The petrodollar agreement, established in the 1970s, refers to the practice of selling oil exclusively in U.S. dollars. This system has been a cornerstone of the global financial system, as it has helped maintain the U.S. dollar’s status as the world’s primary reserve currency1. The agreement originated from a deal between the United States and Saudi Arabia, where the U.S. provided military support to Saudi Arabia in exchange for conducting its crude oil sales in U.S. dollars1.
Shaping the international trade and finance system
The petrodollar system has had significant implications for international trade and finance. It has facilitated the investment of oil-exporting countries’ revenues back into their economies or into the U.S. economy, a process known as “petrodollar recycling”1.
Overall, the petrodollar agreement has played a crucial role in shaping the modern financial landscape, and its evolution will continue to be a topic of interest for economists and policymakers worldwide.
