Petrocurrency

{{Short description|Financial asset backed by a country's revenues from petroleum exports}} {{Use dmy dates|date=December 2025}} '''Petrocurrency''' (or '''petrodollar''') is a word used with three distinct meanings, often confused:

#Dollars paid to oil-producing nations (petrodollar recycling)—a term invented in the 1970s meaning trading surpluses of oil-producing nations.<ref name="investo">{{cite web |title=Definition of 'petrodollars' |url=https://www.investopedia.com/terms/p/petrodollars.asp |website=www.investopedia.com |publisher=Investopedia |access-date=19 October 2018 |archive-date=3 April 2019 |archive-url=https://web.archive.org/web/20190403001629/https://www.investopedia.com/terms/p/petrodollars.asp |url-status=live }}</ref> #Currencies of oil-producing nations which tend to rise in value against other currencies when the price of oil rises (and fall when it falls).<ref>{{cite news |last1=Amadeo |first1=Kimberley |title=Petrodollar and the system that created it |url=https://www.thebalance.com/what-is-a-petrodollar-3306358 |access-date=19 October 2018 |publisher=The Balance |date=2 August 2018 |archive-date=19 October 2018 |archive-url=https://web.archive.org/web/20181019121822/https://www.thebalance.com/what-is-a-petrodollar-3306358 |url-status=live }}</ref> #Pricing of oil in US dollars: currencies used as a unit of account to price oil in the international market.<ref name="ven">{{cite news |title=US dollars no longer a quote currency in Venezuela |url=http://www.xinhuanet.com/english/2018-10/18/c_137540829.htm |archive-url=https://web.archive.org/web/20181019121907/http://www.xinhuanet.com/english/2018-10/18/c_137540829.htm |url-status=dead |archive-date=19 October 2018 |access-date=19 October 2018 |publisher=Xinhua Net |date=18 October 2018}}</ref>

==Oil-producers' trading surpluses== {{Main|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.<ref>{{cite web |last=Nsouli |first=Saleh M. |title=Petrodollar Recycling and Global Imbalances |url=http://www.imf.org/en/news/articles/2015/09/28/04/53/sp032306a |publisher=International Monetary Fund |date=23 March 2006 |access-date=14 January 2017 |archive-date=16 January 2017 |archive-url=https://web.archive.org/web/20170116163156/http://www.imf.org/en/news/articles/2015/09/28/04/53/sp032306a |url-status=live }}</ref><ref>{{cite news |url=https://www.economist.com/finance-and-economics/2012/04/28/petrodollar-profusion |title=Petrodollar Profusion |newspaper=The Economist |date=28 April 2012 |access-date=7 February 2016 |archive-date=30 October 2019 |archive-url=https://web.archive.org/web/20191030174820/https://www.economist.com/finance-and-economics/2012/04/28/petrodollar-profusion |url-status=live }}</ref>

==Currencies correlated with oil prices== The pound sterling has sometimes been regarded as a petrocurrency as a result of North Sea oil exports.<ref>{{Cite web |url=http://www.cepr.org/pubs/Bulletin/meets/154.htm |title=Sterling and the EMS In for a penny |access-date=17 July 2008 |archive-date=22 February 2001 |archive-url=https://web.archive.org/web/20010222214438/http://www.cepr.org/PUBS/Bulletin/meets/154.htm |url-status=dead }}</ref>

The Dutch guilder was once regarded as a petrocurrency due to its large quantities of natural gas and North Sea oil exports. The guilder strengthened greatly in the 1970s, after OPEC began a series of price hikes throughout the decade that consequently increased the value of all oil-producing nations' currencies. However, as a result of the appreciation of the Guilder, industrial manufacturing and services in the Netherlands during the 1970s and into the 1980s were crowded out of the larger national economy, and the country became increasingly non-competitive on world markets due to the high cost of Dutch industrial and service exports. This phenomenon is often referred to in economics literature as Dutch disease.

