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Saudi Arabia And China Team Up To Build A Gigantic New Oil Refinery – Is This The Beginning Of The End For The Petrodollar?

The largest oil exporter in the Middle East has teamed up with the second largest consumer of oil in the world (China) to build a gigantic new oil refinery and the mainstream media in the United States has barely even noticed it.  This mammoth new refinery is scheduled to be fully operational in the Red Sea port city of Yanbu by 2014.  Over the past several years, China has sought to aggressively expand trade with Saudi Arabia, and China now actually imports more oil from Saudi Arabia than the United States does.  In February, China imported 1.39 million barrels of oil per day from Saudi Arabia.  That was 39 percent higher than last February.  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 U.S. dollars.  This petrodollar system was adopted by almost the entire world and it has had great benefits for the U.S. economy.  But if China becomes Saudi Arabia's most important trading partner, then why should Saudi Arabia continue to only sell oil in U.S. dollars?  And if the petrodollar system collapses, what is that going to mean for the U.S. economy?

Those are very important questions, and they will be addressed later on in this article.  First of all, let's take a closer look at the agreement reached between Saudi Arabia and China recently.

The following is how the deal was described in a recent China Daily article....

In what Riyadh calls "the largest expansion by any oil company in the world", Sinopec's deal on Saturday with Saudi oil giant Aramco will allow a major oil refinery to become operational in the Red Sea port of Yanbu by 2014.

The $8.5 billion joint venture, which covers an area of about 5.2 million square meters, is already under construction. It will process 400,000 barrels of heavy crude oil per day. Aramco will hold a 62.5 percent stake in the plant while Sinopec will own the remaining 37.5 percent.

At a time when the U.S. is actually losing refining capacity, this is a stunning development.

Yet the U.S. press has been largely silent about this.

Very curious.

But China is not just doing deals with Saudi Arabia.  China has also been striking deals with several other important oil producing nations.  The following comes from a recent article by Gregg Laskoski....

China's investment in oil infrastructure and refining capacity is unparalleled. And more importantly, it executes a consistent strategy of developing world-class refining facilities in partnership with OPEC suppliers. Such relationships mean economic leverage that could soon subordinate U.S. relations with the same countries.

Egypt is building its largest refinery ever with investment from China.

Shortly after the partnership with Egypt was announced, China signed a $23 billion agreement with Nigeria to construct three gasoline refineries and a fuel complex in Nigeria.

Essentially, China is running circles around the United States when it comes to locking up strategic oil supplies worldwide.

And all of these developments could have tremendous implications for the future of the petrodollar system.

If you are not familiar with the petrodollar system, it really is not that complicated.  Basically, almost all of the oil in the world is traded in U.S. dollars.  The origin of the petrodollar system was detailed in a recent article by Jerry Robinson....

In 1973, a deal was struck between Saudi Arabia and the United States in which every barrel of oil purchased from the Saudis would be denominated in U.S. dollars. Under this new arrangement, any country that sought to purchase oil from Saudi Arabia would be required to first exchange their own national currency for U.S. dollars. In exchange for Saudi Arabia's willingness to denominate their oil sales exclusively in U.S. dollars, the United States offered weapons and protection of their oil fields from neighboring nations, including Israel.

By 1975, all of the OPEC nations had agreed to price their own oil supplies exclusively in U.S. dollars in exchange for weapons and military protection. 

This petrodollar system, or more simply known as an "oil for dollars" system, created an immediate artificial demand for U.S. dollars around the globe. And of course, as global oil demand increased, so did the demand for U.S. dollars.

Once you understand the petrodollar system, it becomes much easier to understand why our politicians treat Saudi leaders with kid gloves.  The U.S. government does not want to see anything happen that would jeopardize the status quo.

A recent article by Marin Katusa described some more of the benefits that the petrodollar system has had for the U.S. economy....

The "petrodollar" system was a brilliant political and economic move. It forced the world's oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt, while essentially letting the US pretty much own the world's oil for free, since oil's value is denominated in a currency that America controls and prints. The petrodollar system spread beyond oil: the majority of international trade is done in US dollars. That means that from Russia to China, Brazil to South Korea, every country aims to maximize the US-dollar surplus garnered from its export trade to buy oil.

The US has reaped many rewards. As oil usage increased in the 1980s, demand for the US dollar rose with it, lifting the US economy to new heights. But even without economic success at home the US dollar would have soared, because the petrodollar system created consistent international demand for US dollars, which in turn gained in value. A strong US dollar allowed Americans to buy imported goods at a massive discount – the petrodollar system essentially creating a subsidy for US consumers at the expense of the rest of the world. Here, finally, the US hit on a downside: The availability of cheap imports hit the US manufacturing industry hard, and the disappearance of manufacturing jobs remains one of the biggest challenges in resurrecting the US economy today.

So what happens if the petrodollar system collapses?

Well, for one thing the value of the U.S. dollar would plummet big time.

U.S. consumers would suddenly find that all of those "cheap imported goods" would rise in price dramatically as would the price of gasoline.

If you think the price of gas is high now, you just wait until the petrodollar system collapses.

In addition, there would be much less of a demand for U.S. government debt since countries would not have so many excess U.S. dollars lying around.

So needless to say, the U.S. government really needs the petrodollar system to continue.

But in the end, it is Saudi Arabia that is holding the cards.

If Saudi Arabia chooses to sell oil in a currency other than the U.S. dollar, most of the rest of the oil producing countries in the Middle East would surely do the same rather quickly.

And we have already seen countries in other parts of the world start to move away from using the U.S. dollar in global trade.

