The Truth About the “Petrodollar”

The “Financial Earthquake” That Wasn’t

The most effective “fake news” has a foundation in the truth. So it goes with the following viral story that you may or may not have run across in the last week…

Before we go any further, a refresher about the petrodollar. After Washington backed Israel in the Yom Kippur War of 1973 and Arab nations imposed an oil embargo… the United States struck a deal with Saudi Arabia.

The kingdom agreed to price its oil in U.S. dollars and use its clout to get other OPEC nations to do likewise. In return, the U.S. government protected Saudi Arabia and its allies against foreign invaders and domestic rebellions.

The petrodollar deal restored global faith in the U.S. dollar after Nixon cut the dollar’s last tie to gold in 1971. It helped preserve America’s post-WWII prosperity into the 21st century.

We’ve chronicled the slow-motion unraveling of the petrodollar arrangement the last two years — going back to March 2022 when Saudi Arabia made it known it might start accepting yuan for some of its oil sales to China.

But there was nothing about the deal that “expired” a week ago Sunday.

Furthermore, there was nothing that happened a few days ago to signal the IMMINENT DEMISE of the dollar’s role as the globe’s reserve currency.

Seriously: Don’t you think that if Saudi Arabia had given notice it would allow the agreement to expire, the news would have gotten some mainstream coverage? CNN, Bloomberg, The Wall Street Journal? As rotten and corrupt as they are nowadays, that’s not exactly a development they could bury!

But no. Dig deep and all you find is coverage on fake obscure websites (see above)... which quickly spread to the less-reputable crypto sites… then was picked up by the likes of Gateway Pundit. But there was nothing to trace it back to any valid source, like a statement from Saudi Arabia’s Foreign Ministry.

The petrodollar deal “was a non-binding executive agreement; not much more than a written handshake,” says Paradigm’s macroeconomics maven Jim Rickards. “It contained annual renewal provisions and could be terminated at any time by either party.”

You could say Jim was “present at the creation” of the petrodollar deal.

In between the Arab oil embargo and the advent of the petrodollar, a young Jim Rickards met at the White House with Helmut Sonnenfeldt — Henry Kissinger’s most trusted aide.

There, he learned Washington was plotting an invasion of Saudi Arabia, and a seizure of the oil fields, in the event the kingdom did not agree to the petrodollar arrangement. So Jim speaks with a certain degree of authority here.

“The agreement never had an explicit ‘expiration date,’” he says — “so reports that the deal has expired are overstated.”

It’s Jim’s understanding that revisions of the petrodollar arrangement are in the works — the details of which he will share later this week with paying readers of Rickards’ Insider Intel.

For our purposes today, suffice to say the consequences laid out at the fake obscure websites are also overstated: “Oil will not be priced in rupees, rubles, yuan or other emerging-market currencies except in very small quantities and as an accommodation,” says Jim. “About 20% of oil purchases today are in euros and that can be expected to continue.

“The new arrangement between Saudi Arabia and the U.S. does not mark the end of the dollar as the world’s leading reserve currency and does not imply the collapse of the global market in U.S. Treasury securities. The oil and dollar markets will be business as usual.”

“Dollar Doomage”: It’s a Thing

So why did the fake news catch fire? Simple: People want to believe it. “Dollar doomage” is a thing.

I get it. I’ve been writing about “de-dollarization” for over a decade now — the process by which China, Russia and the Global South are trying to get out from under the dollar’s thumb.

Long before the United States imposed unprecedented sanctions on Russia in response to the Ukraine invasion in 2022… Washington was employing sanctions or other forms of economic warfare against countries comprising more than a quarter of the globe’s population.

Leaders of those countries are sick of it — and they’re fighting back.

Meanwhile, legions of everyday Americans who feel short-changed by “globalization” as it’s been constructed over the last quarter-century? They’ve understandably cheering on this de-dollarization effort. As the thinking goes, the sooner the dollar loses its reserve-currency status, the sooner we can move on to a better, fairer system.

Again, I get it. But please, don’t fall victim to confirmation bias.

These phony petrodollar reports aren’t the first time something like this has happened. In the spring of last year, rumors were rampant about “Operation Sandman” — in which over 100 countries were just two weeks away from selling off their U.S. Treasuries en masse to purposely collapse the dollar.

Obviously, it didn’t happen. And Saudi Arabia didn’t let the petrodollar agreement “expire,” either.

As I’ve said before, de-dollarization is a process, not an event. Rest assured we’ll follow it every step of the way.

I’m going to take this opportunity to put in a good word for what we do at Paradigm Press. As I’ve said in the past, our business model does not rely on outside advertisers. It relies on the subscription revenue of readers like you.

That’s a heavy responsibility — more so considering you rely on us for guidance about where to put your money. If we betray your trust, we lose your business. So we take our devotion to accuracy seriously.

More seriously, we daresay, than either mainstream sources like CNN or allegedly “edgy” alt-sources like Gateway Pundit.

Tiptoeing Toward a 21st-Century Draft

Slowly, quietly, the federal government is moving closer to reinstituting the draft — which, as it happens, went out around the same time the petrodollar came in.

