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End Of Petrodollar Hegemony May Happen Soon and Badly Impact Indebted America

End Of Petrodollar Hegemony May Happen Soon and Badly Impact Indebted America thumbnail

The United States is currently waging economic warfare against one tenth of the world’s countries with cumulative population of nearly 2 billion people and combined gross domestic product (GDP) of more than $15 trillion.

These include Russia, Iran, Venezuela, Cuba, Sudan, Zimbabwe, Myanmar, the Democratic Republic of Congo, North Korea and others on which Washington has imposed sanctions over the years, but also countries like China, Pakistan and Turkey which are not under full sanctions but rather targets of other punitive economic measures.

Nicolas Asfouri | AFP | Getty Images

In addition, thousands of individuals from scores of countries are included in the Treasury Department’s list of Specially Designated Nationals who are effectively blocked from the U.S.-dominated global financial system. Many of those designated are either part of or closely linked to their countries’ leadership.

From a U.S. perspective, each one of the economic entities is targeted for a good reason be it human rights violations, terrorism, crime, nuclear trade, corruption or in the case of China, unfair trade practices and intellectual property theft.

But in recent months it seems that America’s unwavering commitment to fight all of the world’s scourges has brought all those governments and the wealthy individuals who support them to a critical mass, joining forces to create a parallel financial system which would be out of reach of America’s long arm. Should they succeed, the impact on America’s global posture would be transformational.

America’s global supremacy has been made possible not only thanks to its military power and its alliance system but also due to its control over the plumbing of global finance and particularly the broad acceptance of the dollar as the world’s reserve currency. The unique status of the U.S. currency has anchored the global financial system since World War II.

Any transaction done in U.S. dollars or using a U.S. bank automatically brings the trading parties under American legal jurisdiction. When the U.S. decides to impose unilateral sanctions, as in the case of Iran, it essentially tells the world’s governments, corporations and individuals they must choose between halting business with the sanctioned country or be shut off from the world’s number one economy. This is a powerful stick.

Not many companies or banks can afford to give up on the U.S. market or be denied access to U.S. financial institutions.

Revisionist countries that wish to challenge the U.S.-led system see this as an affront to their economic sovereignty. Which is why both Russia and China have developed their own versions of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the global network that allows cross-border financial transactions among thousands of banks. Both countries are also urging their trading partners to ditch the dollar in their bilateral trade in favor of indigenous currencies.

This month Russia was quick to recruit Turkey into the anti-dollar bloc, announcing it would back non-dollar trade with it, after a financial feud between Ankara and Washington broke out. China for its part is using its trillion-dollar Belt and Road Initiative as a tool to compel countries to transact in yuan terms instead of dollars. Pakistan, the number one recipient of Belt and Road money, and Iran have already announced their intention to do just that. Last month’s BRICS (Brazil, Russia, India, China, South Africa) summit in Johannesburg was a call to arms against the dollar hegemony with countries like Turkey, Jamaica, Indonesia, Argentina and Egypt invited to join in what is known as “BRICS plus” with the goal of creating a de-dollarized economy.

The main front where the future of the dollar will be decided is the global commodity market, especially the $1.7 trillion oil market. Ever since 1973, when President Richard Nixon unilaterally severed the U.S. dollar from the gold standard and convinced the Saudis and the rest of the OPEC countries to sell their oil only in dollars, the global oil trade has been linked to the American currency. This paved the way for the rest of the commodities to be traded in dollars as well. The arrangement served America well. It created an ever growing demand for the greenback, which in turn enabled consecutive U.S. governments to freely run their growing deficits.

Not anymore. Because so many of the members of the anti-dollar alliance are exporters of commodities they no longer feel that their products should be either priced by a dollar-denominated benchmark like WTI and Brent or be traded in a currency they no longer crave.

