Will a shift away from the dollar in the global oil trade really lead to a big relative decline in the dollar? Probably and eventually. But a number of other dominoes would need to fall first, most especially the domino we call “Eurodollars.”
In other words, as the dollar declines, the US regime will no longer be able to monetize debt and heap up immense new deficits without fear of high price inflation or falling Treasury prices. The end of the petrodollar is not a reason to panic right now, but it is the latest sign that the US regime’s power via the dollar is being reined in.The petrodollar is the result of US efforts to secure access to Middle Eastern oil while also lessening the slide of the dollar in the early 1970s.
But by 1974, the enormous flood of dollars from the US into Saudi Arabia, the top oil exporter, suggested a solution.the kingdom military aid and equipment as well. In return, the Saudis would use their dollars to purchase US Treasurys and help finance US budget deficits.