On Friday, the House passed an early version of the National Defense Authorization Act — the annual must-pass military budget. Tucked into the bill is a provision for automatic draft registration.

Since 1980, men aged 18–26 have been required to register with Selective Service. Compliance is poor — not least because registrants are supposed to notify Selective Service every time they change address.

So now the idea is to have Selective Service cross-reference with the databases of the IRS, Social Security and other federal agencies — and use that data to register young men automatically.

Separately, the Senate Armed Services Committee voted on Friday to have young women register for the draft.

All this comes at a time when Christopher Miller, Donald Trump’s last secretary of defense, tells The Washington Post that some sort of national-service requirement should be “strongly considered” because it would create a sense of “shared sacrifice.”

To be sure, it will probably be another six months before the final version of this defense bill is passed. But the trajectory is clear — one we began to anticipate two years ago.

The economic impact of a draft? Almost impossible to tell. After all, it’s been more than 50 years since the U.S. military adopted the all-volunteer force. But if a significant number of young men — and maybe women — are withdrawn from the labor force, the economic impact will be palpable.

Meanwhile, even at the proposal stage the cultural impact is already palpable. Among the memes your editor has encountered in the last 48 hours…

Here We Go Again (Bad Breadth)

“Market breadth is becoming a problem,” avers Paradigm trading pro Greg Guenthner.

Yes, the S&P 500 and the Nasdaq sit near all-time highs. But “we’re seeing fewer and fewer stocks propping up these market moves,” he tells us — “mainly NVDA, the semis and other Big Tech names.

“The Dow has finished lower for four straight sessions. The small-cap Russell 2000 is resting at six-week lows. And many other stocks and sectors NOT involved with Big Tech are slipping lower.

“Friday’s action was telling. The Nasdaq finished green, yet 70%-plus stocks ended the day in the red (again!)... Summer is here and it’s beginning to look like more difficult market conditions could prevail.

“That doesn’t necessarily mean we’re going to see a big move lower. But I expect choppy action at the very least.”

As for today’s market action… more of the same.

At last check, the Nasdaq and the S&P 500 are both about a fifth of a percent higher… while the Dow is pancake flat and the Russell 2000 is in the red. Heck, the Russell is below the 2,000 level for the first time in six weeks.

Gold is selling off, but it’s still holding the line on $2,300 for now. Ditto for silver, still over $29. Bitcoin keeps grinding lower, now below $66,000.

But crude’s quiet rally continues, a barrel of West Texas Intermediate over $79. (Reminder: It was under $73 only two weeks ago.)

Mailbag: Free Expression (Plus the Soviets, and Trump)

After Friday’s edition anticipating the Supreme Court’s online free-speech ruling — it was revised and updated from this edition late last year — we heard from several appreciative readers…

“Excellent, excellent article summarizing the issue and what is at stake; thank you so much for writing it!

“BTW, your article implicitly states why I don't use the phrase ‘legacy media’ as it is way too, too kind.

“‘Pravda outlet’ is my term and having lived during this era and traveled extensively in Eastern and Central Europe before the Wall came down, I am simply stating that the way my friends in the East would have described the overwhelming media outlets — print and video — that ply their wares today in the U.S.”

Dave responds: It was ever thus.

I never tire of relating the following: The author Simon Louvish tells the story of some Soviet writers who came to visit the United States in the early ’80s, before Mikhail Gorbachev took power and began his glasnost reforms. These writers were stunned to read the newspapers and watch TV… and find the opinions expressed on the major issues of the day were all the same.

“In our country,” they said, “to get that result, we have a dictatorship, we imprison people, we tear out their fingernails. Here you have none of that. So what’s your secret — how do you do it?”

How indeed?

“I have been both sober and somber in sharing your view on the state of the freedom of expression in our nation,” writes another.

“Your newsletter today was only minimally impactful as actual ‘news’ to me, but it sure left a divot in my gut. It is not wild-eyed speculation; it speaks to the very heart of our many struggles in this nation and the world today.

“Thank you for such a thorough review and necessary telling of such a vitally important topic.”

“You have often been accused of showing a political bent — everything from leftist commie to far-right fascist,” writes a third.

“I too have an accusation for you — IMO you're a freedom-loving free thinker and if I had to guess your political party affiliation I would have to guess Libertarian. I originally read The 5 for investing insights, and it's still valuable for that purpose (even with the necessary 'upsell' pitches), but its real value is in having our attention drawn to issues that can potentially affect every aspect of our lives.

“I know I am not alone in my appreciation of you bringing these things to light, and your thorough perspective on them.

“As far as deplatforming, at least they haven't gotten to censoring emails, yet? Please don't change a thing.”

Dave: Emails are hard to censor, yes. Marketing and distributing those emails is another matter, but that’s not a topic for today…

“Great 5 Bullets Friday! I will probably frame this one,” says our final correspondent. “This is why I subscribe, among other reasons.

“Now address the improvement when Trump goes after the deep state or other aspects.

Will it get better?”

Dave: You mean the guy who promised to open up the JFK assassination files and then caved? The guy who had the chance to pardon Julian Assange on his way out of office and then punted?

Yeah, I’m not holding my breath…

Best regards,

 

 

 

 

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets