Petrodollar Conspiracy

QUESTION: Some claim that the entire strength of the dollar is oil, which backed it after the gold standard fell. I know you said that was a convenient theory, and some now claim Trump’s trip to Saudi Arabia is Petrodollar 2.0. You managed money for OPEC and were even in an OPEC meeting, so who better to address this issue than you? I was at your 1985 conference in Princeton, and there were all the Arab nations attending in their white robes, while the Hasidic Jews were attending from the NY garment industry in their black garb. That was an eye-opening conference. So my question is, does oil have any basis for supporting the dollar, or is this another conspiracy theory, like gold going up with inflation?

Yours truly

SM

BTW, Anyone who refuses to interview you is part of the Deep State propaganda.

REPLY: Sam, it’s good to hear from you. You bring up old memories. We have grown old together. If I recall, you were there with your father. I remember when he died. To start with, the percentage of world trade attributed to oil and petroleum products is approximately 8-10% based on the 2022 data. Merchandise Trade in 2022 globally totaled around $25 trillion (WTO data). Of that, crude oil and refined petroleum product exports worldwide were estimated to be between $2.2 and 2.5 trillion (depending on price fluctuations and trade volumes). This includes contributions from OPEC, which are only 40% of crude exports, and non-OPEC exporters like the U.S., Russia, and Canada.

Therefore, if we take the $2.5 trillion and filter out OPEC, this comes to $1 trillion. Now let’s look at just Saudi Arabia, with Nixon’s secret deal (memo) made in 1974 was a negotiation not to support the dollar, but to deal with the Oil Embargo of 1973. Saudi Arabia’s annual oil sales can be measured in both volume (barrels) and monetary value (revenue), which fluctuates based on production levels, OPEC+ agreements, and global oil prices. Even if we look at the numbers from 1974, OpPEC was only about  13% ($112 billion) of world merchandise trade ($846 billion). This significant share was a direct result of the 1973 oil crisis, during which OPEC member countries imposed an embargo and drastically increased oil prices, leading to a quadrupling of oil revenues.

Saudi Arabia typically exports 6.5–7.5 million barrels per day (bpd) of crude oil and petroleum products. In 2023, Saudi Arabia’s oil revenue was estimated at $211 billion (based on ~7 million bpd and ~$80/barrel). This means that Saudi Arabia’s total petro sales amount to .0084% of world trade. The Petrodollar 2,0 is sophistry and just another conspiracy theory. If they priced all the oil in yuan, it would not alter the world economy.

Given the number of emails pouring in on this subject and people claiming Trump’s trip is Petrodollar 2.0 or whatever, I will lay out the truth. This appears to come from the perpetual dollar bears who never look outside the United States and constantly forecast the demise of the dollar since the 1970s. Why anyone listens to them shows that the old saying fool me once, shame on you, fool me twice, shame on me! They have been wrong for more than 50 years. They never look at the facts and have ZERO understanding of international investment flows.

Yes, we were all dealing with OPEC money in Geneva during the Wild ’80s. That is where all the OPEC money was being managed. Even the Saudi oil minister had a house in Gstaad, Switzerland.  That’s where I learned to ski, besides attending exciting parties. Yes, I even participated in OPEC meetings by phone. They would put me on the speaker box. So, I think I know more from the inside out rather than cooking up theories from the outside. This is all tied into this de-dollarization theory as well. I will try to put this together ASAP.