For example, when China buys oil from Angola, gas from Russia, coal from Mongolia or soybeans from Brazil it prefers to do so in its own currency and thereby avoid unwanted exchange rate fees on both sides of the transaction. This is already beginning to happen.

Russia and China have agreed to transact some of their traded energy in yuan. China is pushing its main oil suppliers Saudi Arabia, Angola and Iran to receive yuans for their oil. And last year China introduced gold-backed futures contracts, dubbed “petro-yuan” in the Shanghai International Energy Exchange – the first non-dollar crude benchmark in Asia.

The gradual acceptance of digital currencies, backed by blockchain technology offers another way for the revisionists to ditch the dollar in their trading. The Russian central bank indicated that it was considering launching a national cryptocurrency called “cryptoruble” and in the interim it helped Venezuela’s launch of its own cryptocurrency, the “petro,” which is backed by the country’s vast oil reserves. Now BRICS members are discussing a BRICS-backed cryptocurrency.

All of those actions and others point to one direction: In the coming years the dollar will be facing a barrage of attacks with the goal of eroding its hegemony and the energy trading market will be one of the main battlefields where the future of America’s economic dominance will be decided. Any successful attempt to delink commodity trading from the dollar will have a cascading impact not only on the global economic system as we know it but also on America’s posture abroad.

With the overall positive state of the U.S. economy and the remarkable strength of the dollar compared to the currencies of the dollar-busters including the Russian ruble, the yuan, the Turkish lira and the Iranian rial it may be easy to sink into complacency and dismiss the actions of the revisionists as mere pinpricks.

But ignoring the growing anti-dollar coalition would be to America’s detriment. Bull markets eventually come to an end and with a national debt of $21 trillion and growing at a rate of a trillion dollars a year, the awakening could be ruder and sooner than most economists predict.

In the midst of America’s economic euphoria it is worth remembering that one of every four people on the planet lives today in a country whose government is committed to end the dollar hegemony. Thwarting their effort should be Washington’s top national priority.

Gal Luft is co-director of the Institute for the Analysis of Global Security and senior advisor to the United States Energy Security Council.



31 Comments on "End Of Petrodollar Hegemony May Happen Soon and Badly Impact Indebted America"

  1. joe on Tue, 28th Aug 2018 10:47 am 

    Biggest threat seems to be from crypto-currencies, they don’t leave a financial trail though and so are more like tally sticks. You simply exchange money at a legitimate source and match it to an agreed amount of ‘cryptocurrency’ then simply the receiver exchanges it back at the other end. Is it any wonder that the US feels like its grip is slipping. The biggest mistake the US can make is to try to force the world to remain fixed to the old system. To survive and thrive America must move with the times. Tech is changing. Silicone Valley has allowed the world to think about escaping the dollar, kinda ironic…..

  2. George Straight on Tue, 28th Aug 2018 10:54 am 

    Regardless, badly indebted everything will crash the worldwide system of BAU….we all go down the rabbit hole together.
    BTW, a hole is all that will be there after the nuke exchanges

  3. Davy on Tue, 28th Aug 2018 11:05 am 

    I am getting tired of commenting on anti-dollar hype. Show me current statistics not future emotionally charged scenarios if you think the end of the dollar is near. The world will have to cooperate on a new global currency and currently that seems highly unlikely. Anything else in the currency world is just a niche. Bilateral deals will be on the increase. More money transfer systems may develop outside of US control. Yet, no other currency, gold, or cryptos can touch what the dollar does currently or in the foreseeable future. The dollar is more than just US property because there are Eurodollars and other dollar denominated debt. We will sink together economically and anyone thinking otherwise is dealing is living in a fantasy world. The dollar will likely be front and center of the ship we sink on together.

  4. MASTERMIND on Tue, 28th Aug 2018 11:18 am 

    Almost half of Americans can’t pay for their basic needs

  5. JuanP on Tue, 28th Aug 2018 11:21 am 

    Trying to time the coming collapse of the US Dollar is a losing proposition. I got out of dollars years ago and have no regrets. I suggest investing in real assets, not paper or digital ones.