For example, Russia and China have agreed to now use their own national currencies when trading with each other rather than the U.S. dollar.

That got virtually no attention in the U.S. media, but it really was a big deal when it was announced.

A recent article by Graham Summers summarized some of the other moves away from the U.S. dollar in international trade that we have seen recently....

Indeed, officials from China, India, Brazil, Russia, and South Africa (the latest addition to the BRIC acronym, now to be called BRICS) recently met in southern China to discuss expanding the use of their own currencies in foreign trade (yet another move away from the US Dollar).

To recap:

  • China and Russia have removed the US Dollar from their trade
  • China is rushing its trade agreement with Brazil
  • China, Russia, Brazil, India, and now South Africa are moving to trade more in their own currencies (not the US Dollar)
  • Saudi Arabia is moving to formalize trade with China and Russia
  • Singapore is moving to trade yuan

The trend here is obvious. The US Dollar’s reign as the world’s reserve currency is ending. The process will take time to unfold. But the Dollar will be finished as reserve currency within the next five years.

Yes, the days of the U.S. dollar being the primary reserve currency of the world are definitely numbered.

It will not happen overnight, but as the U.S. economy continues to get weaker it is inevitable that the rest of the world will continue to question why the U.S. dollar should automatically have such a dominant position in international trade.

Over the next few years, keep a close eye on Saudi Arabia.

When Saudi Arabia announces a move away from the petrodollar system, that will be a major trigger event for the global financial system and it will be a really, really bad sign for the U.S. economy.

The level of prosperity that we are enjoying today would not be possible without the petrodollar system.  Once the petrodollar system collapses, a lot of our underlying economic vulnerabilities will be exposed and it will not be pretty.

Tough times are on the horizon.  It is imperative that we all get informed and that we all get prepared.

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  • Arkaden

    Sadly, in the past we’ve simply toppled governments that chose to move from the petrodollar. (Iraq, Libya, etc) China can’t be pushed around like that but at the same time, the US buys much of the Chinese goods. If China chooses to abandon the petrodollar and the US economy collapses, so does theirs by proxy. I’m not saying there’s a time when they won’t do it, but I think they’re busy getting their house in order opening up trade with anyone else they can so that the day the US is not there to buy their products, it won’t hurt them as much.

    Either that, or the Middle East explodes in to WW3 and drags the big dogs in.

    • M. Hapney

      Very good. The vast majority think we were into Iraq and Libya to ‘fight for freedoms’ or to save rebels or some such nonsense. All about defending the dollar, enriching the banksters.

      Soldiers and innocent civilians die for a bank.

    • Proftel

      The largest oil producer is Russia (which is not part of the organization’s Middle East Oil).

      Matthew 20.16a is written: “So the last shall be first, and the first last.”

      This is “BRICS”.

      hehe.

    • Rhynn

      I don’t see why people continue to think the Chinese economy can’t exist without American buyers. They’ve got 1/4 of the world’s population within their own borders – that’s over three times the entire population of America. They have a virtual monopoly on rare Earth minerals – without which our electronics do not exist.

      They have leveraged themselves into enough of a power within the world at this point that given a choice between them and the US, which has betrayed all hands it’s shook and been responsible already for global financial collapse within the past three years, China will be the choice.

      Our government is aware of this. They have increased their whining about the rare earths, to no avail so far. They continue the imperialism and warmongering in a pathetic attempt to force resources out of China’s grasp. But China is accomplishing its development without war, and without subterfuge. It is not making enemies wherever it goes. It is building within the light of day. Not in the dark like the West has.

      In truth? Nobody “needs” America. Necessity is the mother of invention and America has made it necessary for the rest of the world to figure out how to conduct business without the US. And they’re getting somewhere with it. The end is extremely nigh.

      • T

        China might have a large population but a lot of the citizens live in squalor. America consumes 24% of the worlds fuel. A lot of our poor people have cars and can afford to buy stuff from China. The same can’t be said of China or India’s poor. America’s population is way more advanced and light years ahead of the Chinese. I don’t know what would happen to Chinese manufacturing if you took America out of the equation it’s all speculation. I know the Chinese have a lot of ghost cities which tells me they’re doing stuff without having an idea of their own situation.

        • Anon

          Their citizens live in squalor because their dollar is kept artificially low. As the US dollar loses reserve status, China doesn’t have to continue pegging their currency to a doomed currency bubble. The Chinese dollar will rise in value to it’s proper market worth, and suddenly those “poor” Chinese will be earning dollars with a lot more purchasing power than they do now.

          They’re big enough that (while it’d surely be disruptive for a time) they could stop shipping all that stuff over to the US and simply sell it to people in China. Why is this concept so hard for people to grasp? It’s quite simple–yet we continue to hear that the Chinese “need” Americans to consume their production! The Chinese “need” Americans to buy their products about as much as parents “need” to give their kids a personal credit card to run up indefinitely.

      • ronald

        Americans are the innovators that invented cars, computers & the internet, cell phones, put a man on the moon. China just copies & makes cheap goods with cheap labor. China is a communist country their economy is doing well thanks to China government exploiting cheap labor working poor labor class. America has been through depression before (1930′s) and will always bounce back & continue to be a world leader & innovator.

    • Robert

      Not to mention the China has the LARGEST peace time war machine ON THE PLANET! Is anyone getting this, oil reserves, war machine? What’s wrong with this picture?

      • Paul

        They have one aircraft carrier, bought from Russia.

        The oceans are still ruled by the US, the country which imprisons more of its own citizens than anybody else.