The Canadian dollar is sometimes viewed as a petrocurrency,{{Citation needed|date=February 2010}} but this status is controversial. In theory, as the price of oil rises, oil-related export revenues rise for an oil exporting nation, and thus constitute a larger monetary component of exports. As their oil sands deposits have been increasingly exploited and sold on the international market, movements of the Canadian dollar have sometimes been correlated with the price of oil. In 2015, University of British Columbia Professor Werner Antweiler predicted that if the share of oil and gas exports increases further, the link between oil prices and the exchange rate may become even stronger.<ref>{{cite web|url=http://news.ubc.ca/2015/04/16/is-the-canadian-dollar-a-petrocurrency/|title=Is the Canadian dollar a petrocurrency?|work=UBC News|date=16 April 2015|access-date=16 April 2015|archive-date=17 April 2015|archive-url=https://web.archive.org/web/20150417015120/http://news.ubc.ca/2015/04/16/is-the-canadian-dollar-a-petrocurrency/|url-status=dead}}</ref> However, in recent years, the opposite trend has become apparent, with the Bank of Canada and major Canadian financial institutions reporting that there is a disconnect between oil demand and the Canadian dollar's movement (having been virtually static within foreign exchange markets throughout the 2021–2022 global energy crisis).<ref>{{Cite web| last = Bloomberg| first = B. N. N.| title = Canadian dollar no longer oiled up by crude: CIBC - BNN Bloomberg| work = BNN| accessdate = 25 April 2022| date = 8 March 2022| url = https://www.bnnbloomberg.ca/canadian-dollar-no-longer-oiled-up-by-crude-cibc-1.1734480}}{{Cite conference| last = Vachon| first = Hendrix| title = Is the Canadian Dollar Still a Petro-Currency?| url = https://www.desjardins.com/ressources/pdf/nf190528-e.pdf?resVer=1559059214000}}{{Citation| last1 = Alexander| first1 = Patrick| last2 = Reza| first2 = Abeer| title = Exports and the Exchange Rate: A General Equilibrium Perspective| accessdate = 25 April 2022| date = 4 April 2022| doi = 10.34989/swp-2022-18| url = https://www.bankofcanada.ca/2022/04/staff-working-paper-2022-18/}}</ref> There is no conclusive explanation for this disparity, but speculated reasons include weak investor interest in Canadian oilsands (due to the growing rise of ESG investment), the increasing size of the US petroleum industry and the relative reputation of the US Dollar.<ref>{{Cite web| last = Orton| first = Tyler| title = Why the loonie's still 'stuck in the mud' even as oil prices surge| work = Business in Vancouver| date = 14 March 2022| accessdate = 25 April 2022| url = https://biv.com/article/2022/03/why-loonies-still-stuck-mud-even-oil-prices-surge| archive-date = 21 April 2022| archive-url = https://web.archive.org/web/20220421060858/https://biv.com/article/2022/03/why-loonies-still-stuck-mud-even-oil-prices-surge| url-status = live}}</ref>

==Currencies used to trade oil== As the world's dominant reserve currency, the United States dollar has been a major currency for trading oil.<ref>{{cite news |last1=Wearden |first1=Graeme |title=US rivals 'plotting to end oil trading in dollars' |url=https://www.theguardian.com/business/2009/oct/06/oil-us-dollar-threat-to-america |access-date=4 July 2019 |work=The Guardian |date=6 October 2009}}</ref><ref>{{Cite news|url=https://www.ft.com/content/27a6a302-02eb-11e8-9650-9c0ad2d7c5b5 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/27a6a302-02eb-11e8-9650-9c0ad2d7c5b5 |archive-date=10 December 2022 |url-access=subscription |url-status=live|title=Oil traders keep weaker dollar in their sights|newspaper=Financial Times|date=29 January 2018|last1=Meyer|first1=Gregory}}</ref> 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.<ref name="ven"/> Other nations that permit this include Iran.<ref name="scott">{{cite book |last1=Cooper |first1=Andrew Scott |title=The Oil Kings: How the U.S., Iran, and Saudi Arabia Changed the Balance of Power in the Middle East |date=11 September 2012 |publisher=Simon and Schuster |location=New York |isbn=9781439155189 }}</ref>

===World War II to 1970=== After WWII, international oil prices were for some time based on discounts or premiums relative to that for oil in the Gulf of Mexico.<ref>Adelman, M. A. (1972). ''The World Petroleum Market'', Baltimore: Johns Hopkins University Press, Chapter 5.</ref>

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.

===1970 to 2000=== [[File:President Richard Nixon, Pat Nixon, and King Faisal of Saudi Arabia.jpg|thumb|King Faisal of Saudi Arabia with U.S. president Richard Nixon and his wife Pat Nixon in Washington, D.C., 27 May 1971]] In 1971, President Nixon cancelled the fixed-rate convertibility of US dollars to gold.

President Richard Nixon and his Secretary of State, Henry Kissinger, in a series of meetings with the Saudi royal family, agreed that America would provide military protection for Saudi Arabia's oil fields while, in return, the Saudis would price their oil exclusively in United States dollars; the Saudis were to refuse all other currencies, except the U.S. dollar, as payment for their oil exports.<ref>{{cite book|last=Clark|first=William R.|date=2005|title=Petrodollar Warfare: Oil, Iraq and the Future of the Dollar|publisher=New Society Publishers|isbn=0-86571-514-9}}</ref><ref>{{cite news|date=7 December 2006|title=Petrodollar power|url=https://www.economist.com/leaders/2006/12/07/petrodollar-power|newspaper=The Economist|url-access=subscription|access-date=8 July 2020|archive-date=8 July 2020|archive-url=https://web.archive.org/web/20200708163758/https://www.economist.com/leaders/2006/12/07/petrodollar-power|url-status=live}}</ref>