    The dollar’s collapse will be very bad to everyone invested in dollars, particularly Americans for obvious reasons. I have seen hyperinflation in real life more than once. It is usually unexpected and unforeseen by most. It wipes out savings and makes life very hard for both rich and poor, but it doesn’t kill many people.

  6. twocats on Tue, 28th Aug 2018 11:29 am 

    I’ve never seen a chart showing global trade by currencies which would show any trends discussed by these articles. so until then – i’m with davy – its whispers and wishes.

  7. MASTERMIND on Tue, 28th Aug 2018 12:00 pm 

    People have been crowing about the dollar going to collapse forever..Usually the gold industry..Like that right ring nut job Peter shiff..The only currency that could ever beat the dollar is the euro. and with the UK leaving and the far right gaining power..there is no chance it will ever over take the dollar..

  8. WhiteIsTheSuperiorRaceBowDownToUsShitSkin on Tue, 28th Aug 2018 12:29 pm 

    White people are starting to recognized the threat that low IQ brown shit skin like Arab, Black, Indian and Chinese are to modernity and technology create by white men. (Internet, computer).

    White people all around the world are now uniting to protect western heritage and technologies against brown shit skin.

    Notice the white anger a against Sadiq Khan on his twitter account

    Important election coming to Sweden with possibility of a populist government.

    In Canada a new populist party has just been created by Maxime Bernie

  9. Antius on Tue, 28th Aug 2018 12:40 pm 

    “People have been crowing about the dollar going to collapse forever..Usually the gold industry..Like that right ring nut job Peter shiff..The only currency that could ever beat the dollar is the euro. and with the UK leaving and the far right gaining power..there is no chance it will ever over take the dollar..”

    The only currency that is ‘presently’ in a position to challenge the dollar is the euro. But the Europeans have little interest in seeing the euro usurp the dollar because it would push up the value of the euro and push down the competitiveness of exports. That idea will go down like a lead turd in Germany.

  10. Antius on Tue, 28th Aug 2018 12:45 pm 

    “White people all around the world are now uniting to protect western heritage and technologies against brown shit skin.”

    A few keyboard warriors hassling Sadiq Khan’s twitter account hardly constitutes a brewing revolution.

    I am seeing scant evidence of white people uniting or organising to seriously take back what was taken from them. From what I can see, the majority of westerners are apathetic or ‘tolerant’ as it is known in Britain.

    I would be delighted to be proven wrong on this point.

  11. JuanP on Tue, 28th Aug 2018 1:11 pm 

    SWIFT’s Worldwide Currency Usage and Trends report provides an overview of where things stand today.

  12. twocats on Tue, 28th Aug 2018 1:39 pm 

    awesome find juanp. well, i only had time to quickly skim through about half of it. but the take away I’m seeing is – dollar hegemony didn’t budge from 2012 to 2014. if anything, it grew a bit. let’s see if 2014 – 2018 brings anything different.

  13. MASTERMIND on Tue, 28th Aug 2018 2:00 pm 

    White people of the world unite! All you have to lose is your wal mart scooter..

  14. MASTERMIND on Tue, 28th Aug 2018 2:39 pm 

    Veterinarians Report That Some People Are Abusing Their Pets to Get Opioids

  15. JuanP on Tue, 28th Aug 2018 3:13 pm 

    Twocats, you read that right. The trend hasn’t changed that much since, AFAIK. There is a growing interest in alternatives, though, because the USA is using the dollar and its control of the global financial system as weapons, though. I believe the global financial system will break sooner or later, but I have no idea when.

  16. Cloggie on Tue, 28th Aug 2018 4:29 pm 

    Second revolution in East-Germany brewing?

    For a second day Chemnitz doesn’t calm down:

    This is not an oligarch-led oprising like in the US with Trump, but really grass-roots.

