The phrase petrodollar warfare refers to a hypothesis that one of the driving forces of United States foreign policy over recent decades has been the status of the United States dollar as the world's dominant reserve currency and as the currency in which oil is priced. The term was coined by William R. Clark, who has written a book with the same title. The phrase oil currency wars is sometimes used with the same meaning.
Contents |
Most oil sales throughout the world are denominated in United States dollars (USD).[1] According to proponents of the petrodollar warfare hypothesis, because most countries rely on oil imports, they are forced to maintain large stockpiles of dollars in order to continue imports. This creates a consistent demand for USDs and upwards pressure on the USD's value, regardless of economic conditions in the United States. This in turn allegedly allows the US government to gain revenues through seignorage and by issuing bonds at lower interest rates than they otherwise would be able to. As a result the U.S. government can run higher budget deficits at a more sustainable level than can most other countries. A stronger USD also means that goods imported into the United States are relatively cheap.
Another component of the hypothesis is that the price of oil is more stable in the U.S. than anywhere else, since importers do not need to worry about exchange rate fluctuations. Since the U.S. imports a great deal of oil, its markets are heavily reliant on oil and its derivative products (jet fuel, diesel fuel, gasoline, etc.) for their energy needs. The price of oil can be an important political factor; U.S. administrations are quite sensitive to the price of oil.
Political enemies of the United States therefore have some interest in seeing oil denominated in euros or other currencies. The EU could also theoretically accrue the same benefits if the euro replaced the dollar. However, the European economy could also be seriously damaged if the euro were to appreciate significantly against the dollar or other world currencies, particularly its exports which would become relatively more expensive for the rest of the world. The same dynamic can apply to the dollar and the U.S. economy, as well.
In 2000, Iraq converted all its oil transactions under the Oil for Food program to euros.[2] When U.S. invaded Iraq in 2003, it returned oil sales from the euro to the USD.[3]
In mid-2006 Venezuela indicated support of Iran's decision to offer global oil trade in the euro currency.[4]
A controversial change like that in Iran would have limited ability to influence the denomination of sales one way or the other. A large number of traders would have to agree to a change in denomination before a significant change would occur.
In October of 2011 top U.S. officials announced that they had apprehended 2 Iranians that were suspected of trying to commit terrorist activities on U.S. soil.
U.S. Attorney General Eric Holder announced that the DEA and FBI had disrupted a plot "conceived, sponsored and... directed from Iran" to murder the Saudi Arabian ambassador to the U.S. in or outside a crowded Washington, D.C. restaurant which potentially would have been followed up by bombings of the Saudi Arabian and Israeli embassies. The U.S. said an Iranian-American, 56-year-old Manssor Arbabsiar of Corpus Christi, Texas, was working for elements of the Iranian government -- specifically Iran's elite military unit the Quds force -- when he attempted to hire hitmen from the feared Zetas Mexican drug cartel to carry out the hit, but Arbabsiar was unwittingly speaking to a DEA informant from the start.[5]
It is believed by some that the terrorist activity was absolutely falsified by the U.S. Government in order to facilitate further sanctions on Iran, therefore securing the strength of the Dollar.[6]
Of particular concern among many American politicians, academics, and pundits is America's dependence on foreign oil. Many economists feel that the recent rise in oil prices is at least partially tied to the fall of the US dollar relative to most currencies. Since oil is priced in dollars, sellers have increased prices to compensate for the purchase of their product with a less valuable currency. Economists generally agree that higher oil prices pose a risk of inflation, recession, or both. Inflation would almost certainly rise if the dollar were to depreciate heavily.
At least one U.S. Representative, Republican Ron Paul of Texas, has made very strong statements advancing similar views, using the phrase “dollar hegemony” to describe U.S. policy and proposing related reforms.