    • Pianki

      I being a black American, a descendant of slavery, jim crow, de-jure segregation, and discrimination, I for one and happy to see China doing well for it people. May the evil ravages of white supremacy collaspe upon it’s on house.

    • Jcodey

      This article shows yet again that it’s time to move quickly to alt evergy. Solar is now at average 18% efficiency. Get it to 50% + and get all on electric cars (with a gas reserve tank like the volt) and we won’t be hit nearly as hard by China’s control. That is, unless we drop the ball and let China get ahead on solar- which they already are. The US needs to lead in alt energy- and FAST, it’s a great way to stop all the power going to contries that we don’t exactly trust. Plaster our homes with solar windows and paint and panels (as a start), add wind, geothermal, tide, wave technologies- AND be the BEST in the world at it, and we save ourselves from high energy prices, control by China, and we sell to the rest of the world, making the value of oil decline. If we can’t gain from a petrocurrency, then it’s time we stop lying about the feasibility of clean alt energy (which is what we’ve been doing for decades because it allowed the petrodollar to stay alive). http://EnergyInOurHands.com

      • rickg

        Do you realize we are not working on a single alt energy idea that is feasible to power the US 24/7/365?

        No matter how many wind mills and solar panels you put up you still have to have a reliable power source running in the background. The wind and the sun are not available all the time and we do not have, and probably will never have, a way to store power (batteries)in the quantities needed for the times when the wind is not blowing and the sun is not shining.

        • Pau

          The ocean currents can be used for providing power 24/7.Is not that complicated to make those generators and not that expensive to maintain them!They working just like wind turbines only under the water and non stop!

      • HBEY54

        The black hats that realy run the good old USA already have a solution to the oil cricis in that they have an alternative power source that they are not ready to reveal as they have too much money tied up in the oil business. Just look back in time when the population paniced as the whale numbers declined and they thought that the lights would go off then what do you know… they discovered a use for oil.Remember Nicola Tesla!!!

  • mondobeyondo

    China is beginning to get desperate. They see the writing on the wall. The dollar is toast. And all the dollars that China is holding, will also be toast if things continue on their present path.

    They want to unload all those dollars. But they depend on us to buy the cheap Chinese crap they manufacture. If they dump all those dollars on us, there would be hyperinflation in the U.S. and we would be unable to buy more of their cheap Chinese crap to keep their economy booming. Bad move on their part.

    So they’re taking the gentle approach – slowly getting out of the dollar by making agreements with oil producing countries, like Saudi Arabia. Venezuela. IRAN.

    • http://lnx-bsp.net/ Tel

      Actually, I think China are exploring their options. It’s not exactly desperation, more a matter for considering how best to manage the change that is inevitable.

      Yeah, they are certainly easing away from the US dollar, but not abandoning it completely, and that’s a sensible hedging approach. China is ruled by a giant committee and they never make decisions in a hurry so you can expect them to make the least risky decision at every stage.

    • porksteak

      “And all the dollars that China is holding, will also be toast”
      China is not too worried about those Dollars they hold, they stand to make many times that by moving the Yuan to the top beating out the US Dollar as the reserve currency. Besides you can bet that China has a plan to get their money back in one way or another through economics, cyber theft, confiscation, etc. Unfortunately economic payback is headed our way soon, we may not even hold the second seat when its all said and done.

      • Paul

        China will use those dollars to buy real estate and companies in America. With house prices at 6,000 in Detroit this should be easy.

        • rickg

          You think this is an elaborate scheme to buy worthless real estate in Detroit huh?

          $6,000 houses in Detroit are still over priced. China already has plenty of crap real estate.

    • Geoff

      I know about as much as Sergeant Shulz on these matters but it wouldn’t surprise me if all these refineries were being financed in US$ thereby eating into China’s reserves of the same. They are well known for being prepared to look over the horizon on investment matters so they will be happy to bank the future profits of these infrastructure projects as anything but US$.
      Don’t be surprised to wake up one day and find that China’s US$2T in reserves is actually only a couple of hundred billion. The rest having been converted into gold, silver, commodities, mines, farms and other major infrastructres.

    • Paul

      China is investing Big with their US-dollars,just to get rid of it!!When the US dollar finish,china will have nothing left in their pockets, so they wont lose anything.

  • mark

    I do not think that it turned out to be such a good deal for the US in the end. The cost to protect the worlds oil fields and shipping lanes is very high. Our defense costs to be the policeman of the world is crazy. We borrow the money from a country to protect that same country that we borrow from. I do not think that the Saudis would want to take China’s cash instead of dollars as they have printed more than Uncle Ben. Down the road, I think that food such as wheat might be a good trade for oil from the Saudis as they do not have the water to grow their own anymore. We can still grow lots of food for export if we manage our water right. We will need to stop being extreme with the ESA such as the delta smelt and let the farmers in California start using their farmland again.

    • Kevin2

      Mark

      Actually the US over the last two decades has been exporting less and less food consuming more of it ourselves. We no longer “feed the world” as other nations have ramped up their food production. The good thing is that we’re more than self sufficient.

      • Proftel

        Com Roundup?

        hehe.

    • porksteak

      Just a thought. The Us Dollar collapses, then China demands farmland property in the US for repayment of their holdings. China gets awarded farmland and grows their own crops as well as crops for trade (trade to Saudi’s for oil ??) and to help worlds supply. After the collapse, I can see China proposing this scenario to the world and the world unanimously accepting it.

    • Bubba

      THE Whole WORLD is banning US GMO crops, due to SERIOUS safety and health concerns. OUR food is worthless, void of nutrients. OBAMA approved last JAN, the use of “AGENT ORANGE” on our CROPS, to kill the SUPER WEEDS and BUGS, that grew from the GMO crops…Now who would want to buy our crops laced with harmful chemicals.