  17. twocats on Tue, 28th Aug 2018 7:29 pm 

    absolutely juanp but I would stress (and I know you probably aren’t going to want to hear this) but davy (almost by himself) has been accurate in countering this narrative of “petrodollar collapse” for years.

    I admit that I was wrong as well – i thought it was going to happen much faster.

    maybe it will be more all-of-a-sudden than people imagine it to be.

    I also wonder how is it that the US has been able to maintain this power for so long. its almost unimaginable. but i imagine one day the US will be seen like Italy is today – a once former imperial power filled with relics.

    “there’s a lot of ruin… in mesopotamia” – B-52s

  18. makati1 on Tue, 28th Aug 2018 8:08 pm 

    Twocats, Davy has done nothing. The petrodollar is collapsing slowly and has been for years. It takes time to turn a ship as huge as the petrodollar around. But, Trump’s actions has hastened the process to where it is becoming hard for the rest of the world to ignore.

    The world sees the petrodollar as a weapon used illegally and immorally against anyone who will not kiss America’s ass. They are moving away as fast as possible without collapsing the whole trade system. Be patient. The demise of the petrodollar is not far off now. When KSA switches, game over for the Us. I hope you are preparing for that day. I am.

  19. DeportAllBrownShitSkinAndLetThemDie on Tue, 28th Aug 2018 8:13 pm 

    For people like me that don’t understand German, here is a English complementary link to Cloggie German link.

  20. Duncan Idaho on Tue, 28th Aug 2018 9:17 pm 

    “there’s a lot of ruin… in mesopotamia” – B-52s


  21. JuanP on Tue, 28th Aug 2018 10:11 pm 

    Twocats “absolutely juanp but I would stress (and I know you probably aren’t going to want to hear this) but davy (almost by himself) has been accurate in countering this narrative of “petrodollar collapse” for years.”

    You are wrong in thinking that I wouldn’t want to hear that. I have never said that the dollar collapse is near. My position has always been that it is inevitable in the long run, but that I don’t know when it will happen. I have said many times here that I am particularly ignorant about economics and finance because I purposefully ignored those subjects for most of my life out of a deep rejection for money, people with money, and the economic and financial systems in which I’ve lived. I only started reading about these issues after the 2008 crisis because it played out in a way that was very unexpected to me and made me realize how deep my ignorance of the subject was. It is my ignorance that made me move to gold early. I don’t know enough about finance to play a waiting game with my dollars. My philosophy is better safe than sorry. That’s why I don’t invest in the stock market either.

    I also don’t have anything against Davy’s views. I have said many times that I consider him smart and insightful. As a matter of fact, Davy is the person most responsible for my buying gold and silver with my dollars. It was his comments about gold that convinced to start buying metals with my savings and surplus income a few years back. Davy and I disagree on some things, particularly where the US government’s actions, Russia, and China are concerned, but we agree on a lot of other things.

    I am not interested in being right; I am interested in learning the truth and understanding reality.

  22. Dooma on Wed, 29th Aug 2018 1:07 am 

    Unfortunately, I have to agree with Davy on this call.

    The US protects the petrodollar like a rabid dog. Killing and maiming anyone who even suggests challenging it.

    Sadly, the Yanks will let off nukes before they give their prized fiat currency up.

  23. Dooma on Wed, 29th Aug 2018 1:45 am 

    But if you take a whiff of a greenback, it has a particularly putrid odour. It is from the smell of blood, sweat and tears from slave labour. From pillaging poorer countries in return for pennies.

    When not IF this currency does finally collapse, it will bring down the world financial system with it. And if we are lucky enough to avoid nuclear war, a new-fairer system will rise from the death and destruction.

    But it is going to be an ugly transition.

  24. makati1 on Wed, 29th Aug 2018 4:02 am 

    Dooma, I agree. The new system is already being put in place but it will be a hellish ride for the West as they have the fartherest to fall. It will be a terrible time for anyone who relies on outside resources for their existence, has huge debts, and/or no survival skills/preps.

