It’s misinformed on scale of effects, like saying Apple changing the preferences typeface on iMac is going to have massive effects down the road. Like, sure, maybe. But that’s true of literally anything.
It would take some serious changes in the global economy to make this news impactful. At which point we might as well call out the possibility of the Teton Pass collapse influencing the odds of China invading Taiwan.
I don't think what you say is the case. The petrodollar isn't something minor. The role of both oil and the currency used internationally for trade can hardly be understated in history.
It won't lead to much in the short term, that's certain. A boat as big as the global economy doesn't steer quickly. But in the long term it very well could. Or it could not, if the USA makes sure to keep the dollar in the center of world trade in other ways.
> petrodollar isn't something minor. The role of both oil and the currency used internationally for trade can hardly be understated in history
In history. Not today. Remember, in 1974 the U.S. didn’t trade with China [1], the USSR or the Soviet-aligned world. (We were also a massive energy importer [2].)
There is a reason the term petrodollar only shows up in fringe blogs, and never in monetary policy discussions (since at least Greenspan).
It's important to consider though that it isn't all about the USA's energy imports. The petrodollar is also about making sure the dollar remains the world's reserve currency.
The fact that China, Korea or India for example have to buy oil in USD rather than in Saudi Riyal or their local currencies, helps the USD.
I also want to point out "petrodollar" isn't a fringe topic. It wasn't when it was first coined, and even if it's spoken-of little nowadays, that's not a measure of its importance. Few people spoke about CDOs before the 2008 crisis. They were about to play a central role in what was to unfold, but people just weren't paying attention to them.
Again, I'm not saying the USD's dominance is about to end tomorrow. I'm just saying it's an error to dismiss this event as unimportant, in this case on the basis that the USA doesn't import as much energy, or that nobody is talking about the petrodollar. It might not be that important, or it might turn out to be. If we do see effects though, I'd expect them to be in the long-term anyway. Geopolitics are slow. The global economy doesn't change course in a day or a year.
> fact that China, Korea or India for example have to buy oil in USD rather than in Saudi Riyal or their local currencies, helps the USD
It is entirely dwarfed by the volume of their non-oil trade.
> Few people spoke about CDOs before the 2008 crisis
Everybody in mortgages, leveraged finance and structured finance was. That’s the point. The experts aren’t talking about the petrodollar; it’s bloggers and commenters.
> wasn't when it was first coined, and even if it's spoken-of little nowadays, that's not a measure of its importance
It was very real in 1974. Post 2008, it’s a fringe element.
> it's an error to dismiss this event as unimportant
Their currency is pegged to the dollar. Nobody from the U.S. seriously pushed to renew the pact; it also limits American diplomacy vis-à-vis Riyadh.
To the degree it’s important it’s in America signalling that to Riyadh that it is disposable, that America’s military and political protection cannot be taken for granted.
Oil is what matters less here.
And the event itself is not that important in isolation.
But as part of a larger trend of events it is completely different story.
The US can’t finance its debt neither keep their massive trade debts without a healthy global appetite for the dollar.
American companies can’t achieve their massive competitive advantages by outsourcing a lot of production to China and paying with green YOUs unless the world keeps trading between themselves using those green YOUs.
This won’t happen overnight because the major exporters in the world are sitting on mountains of USD denominated treasury bonds and it is not on their interests to see those mountains of assets turning into dust.
But the trend is clear.
+1. I think the term petrodollar makes it seem it's all about the oil. The oil is important, but the most important part of it is the guarantee that the casino chips the USA issues can (and in fact have) to be used to buy things around the world, even when the USA isn't involved in the trade at all (for example, when India buys oil from Saudi Arabia).
The overall fate of the USD as the world's reserve currency depends on a lot of factors beyond this event, but I think we also shouldn't mistake this event as unimportant. I might or might not have important consequences, but it's also a data point that's telling on other diplomatic and geopolitical trends going on in the world.
> the term petrodollar makes it seem it's all about the oil. The oil is important, but the most important part of it is the guarantee that the casino chips the USA issues can (and in fact have) to be used to buy things around the world
This isn't the petrodollar. It's the post-Bretton Woods international order. (And a reflection of the depth and openness of the American financial system.)
Petrodollar refers to a specific aspect of that arrangement in which America mandated certain oil exporters only trade their oil for dollars and then reïnvest those dollars into U.S. Treasuries in exchange for military and political support. That's done.
On the good side, despite all diplomatic posturing, the system have been working really well for everybody, all those countries have massive USD reservers, and nobody really wants the dollar to crash. The appetite of american consumers have been serving the world really well, nobody wants the party to end.
But american foreign police need to have some serious re-calibration if washington wants the party to go on. The times for pushing and shoving other countries are probably over.
It would take some serious changes in the global economy to make this news impactful. At which point we might as well call out the possibility of the Teton Pass collapse influencing the odds of China invading Taiwan.