  • Rodster

    I’ve both read and heard that the Politicians in Washington are calling China and Saudi Arabia’s bluff because China is holding so much of our debt.

    The feeling is if we go they go, sort of like (Financial MAD) mutually assured destruction. That’s why they still think our currency is safe.

    • Kevin2

      Rodster

      I think there is some truth to the MAD analogy. I also believe the demise of the USD is why we’re investing in taking out unfriendly governments on top of and next to oil fields. It’s like, “Oh so your not going to use dollars are you?” ; “Well look out there at all those US Ultra High tech aircraft within 15 minuets flying time of here”. “Oh, those tradesmen, tech reps and tourists are not CIA I can assure you”.

      It’s like dealing with the Mafia. “You need protection”. “If you don’t need protection you will need protection”.

      • Paul

        End if they don’t pay?3-rd ww?Not with china my friend!

    • liberranter

      Those politicians in Washington are morons, just like the people who put them and keep them in office (but we already knew that). What they fail to factor into the equation is Amerika’s staggering, unsustainable debt. THIS is what is ultimately going to be our undoing. Once all of the BRICS nations finally realize the utter worthlessness of the U.S. treasury debt they hold, once they find sustainable alternatives to the Amerikan market upon which they’ve depended, it will be “game over” for the U.S. dollar. That day is coming sooner than anyone anticipates, or is ready for.

      Two words: PRECIOUS METALS

      • Zedge Hero

        liberrante slices through all the BS with a silver dagger. Love it.

        Jan 30 2012 100% debt to GDP ratio

        Today 103.2%

        Rolling, Rolling, Rolling keep them debts a rolling, … sky high!

        Move ‘em out, hedge ‘em up,
        Hedge ‘em up, move ‘em on.
        Move ‘em out, hedge ‘em up:
        SKY HIGH!.
        Cut ‘em out, hide ‘em in,
        hide ‘em in, cut ‘em out,
        Cut ‘em out, hide ‘em in:
        SKY HIGH!
        Hah! Hah!

        (Rolling’, rolling’, rolling’.)
        (Rolling’, rolling’, rolling’.)
        Hah!
        (Rolling’, rolling’, rolling’.)
        Hah!
        (Rolling’, rolling’, rolling’.)
        SKY HIGH!
        Hah!
        SKY HIGH!

    • Paul

      There wont be MAD!China will have their money buck from USA!May be after, USA wont have the exact numbers of stars left on their flag.

  • matt

    This was inevitable. Our own hubris, that the dollar would always be the worlds reserve currency is ego driven. We are the USA and you (the rest of world) will bow to our might. And to make sure you have nightmares, keep in mind that not one in ten thousand Americans have any idea this will rapidly be coming our way. Our national ignorance is going to catch us by the neck and give a savage twist.

    • liberranter

      Our national ignorance is going to catch us by the neck and give a savage twist.

      And, while I hate to think in collective terms, “we” as a nation will deserve every agonizing ounce of it.

  • Highspeedloafer

    I tried again today to enlighten a neighbor, what a waste of time. He laughed and said, “you’re our watchman on the wall”. Before he left to go home, I told him something I’d heard someone else say the other day, Your lack of preparation does not constitute an emergency on my part.

    • Kevin2

      Highspeedloafer

      Tell your neighbor that after thinking about it he is right. It’s all nonsense and we’re living for now saying, “if it comes there is nothing you can do anyway.” Keep your preps for you and your family, cry poor mouth. If your home is paid off tell people your mortgage is real high. Laugh along with them. Tell them you had to sell everything to pay for your brothers medical bills.

      While it might be an advantage to having well prepared neighbors there is a disadvantage if your the only one prepared and they know it. Reach out but if put off cast them aside in an agreeable fashion.

    • Jodi

      It’s a waste of time trying to explain to neighbors, friends and family the situation our country is in. For the most part my family and friends still watch nightly and local news. As long as people continue to watch the news they will not get the whole picture. People need to watch, read and listen to different sources of news and draw their own conclusions on how they feel about our economy.

    • uncurable wound

      hey High speed,I like that!
      Same here,its like im speaking to a wall…
      on a brighter note,Im planting taters today!!

      Your lack of preparation does not constitute an emergency on my part.

      Thats good!!

      • Highspeedloafer

        Hey man, I got my taters in last week and now have 5 different gardens. I’m not sure how I am gonna keep them all going, but I’ll have fun trying. Temps have been so warm here I’m thinking of planting some beans Monday.

    • Rainy Day Saver

      “Lack of proper prior planning on your part does not constitute an emergency on mine” Old English Proverb

      • Highspeedloafer

        Thanks Rainy Day Saver. I’ll copy that for use later.

  • Gary2

    And yet another study showing conservatives to be dumb.

    Admit it conservatives–to think the way you do is not too smart. cutting taxes increases revenue, trickle down crap and all that.

    Don’t Drink and Vote: New Study Says Alcohol (And General Thoughtlessness) Makes People More Conservative

    Getting drunk is known to cause erratic, irrational, and, overall, thoughtless behavior — public urination, bar fights, tears in the streets. Now, go ahead and add political conservatism to that list.

    A new study, published in the Personality and Social Psychology Bulletin, tested whether low-effort thought promotes political conservatism, and part of the study measured alcohol’s effects on political positions. Researchers found that the higher the blood alcohol content, the more conservative the views on sex, education, and political identification became.

