Sunday, March 25, 2012

Concept of Petro dollar under threat

Saudi Arabia, being the largest oil exporter in the Middle East is bound to be awash with funds given the steep rise in crude prices. But wait! Here is another nation, which is leaving no stone unturned to claim its super power status. In fact it is ensuring in more ways than one that the US loses its most powerful nation tag. You may have guessed it right that it is none other than China. The latter is not just piling up its forex reserves. It is also pressuring the IMF to award Yuan the reserve currency status. But there is more to China's super power ambitions. Something that even the US seems unaware of!

As per a blog on The Economic Collapse, the Mandarin economy has teamed up with Saudi Arabia to undertake the building of a mammoth oil refinery. This mammoth new refinery is scheduled to be fully operational by 2014. The development is not completely out of the blue. Over the past several years, China has aggressively expanded trade with Saudi Arabia. In fact, China now imports more oil from Saudi Arabia than the United States does.

So why is this important?  Well, back in 1973 the United States and Saudi Arabia agreed that all oil sold by Saudi Arabia would be denominated in US dollars. This 'petrodollar system' was later adopted by rest of the world. However, the biggest beneficiary was the US as it immensely strengthened the US dollar. If China were to replace US as the key  determinant of oil prices, will the 'petro dollar' last long?  Well, we certainly see petro-Yuan on its way.

No comments:

Post a Comment