing international financing.[citation needed]
Main article: Petroyuan |
In March 2018, China opened a futures market denominated in Yuan which could encourage the use of its currency as a petrocurrency.[26]