    Researchers hypothesized that drinking turns people Republican because political conservatism arises in the absence of deliberate thought. People with a lot on their minds, under time constraints, or told to respond in a cursory manner, rather than think deeply and use “recognition memory — an indicator of effortful thought — were also more conservative.

    “Together these data suggest that political conservatism may be a process consequence of low-effort thought,” the study concluded.

    The less you think (or more you drink), the more conservative you become? Shocker! Cheers to the right-wing.

    • Witness the End

      Gary,

      Can I buy you a beer?

    • Observer

      You’re just a big bag of ************ with a pulse. What a waste of protoplasm you are. You just sit around and post incoherent *********** all day long and ruin an otherwise pretty good website. You are a bitter, self-loathing sorry excuse for a human being. An utter failure….

      • Rodster

        Arguing with Gary2 is like wrestling with a pig. You both get dirty but Gary2 enjoyed it. ;)

      • Gary2

        are you done yet??you forgot to call me a communist.

        If all you can do is post incoherent blabber and call names it must mean that I am correct as you refute nothing I said.

        BTW–You also prove that the studies showing conservatives are not as smart as the average person are 100% correct.

        Thanks for making my point for me.

      • Mal R.

        A little bit of sunshine.

        When Communism falls on this country, Gary will have outlived his uselfulness and his kind will be the first executed… Just look at history.

    • Horhey

      Grief…..the more I read, te more I need a cocktail, or straight up. When it hits the fan, I will have grey goose and other drinks ready. You will, uh, have your…uh, intellect? Glad it works for you. Rid the cookie monster, more appropriate is a troll.

    • MB92083

      and this has what to do with the subject at hand (China Saudi US dollar)????
      You’re a one trick pony Gary2, you have nothing of value to add you this post, you are a bigot, intolerant, and hateful (you know, those things intelligent liberals always accuse those dumb conservatives of being).

      • gary2

        But it such a good trick and it will solve most problems.

    • hefsmaster

      Funny… I was more liberal when i was a drunk. Been sober for 12 years now and over that time went from that to conservative to waking up from the l/r paradigm to end up hard core libertarian. I hate all politicians equally. No bias here….

      Meanwhile, i need to constantly remind you of your ignorance in labeling us all conservatives. This site is dominated by libertarians. Get it? Got it? Good… Not that i expect you to ever learn anything.

      • gary2

        while I guess in your case it got different, not better.

  • Craig

    Another good article Michael. I agree that when the USD is no longer the world’s reserve currency, things are going to really go south in the USA. The fed will not be able to control our financial situation as they do now by simply putting trillions of dollars on the computers of the banks with a few keystrokes.

    I got off the ship in Yanbu, Saudi Arabia sometime in early 1992. Man, what a desolate place. They are so unfriendly towards Americans there. The first thing they did was confiscate all my audio and video tapes. The audio tapes were all contemporary Christian music, and none of the video tapes were porn. The Saudi’s don’t want any western or Christian influence there. My driver was horrible and a jackass. He had a very anti-American attitude. The Holiday Inn in Yanbu was nice, but that’s about it. I flew to Jeddah, then Frankfurt, Germany, and then on to the states. The terminal there at the time was just to load tankers with Saudi Crude. I wonder why China wants refined products instead of crude? Why doesn’t China want to do their own refining? Also, notice the location of the refinery isn’t near the Strains of Hormuz or Iran or Iraq. The Chinese wont have to go through the Suez Canal either to get the refined products back to China.

    • Michael

      Craig:

      Great comment. I wish more Americans realized the truth about the Saudis. It is one of the most repressive regimes on earth.

      Michael

      • Ethan

        A mullah in Saudi Arabia has now issued an order banning all Christian houses of worship in the Arabian peninsula..Very evil part of the world. No freedom there.

    • prepply

      I also was wondering why the refinery would not be in China instead of Saudi Arabia… Can it be because China already has too much air pollution? Or maybe it is less costly to ship the finished product than the crude…

    • Siegfried

      Because refining requires energy, which is cheaper in the Gulf. Shipping refined product means shipping higher added value, for the same cost.
      Chinese have always been very smart businessmen. Unlike our politicians.

  • http://FactIsFreedom.com Scott R.

    Very interesting article. I just wrote the real reasons fuel prices are rising and politicians on both sides of the fence are wrong: http://factisfreedom.com/pump-prices-punditry/

  • whteshark

    Some think this is part of larger goal by the Chinese to replace the yuan as the world reserve currency or at the very least the best among a basket of currencies.

    Some think the Chinese are buying gold at an alarming rate to back their currency when they make their move away from the dollar.

    The fact is while I have no love for the Chinese I don’t blame them or anybody else for moving away from the dollar. With our debts, commitments, and political gridlock in Washington, our balance sheet must look terrible to the rest of the world.

    Micheal, you should do an article on China’s move to a gold backed currency as a means to replace the dollar as the world’s reserve currency. I have seen one talking head discuss it; I wonder if there’s others….

  • The rise of IRAN

    Who is the Superpower now?

    Why Iran Thinks America Won’t Attack

    http://www.americanthinker.com/2012/03/m-why_iran_thinks_america_wont_attack.html

  • Ken Nohe

    You are going too fast. This is indeed an intelligent move and a great edge for China but not yet the end of the US dollar supremacy.

    Don’t forget that China has tons of greenbacks to recycle. They are loosing money but it does not matter since they would be loosing money anyway as the devaluation of the Yuan would follow the dollar closely.

    It is only if the dollar crashes that suddenly the ballgame may change but we are not there yet. The game of Go is moving on and looking at the board, the position of the US is getting weaker but it will take quite a few more moves to confirm this.