Since the signing of these agreements<ref name= agreements>{{Cite news |last=Wong |first=Andrea |date=30 May 2016 |title=The Untold Story Behind Saudi Arabia's 41-Year U.S. Debt Secret |url=https://www.bloomberg.com/news/features/2016-05-30/the-untold-story-behind-saudi-arabia-s-41-year-u-s-debt-secret |publisher=Bloomberg News |access-date=23 May 2025|url-access=subscription|url-status=dead|archive-url=https://web.archive.org/web/20160603101409/https://www.bloomberg.com/news/features/2016-05-30/the-untold-story-behind-saudi-arabia-s-41-year-u-s-debt-secret|archive-date=3 June 2016}}</ref> in 1971 and 1973, OPEC oil is generally quoted in US dollars.

In October 1973, six OPEC member countries (Saudi Arabia, Kuwait, Abu Dhabi, Qatar, Libya, and Algeria) declared an oil embargo on the United States and the Netherlands. This was in response to the United States' and Western Europe's support of Israel in the Yom Kippur War.

===Iran=== {{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,<ref>{{cite web|url=http://www.iran-daily.com/1383/2199/html/economy.htm|title=Kish Oil Exchange Planned|date=24 January 2006|website=Iran-Daily.com|publisher=Iran Daily|url-status=dead|archive-url=https://web.archive.org/web/20060517160248/http://www.iran-daily.com/1383/2199/html/economy.htm|archive-date=17 May 2006}}</ref><ref>{{cite web|url=http://www.atimes.com/atimes/Middle_East/HC22Ak01.html|archive-url=https://web.archive.org/web/20060323234235/http://www.atimes.com/atimes/Middle_East/HC22Ak01.html|url-status=unfit|archive-date=23 March 2006|title=A frenzied Persian new year|date=22 March 2006|work=Asia Times}}</ref> for the express purpose of trading oil priced in other currencies, including euros.

===OPEC and shale oil boom=== 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.<ref>{{cite web|url=http://qz.com/391283/if-opec-dead-how-is-saudi-arabia-still-calling-the-shots-in-the-oil-market/|title= If OPEC is dead, how is Saudi Arabia still calling the shots in the oil market?|date= 27 April 2015|access-date=17 November 2015}}</ref><ref>{{cite news |url= https://www.nytimes.com/2015/04/23/business/energy-environment/new-balance-of-power.html |title= New Balance of Power |work= The New York Times |date= 22 April 2015 |access-date= 17 July 2018 |last1= Krauss |first1= Clifford |archive-date= 4 July 2018 |archive-url= https://web.archive.org/web/20180704042651/https://www.nytimes.com/2015/04/23/business/energy-environment/new-balance-of-power.html |url-status= live }}</ref> 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.

{{blockquote|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<ref>{{cite web |last=Hinckley |first=Elias |date=January 20, 2015 |title=Everything Has Changed: Oil and the End of OPEC |url=http://www.energytrendsinsider.com/2015/01/20/everything-has-changed-oil-and-the-end-of-opec/ |publisher=Energy Trends Insider |access-date=17 July 2018 |archive-date=24 February 2021 |archive-url=https://web.archive.org/web/20210224141112/http://www.energytrendsinsider.com/2015/01/20/everything-has-changed-oil-and-the-end-of-opec/ |url-status=dead }}</ref> }}

By 2016, many oil-exporting countries had been adversely affected by low oil prices including Russia, Saudi Arabia, Azerbaijan, Venezuela and Nigeria.<ref>{{cite news |title=Oil prices: How are countries being affected? |url=https://www.bbc.com/news/world-35345874 |access-date=4 July 2019 |publisher=BBC.com |date=18 January 2016 |archive-date=2 January 2019 |archive-url=https://web.archive.org/web/20190102064237/https://www.bbc.com/news/world-35345874 |url-status=live }}</ref><ref>{{cite web |last1=Alban |first1=Kitous |last2=Saveyn |first2=Bert |last3=Keramidas |first3=Kimon |last4=Vandyck |first4=Toon |last5=Los Santos |first5=Luis Rey |last6=Wojtowicz |first6=Krzysztof |title=JRC SCIENCE FOR POLICY REPORT: Impact of low oil prices on oil-exporting countries |url=http://publications.jrc.ec.europa.eu/repository/bitstream/JRC101562/jrc101562_impact%20of%20low%20oil%20prices%2020160512.pdf |publisher=European Commission |access-date=4 July 2019 |date=2016}}</ref>