  25. makati1 on Wed, 29th Aug 2018 4:27 am 

    “What is less noticed … is how much the preparations for the next phase have been incrementally unfolding. Small steps, perhaps, but of great significance nonetheless. Because the platforms for countering US financial bullying are being put into place at an accelerating pace – particularly since Trump started to sanction ‘the world’.”

    “When America sanctions ‘the world’ it is an easy ‘sell’ for China and Russia to push others towards de-dollarisation, and to trading in local (non-dollar) currencies. And this is happening. It is almost ‘done’ in respect to oil….

    The US needs a large ‘capital return’ to support the daily life of the Americans, and the US economy. … what China can – and is – doing with those US dollar assets, is to deploy them in another important way. It is not selling them, but rather is using them – without fanfare – to support its key allies …

    What we see therefore is China and Russia quietly sewing together the fabric of a de-dollarised, currency-swap equipped, and credit-supplied, belt across Central Asia …

    Taken in aggregate, all these quantitatively, mini-steps, represent a qualitatively significant diminution of the use of the dollar, outside of the US domestic sphere….Americans’ standard of living is, in effect, subsidised by the rest of the world.”

    Those ‘subsidies’ are coming to an end, America.

  26. Cloggie on Wed, 29th Aug 2018 5:01 am 

    US minus dollar reserve currency = Slovenia (Melania country)

  27. Davy on Wed, 29th Aug 2018 5:27 am 

    “US minus dollar reserve currency = Slovenia (Melania country)”

    Do you have any calculations for that point neder? You have been very agitated lately because the world is not shaping up how you want it to and quickly enough. You appear desperate and wounded. When you start spamming empty comments like the above this condition is plain to see.

  28. JuanP on Wed, 29th Aug 2018 7:27 am 

    Dooma “When not IF this currency does finally collapse, it will bring down the world financial system with it. And if we are lucky enough to avoid nuclear war, a new-fairer system will rise from the death and destruction.”

    I agree with what you said Dooma, except your certainty that a new, fairer system will rise from the death and destruction. You are more optimistic than I am. This may end up in a fairer system, but it won’t necessarily be so. It could just as well end up in an even worse system, as discouraging as that sound. I think the latter is more likely because of our increasing population and pollution and decreasing resource availability.

    I hope you are right and I am wrong, but as much as I dislike the present system, and I really, really do, I think there is a very small chance of things getting better in my lifetime. There are just too many people in the world. And people can be truly brutal. Just remember what happened in Rwanda not that long ago, and most of the maiming and killing was done with $1 machetes imported from China.

  29. Free Speech Forum on Wed, 29th Aug 2018 12:01 pm 

    Why can the TSA grope, the FBI can run child porn sites, the police can steal, the NSA can wiretap, the CIA can torture, the EPA can pollute, and the Army can kill, but you can’t?

    Why can the government and illegal aliens break the law, but you can’t?

    Why can the bankers commit fraud and be rewarded with billion dollar bailouts instead of going to jail?

    The only difference between the mafia and the government today is that the government has a flag in front of their office.

    Wake up.


    Pass the word.

  30. makati1 on Wed, 29th Aug 2018 7:30 pm 

    “The Trump administration’s maneuvers are a testament to how China’s New Silk Road, or Belt and Road Initiative (BRI), threaten the US establishment….

    Eurasian integration is on display in Astana, where Russia, Iran and Turkey are deciding the fate of Syria, in coordination with Damascus.”

    Iran, Syria and Turkey are key to Eurasian integration and will not be given over to Us domination.

    Us isolation in the near future. Slip slidin’…

  31. Dooma on Thu, 30th Aug 2018 3:42 am 

    Yeah Juan, I did think of that later on. That maybe I was a bit too optimistic.

    I guess time will tell mate.

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