  • Alasha

    Yes, I think you are right, Michael. Not that I am prepared, however, a part of me wants this to just go ahead and START the collapse since really we will need Divine Intervention, regardless…

    (Matthew 24:21, 22) for then there will be great tribulation such as has not occurred since the world’s beginning until now, no, nor will occur again. 22 In fact, unless those days were cut short, no flesh would be saved; but on account of the chosen ones those days will be cut short.

    • Gary2

      Think about what uyou just said–you want a collapse??really??

      • Alasha

        lol… what i said was…a part of me wants this to just go ahead and START the collapse. i think when it starts…. folks will get a wake up call and we will make the hard choices and better decisions, Gary2. God Bless. U think?

      • Mal R.

        and yet you are part of Occupy. Hows that “Conservatives are dumb” workin out for ya poopy pants?

  • Tobrojo

    I can see a world war coming over this.

  • chiller

    I’m not a tree hugger but I believe we should use our time of petro-fuels to further our technology into other energy sources. We’ve been given an opportunity to use petroleum as a stepping stone to another source of energy and better do so before petroleum runs out. What are we going to do, continue to ingratiate a few individuals for profit of what’s left of this finite resource until it’s gone and we’re forced to find something else? By that time it may be too late. If we continue to use up all the oil without a substitute and squander this opportunity to move towards another resource, we’re screwed. But if we can break away from oil for new technology, we might find out later that we actually discover more important uses for petroleum in the future. But if it’s almost gone, we’re screwed again. Being the weak minded species we are, my guess is we will continue down the same path of consumption of resources till their extinction in the name of greed until we radically change the way we manage our selves and our resources.

    • John W.

      All recent estimates are that is two hundred years of petroleum supply so stop the propaganda. What is lacking is a will to use it. Seemingly this nation has a self destruct attitude. No matter what kind of energy comes along the only ones that will be favored are those that cannot work. All part of a sick plan.

    • Jcodey

      I don’t hug trees, but I sure do appreciate them. Oil is a great resource for plastics, and will become even more important as 3D printing takes over- now we print small things at home with 3D printers, in 5 years we’ll be building houses with them. Oil will be needed in the 3D printing age, & its sustainability via recycling is a true gift. So, why are we burning it off into the air, never to be used again? This article shows yet again that it’s time to move quickly to alt evergy. Solar is now at average 18% efficiency. Get it to 50% + and get all on electric cars (with a gas reserve tank like the volt) and we won’t be hit nearly as hard by China’s control. That is, unless we drop the ball and let China get ahead on solar- which they already are. The US needs to lead in alt energy- and FAST, it’s a great way to stop all the power going to contrives that we don’t exactly trust. Plaster our homes with solar windows and paint and panels (as a start), add wind, geothermal, tide, wave technologies- AND be the BEST in the world at it, and we save ourselves from high energy prices, control by China, and we sell to the rest of the world, making the value of oil decline. If we can’t gain from a petrocurrency, then it’s time we stop lying about the feasibility of clean alt energy (which is what we’ve been doing for decades because it allowed the petrodollar to stay alive). http://EnergyInOurHands.com

  • http://yahoo knarf

    what about all the oil in alaska that obababamama does not want to let loose?
    I heard their is 200 years of oil right their in the U.S.of A.

    QUIT BUYING IPADS FROM CHINA AND APPLE.
    SPEND A LITTLE MORE AND BUY AMERICAN!!!

  • http://yahoo knarf

    WHAT ABOUT THE 200 YEARS+ OIL IN ALASKA?
    WHY IS OUR OBABABABAMAMAMA STALLING ON THE DRILLING FOR IT?

    STOP BUYING IPADS MADE IN CHINA, AND SCREW APPLE FOR THEIR GREED
    BUY AMERICAN!

    • German Ralle

      Not for long, then Alaska will be back Russian. The lease agreement with the United States was not renewed.

  • Bone Idle

    Don’t be surprised if an “A” is added to the “BRICS” in the future. Australia.

    Australia’s economy is increasingly dependent on China importing its resources.

    In the next couple of years Australia will become the world’s largest producer of LNG.

    The other worrying concern is that with China pouring billions into energy projects and tying up supplies from the middle east they will increasingly be looking to secure their investments – militarily.
    Note that the projected refinery in Saudi is halfway up the Red Sea. Tankers toodling off to China will need to pass down the Red Sea to a squeeze point between Yemen, Ethiopia, Eritrea and Somalia. These are all “Problem” unstable countries.

    The Chinese military are not like the western military – Chinese military will work on the take no prisoners doctrine in the event of “interference” with their energy supplies and investments.

    Don’t be surprised if the Chinese insist on military bases in Saudi Arabia to “Protect their Interests” (Much like the U.S. has now).

  • pete

    Well!! Humph……

    I’m going to facebook and UNfriend China and Saudi Arabia RIGHT NOW.

    AND, I am going to tweet my friends on twitter and advise them to do likewise. By the end of next week, they won’t have any friends left…

    I never………

  • Barn Cat

    It could happen a lot quicker than in just the next few years. What if the US sides with Israel in a war with Iran? Iran could threaten to destroy Saudi oil fields if they don’t abandon the dollar. The Saudis could then trade in yuan and have the Chinese as their new protectors.

  • robert

    most people think china will not move away from the dollar because it will hurt them. b.s.they are still a communist country that does not care if the people get a bowl of rice a day. complain about your bowl of rice will get you one to the head.

  • Michael

    Good article , Michael, like usual….. now, India is trading iranian oil with gold !!!china use its dollars to buy gold !!! japan buy euro debt with his dollars ….

    and the single dollar i have in my banknotes collection is … a silver certificate ;-). But, to be honest, I am not optimistic for the euro too…..