===Venezuela=== {{Main|Petro (token)}}

The '''petro''', or ''petromoneda'',<ref name=NPR>{{cite web|first=Michele|last=Norris|date=17 December 2008|title=Contango In Oil Markets Explained|website=NPR.org|url=https://www.npr.org/templates/story/story.php?storyId=98410267|access-date=7 July 2018|archive-date=7 November 2018|archive-url=https://web.archive.org/web/20181107055942/https://www.npr.org/templates/story/story.php?storyId=98410267|url-status=live}}</ref> launched in February 2018, was a cryptocurrency developed by the government of Venezuela.<ref>[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3119606 Cryptocurrencies as Asset-Backed Instruments: The Venezuelan Petro] {{Webarchive|url=https://web.archive.org/web/20190204112348/https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3119606 |date=4 February 2019 }}. ''Banking and Insurance eJournal.'' Social Science Research Network (SSRN). Accessed 18 February 2018.</ref><ref name=launch>(20 February 2018). [https://www.washingtonpost.com/news/worldviews/wp/2018/02/20/venezuela-launches-the-petro-its-cryptocurrency/ Venezuela launches the ‘petro,’ its cryptocurrency] {{Webarchive|url=https://web.archive.org/web/20220610013931/https://www.washingtonpost.com/news/worldviews/wp/2018/02/20/venezuela-launches-the-petro-its-cryptocurrency/ |date=10 June 2022 }}. Retrieved 3 March 2018.</ref> Announced in December 2017, it was claimed to be backed by the country's oil and mineral reserves, and it was intended to supplement Venezuela's plummeting bolívar fuerte currency, purportedly as a means of circumventing U.S. sanctions and accessing international financing.{{citation needed|date=May 2019}}

On January 15, 2024, the token was shut down and any remaining holdings were liquidated.<ref>{{cite web|date=2024-01-12|title=Venezuela Kills Off Petro Cryptocurrency|url=https://www.barrons.com/news/venezuela-kills-off-petro-cryptocurrency-1e2b0317|access-date=2024-01-19|website=Barron's|language=en|archive-date=19 January 2024|archive-url=https://web.archive.org/web/20240119223020/https://www.barrons.com/news/venezuela-kills-off-petro-cryptocurrency-1e2b0317|url-status=live}}</ref>

===China=== {{Main|Petroyuan}} In March 2018, China opened a futures market denominated in Yuan which could encourage the use of its currency as a petrocurrency.<ref>{{cite news |last1=Selway |first1=William |last2=Brody |first2=Ben |title=Mnuchin 'Hopeful' Truce Can Be Reached With China on Trade |url=https://www.bloomberg.com/news/articles/2018-03-25/mnuchin-cautiously-hopeful-china-trade-deal-can-be-reached |access-date=4 July 2019 |date=26 March 2018 |language=en |archive-date=4 April 2019 |archive-url=https://web.archive.org/web/20190404233533/https://www.bloomberg.com/news/articles/2018-03-25/mnuchin-cautiously-hopeful-china-trade-deal-can-be-reached |url-status=live }}</ref>

==References== {{reflist|30em}}

==Further reading== * {{cite magazine |title=Personality: Ibrahim M. Oweiss |magazine=Washington Report on Middle East Affairs |date=26 December 1983 |page=8 |publisher=American Educational Trust |url=https://www.wrmea.org/1983-december-26/personality-ibrahim-m.-oweiss.html |url-status=live |archive-url=https://web.archive.org/web/20230407203651/https://www.wrmea.org/1983-december-26/personality-ibrahim-m.-oweiss.html |archive-date=7 April 2023 }} Article regarding Dr. Oweiss' claimed coinage of the term "petrodollar". * {{cite news |title=The demise of the dollar |work=The Independent |first=Robert |last=Fisk |date=6 October 2009 |url=https://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html }}

== External links == * [https://web.archive.org/web/20020403223410/http://www.cbsnews.com/stories/2000/12/22/2000/main259203.shtml A Look At The World's Economy (December 2000)] from CBS News * [https://www.theguardian.com/business/2003/sep/19/useconomy.usnews IMF warns trade gap could bring down dollar] * [https://web.archive.org/web/20080202025907/http://www.energybulletin.net/7707.html Petrodollar Warfare: Dollars, Euros and the Upcoming Iranian Oil Bourse] * {{usurped|1=[https://web.archive.org/web/20091015142135/http://mathaba.net/news/?x=530827 The beginning of the end for petrodollar]}} by Bulent Gokay, Mathaba News, 15 March 2006. * {{usurped|1=[https://web.archive.org/web/20130914093209/http://www.mathaba.net/news/?x=551732 Cost, abuse and danger of the dollar]}} by Rudo de Ruijter, Mathaba News, 7 March 2007.

Category:Foreign exchange market Category:Petroleum economics Category:Petroleum politics Category:Monetary hegemony