The Petrodollar’s Biggest Challengers
Established in the early 1970s, the petrodollar has secured the United States’ influence over the oil trade for over 40 years, but recently, it is clear that this monopoly is slowly beginning to fall apart.
Due to the plummeting value of the dollar, the debt from the Vietnam War, and excessive domestic spending, President Nixon abruptly pulled out of the Bretton Woods Accord, which pegged the dollar to the price of gold and based the value of other currencies on that of the dollar. Labeled the “Nixon Shock,” these actions left the country bursting with debt and low on cash, with many of its key allies such as Britain, France, and Germany questioning whether the U.S. was justified in its position as the leader of the global economy.
While the U.S. economy entered a nose dive, another geopolitical event was unfolding which exacerbated the economic free fall.
In 1973, Syria and Egypt, backed by several other Arab Nations, launched an attack on Israel which marked the beginning of the Yom Kippur War (or Ramadan War). The war placed increased pressure on oil prices, and when the United States provided Israel with financial aid and arms, the Arab Nations responded.
In 1960, the Organization of Petroleum Exporting Countries (OPEC) was formed. At the core of this organization were Kuwait, Iran, Libya, Qatar, Saudi Arabia, Iraq and the United Arab Emirates – countries which were strongly opposed to U.S. interference in the 20-day war.
Following U.S. provisions to Israel, resource rich OPEC placed an oil embargo on all those thought to have aided Israel, including the United States, Britain, Canada, Japan, the Netherlands and later South Africa and Portugal. By 1974, the price of oil quadrupled.
With the success of the embargo, and cartel’s new role as an oil price influencer, Saudi Arabia became the de facto leader of OPEC.
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