  • Thomas T. Tinker

    This site is on my very loose ‘connect the dots tour’. I read and listen and watch. This ‘watchman on the wall’ has begun to see himself as standing aside while a mob tears and loots it’s way through a mall throwing handfuls of paper money in the air. I am amazed at the collective lack understanding. I’m sure there is a clinical name for it and a list symptoms. I have lost the will to even attempt to communicate with my fellow man. Let us see what happens as this ‘riot’ plays itself out.

    • Michael

      Thomas:

      I am glad that this site is on the tour. :)

      Michael

    • Zedge Hero

      Thomas maybe this will help,

      The normalcy bias, or normality bias, refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects. This often results in situations where people fail to adequately prepare for a disaster, and on a larger scale, the failure of governments to include the populace in its disaster preparations. The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred then it never will occur. It also results in the inability of people to cope with a disaster once it occurs. People with a normalcy bias have difficulties reacting to something they have not experienced before. People also tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation

      Effects
      The normalcy bias often results in unnecessary deaths in disaster situations. The lack of preparation for disasters often leads to inadequate shelter, supplies, and evacuation plans. Even when all these things are in place, individuals with a normalcy bias often refuse to leave their homes. Studies have shown that more than 70% of people check with others before deciding to evacuate.

      The normalcy bias or the sheep effect also causes people to drastically underestimate the effects of the disaster. Therefore, they think that everything will be all right, while information from the radio, television, or neighbors gives them reason to believe there is a risk. This creates a cognitive dissonance that they then must work to eliminate. Some manage to eliminate it by refusing to believe new warnings coming in and refusing to evacuate (maintaining the normalcy bias and not reading this damn blog thats addicting and truthful :) ), while others eliminate the dissonance by escaping the danger. The possibility that some may refuse to evacuate causes significant problems in disaster planning.

      Now apply this to the economic collapse which a slower, yet more fatal disaster.

  • Al

    The sooner that the U.S. dollar collapses the better. The U.S. demand for Chinese goods, falls. U.S. labour becomes relatively cheap so factories relocate back to the U.S.; factories can relocate quite easily and quickly these days. Unemployment falls and demand for goods increases. The new sources of U.S. oil can quickly be brought on line which will make U.S. goods cheap for export. Good times return after a brief period of pain.

    • Barn Cat

      No, it’s not a good thing. We import 70% of our oil. The weaker the dollar becomes the more oil costs and the weaker our economy will get. If we $7 a gallon gas it will destroy much of what’s left of the economy.

      • John W.

        We import that much oil because we refuse to use our own. We are the dumbest nation in the history of the world with the govt. full of people who hate their own country.

        • John E.

          Even if the US exploits all of it’s unused reserves of oil, we would satisfy less that 5% of the demand in the US. Right now domestic oil production accounts for only 2% of the demand. We would still depend greatly on foreign oil no matter what. Moving to alternative sustainable fuel is the only hope. The corrupt petro-industry is sitting on thousands of patents that would make alternatives possible much sooner. Laws need to be changed to allow patents to be used and not bought up by filthy rich oil cartels.

    • Rainy Day Saver

      “The sooner that the U.S. dollar collapses the better.”

      I don’t think any of us can truly comprehend just how severe the consequences will be for America if the dollar does collapse…

  • leyla
  • http://www,Back2theLand.com Old Timer

    Recently the Government announced that the USA is apperoaching “Energy Independence”. They are also moving troops and hardware to the Pacific,

    We have sanctions on most Asian states (except Japan) about Iran oil imports. Will this effect a change in “petro dollars” to Yuan,or a International Currancy?

    Will the Mid East develop into another expansive war if our Pit Bull – Isrial – attacks ?

    Does this bode well? Nah!

    Excellent article Michael.

    OT

  • http://yahoo scout

    All with can do is “up” the foreign aid we send to Saudi. As in bribe them. Either way the taxpayer is screwed because of poor choices by our politicians.

  • Antonio Gonzalez

    Then Petrodollar is a free lunch and everyone like free lunch,
    the system is not to help the world, It’s to get a free lunch.

    Now you can understand why Afganistan, Iraq, Lybia, Yemen
    Siria, Iran ……… Venezuela, Ecuador, Mexico, ………. Nigeria
    Angola…. al will be to get free lunch.

    • Jay

      Todos paises en colapso y sin derechos humanos.. All countries in collapse and human rights violators..

  • http://www.myronswinningjuniors.com Myron Martin

    The world monetary system is in a crisis, from sovereign debt problems in Southern European nations to the profligate spending in the U.S. that requires the borrowing of .40c of every dollar spent. World trade is distorting currency values with each nation seeking to devalue national currency to get an export advantage, clearly a race to the bottom that ultimately benefits nobody.

    Seems to me the logical question to ask is WHAT over the years has shown to be the best preserver of purchasing power long term? Every person who has given this any non partisan thought at all knows that there is only ONE possible answer — GOLD!

    The logical conclusion is that GOLD should be the anchor to which the VALUE of each countries currency is tied for final settlement of any trade, (based on GDP) and while no doubt some will still find ways of distorting or manipulating any new agreement to replace Bretton Woods, it has to be a step forward compared to the present chaos.

    • erich

      Where was gold’s purchasing power from 1980 til 2002? Not much preservation there. Maybe you ought to rethink that one.

      • John E.

