Petrocurrency (orpetrodollar) is a word used with three distinct meanings, often confused:
"Petrocurrency" or (more commonly) "petrodollars" are popular shorthand for revenues frompetroleum exports, mainly from theOPEC members plusRussia andNorway. Especially during periods of historically expensive oil, the associated financial flows can reach a scale of hundreds of billions ofUS dollar-equivalents per year – including a wide range of transactions in a variety of currencies, somepegged to the US dollar and some not.[4][5]
Thepound sterling has sometimes been regarded as a petrocurrency as a result ofNorth Sea oil exports.[6]
TheDutch guilder was once regarded as a petrocurrency due to its large quantities of natural gas andNorth Sea oil exports. The guilder strengthened greatly in the 1970s, afterOPEC began a series of price hikes throughout the decade that consequently increased the value of all oil-producing nations' currencies. However, as a result of the appreciation of the Guilder, industrial manufacturing and services in the Netherlands during the 1970s and into the 1980s were crowded out of the larger national economy, and the country became increasingly non-competitive on world markets due to the high cost of Dutch industrial and service exports. This phenomenon is often referred to in economics literature asDutch disease.
TheCanadian dollar is sometimes viewed as a petrocurrency,[citation needed] but this status is controversial. In theory, as the price of oil rises, oil-related export revenues rise for an oil exporting nation, and thus constitute a larger monetary component of exports. As theiroil sands deposits have been increasingly exploited and sold on the international market, movements of the Canadian dollar have sometimes been correlated with the price of oil. In 2015,University of British Columbia Professor Werner Antweiler predicted that if the share of oil and gas exports increases further, the link between oil prices and the exchange rate may become even stronger.[7] However, in recent years, the opposite trend has become apparent, with theBank of Canada and major Canadian financial institutions reporting that there is a disconnect between oil demand and the Canadian dollar's movement (having been virtually static within foreign exchange markets throughout the2021–2022 global energy crisis).[8] There is no conclusive explanation for this disparity, but speculated reasons include weak investor interest in Canadian oilsands (due to the growing rise ofESG investment), the increasing size of theUS petroleum industry and the relative reputation of the US Dollar.[9]
As the world's dominantreserve currency, theUnited States dollar has been a major currency for trading oil.[10][11] In August 2018,Venezuela joined the group of countries that allow their oil to be purchased in currencies other than US dollars, thus allowing purchases inEuros,Yuan (Petroyuan) and other directly convertible currencies.[3] Other nations that permit this includeIran.[12]
AfterWWII, international oil prices were for some time based on discounts or premiums relative to that for oil in theGulf of Mexico.[13]
After theBretton Woods conference in the year 1944, the UK and its allies discontinued linking their currencies with gold; however, the US dollar continued to be pegged to gold, at $35 per ounce—from 1941 to 1971.
President Nixon cancelled the fixed-rate convertibility of US dollars to gold in 1971.
PresidentRichard Nixon and his Secretary of State,Henry Kissinger, in a series of meetings with the Saudi royal family, agreed that America would providemilitary protection forSaudi Arabia's oil fields while, in return, the Saudis would price their oil exclusively in United States dollars; the Saudis were to refuse all other currencies, except the U.S. dollar, as payment for their oil exports.[14][15]
Since the signing of these agreements[16] in 1971 and 1973, OPEC oil is generally quoted in US dollars.
In October 1973, sixOPEC member countries (Saudi Arabia,Kuwait,Abu Dhabi,Qatar,Libya, andAlgeria) declared anoil embargo on the United States and the Netherlands. This was in response to the United States' and Western Europe's support ofIsrael in theYom Kippur War.
Since the beginning of 2003, Iran has required payment in euros for exports to Asia and Europe. The government opened anIranian Oil Bourse on the free trade zone on the island ofKish,[17][18] for the express purpose of trading oil priced in other currencies, including euros.
Theunconventionaltight oil (shale oil) boom in the USA starting in the early 2000s through 2010s (as well as increased production capacity in many other countries) greatly limited OPEC's ability to control oil prices.[19][20] Consequently, due to a drastic fall inNymex crude oil price to as low as $35.35 per barrel in 2015, many oil-exporting countries have had severe problems in balancing their budget.
Thirty years from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.
— Sheikh Ahmed Zaki Yamani, former oil minister of Saudi Arabia and an active minister in OPEC for 25 years, in 2000[21]
By 2016, many oil exporting countries had been adversely affected by low oil prices includingRussia,Saudi Arabia,Azerbaijan,Venezuela andNigeria.[22][23]
Thepetro, orpetromoneda,[24] launched in February 2018, was acryptocurrency developed by the government ofVenezuela.[25][26] Announced in December 2017, it was claimed to be backed by the country'soil andmineral reserves, and it was intended to supplement Venezuela's plummetingbolívar fuerte currency, purportedly as a means of circumventingU.S.sanctions and accessing international financing.[citation needed]
On January 15, 2024, the token was shut down and any remaining holdings were liquidated.[27]
In March 2018, China opened afutures market denominated inYuan which could encourage the use of its currency as a petrocurrency.[28]