        China is buying gold at a rate unprecedented in world history. They are aware of the charade the Federal Reserve is engaging in. The US dollar is, in reality, worth about 1/10 of it’s current market value, vis-a-vis world commodities. Fiat currencies never, NEVER, survive. There has to be a fundamental backing for a currency to last. That is no longer the case in the US. WE can barely keep up with the interest on our debt, much less reduce it. Gold has lasted thousands of years, while currencies have come and gone. Citing a brief period (1980-2002) when Reganomics created tremendous debt through de-regulation and tremendous leveraging is not an argument against gold my friend. That house of cards is collapsing and gold and gold-backed currencies will reign again.

  • Phenom527

    OK, so I understand that under the old (current) regime, China had to convert Yuan to USD to purchase oil. But when the Saudis receive the USD as payment, they don’t simply put them under a mattress. They are re-circulated into the global economy when, e.g., Saudi Arabia chooses to import beef from Australia and first converts them to Aussie$ to make payment. So where is the lasting upside bias to the US$ Isn’t this a false premise?

    And isn’t it also a false premise to assume that the US economy will get weaker over time? We are still the worl’s largest economy today, and if we clean house in November, our economy will be unleashed like never before.

  • netrageouz

    Very informative article and comments. I especially enjoyed the highspeedlaofer’s comment.. “Your lack of preparation does not constitute an emergency on my part.” I second that.

  • Austrian economist

    the collapse of the dollar-oil standard will bring manufacturing jobs back to the usa!
    this will be painful in the short run, because if e.g. the value of the currency drops 1/2, we will have $ 200 for crude oil / equivalent of $ 8 / gallon at the gas station, higher costs of food, transportation, etc. – but this will also make us more competitive. the dollar is valued at an artificial high rate, compared to other currencies and especially compared to hard money like gold & silver. the market will seek equilibrium and then it will be, once again, profitable to manufacture stuff inside the u.s.

    call center jobs are already coming back from india because it’s cheaper to run call centers in the u.s. – car manufacturers are building plants all over the south (where there are no unions, who would set artificial high labor costs) as well as other manufacturing plants. if our currency drops 1/2 – it will be much cheaper to build stuff here than overseas and this will help bring the unemployment rate down drastically.

    • Kevin2

      Austrian economist

      Jobs come back to the US because your de-facto working for less then half of your former salary. Sure the USD collapses (and it drops far less then 1/2 value if one does the math) and a middle class US worker now is cheaper labor then China and India.

      If this is your idea of good I am frightened to see your idea of bad.

      • Austrian economist

        we have to differentiate between 2 things:

        first, the outside value of a currency (compared to other currencies and especially compared to gold and silver) – the lower the outside value of the usd is, the more competitive we are, because it’s cheaper to produce goods in this country. for example china pegs their currency at an artificial low rate to the usd (the renminbi is not freely convertible) and that’s why their manufacturing sector is booming. when china dumps their 2 trillion dollar, currently invested in us bonds, their currency has to drastically rise in order to avoid hyperinflation in their country and the outside value of our currency will drop massively – just think you could build a car in the usa and sell it to the rest of the world for todays purchasing power of 2000 dollar – everybody in the world would want to manufacture cars in the u.s. – the same works for all other sectors as well

        the second thing is the purchasing power of a currency within the country. the united states is in a very unique position, geographically and financially. if we can sustain ourselves without any trade (which is entirely possible) the outside value of our currency has very little impact on the purchasing power within the country. but more than likely, the debasement of our currency will result in a huge trade surplus with has also very positive effects

        • Paul

          Yes you can live without any trade.In Calahary desert the bushmans doing it for millenias!Why cuntrys with trade embargoes cant immytate them?Iran,Iraq,Lybia,Syria etc etc?

    • Kevin2

      Austrian economist

      “the dollar is valued at an artificial high rate, compared to other currencies and especially compared to hard money like gold & silver”

      You have that backwards. Because the dollar is weak (because of an overabundance relative to goods) it buys less of an item and the item is more expensive. Let those petrol dollars flood the market and the dollars purchasing value plummets and prices rise. Dollar up = oil and gold down. Dollar down = gold and oil up.

      • Austrian economist

        currently, the dollar is nowhere near a weak point – it is actually valued at an artificial high level, because currently everybody who wants to buy oil, or any other commodities, has to buy dollars first and our government bonds are the #1 save haven for investors – this all creates an artificial high demand for our currency, which is very much overvalued currently!

  • farmgirl

    first it was in a couple of months, now it is in a couple of years. This is why people are not getting worried and getting emergency food etc. together. You do not know when or if this is going to happen. I think the only reason people are panicking is because people like you guys are putting it in their heads.

    • Tim

      It’s not a matter of if, but when. It’s amazing that it hasn’t happened already. I hate to be so blunt, but anyone who can’t see what’s coming is just blind.

    • Kathy Smith

      Better to be safe than sorry

    • Bone idle

      How about this then. Juan Manual Barroso said last week that the European economy was a hair’s breadth of tipping into the abyss in November December last year.
      They saved themselves by backdoor printing heaps of Euro’s and de facto bailing out the Euro banks.
      Kicking the can down the road.
      The reality is that Southern Europe is in a full blown depression.
      Yesterday a financial “expert” for the Bank of England announced that they had no idea what the near future holds.
      The western debt problem has been broadcast right around the world. The average person is highly aware of the economic the tightrope that western countries are treading.
      Saving and debt reduction by the general population in my country is at an all time high. Spending is plunging.
      I would suggest that most people are waiting for the “event” that will bring the whole edifice crashing down.

    • Zedge Hero

      This one is about math, plain and simple……….. 103.2 Debt to GDP ratio and grwoing. It’s not Y2K ok, it’s not some calendar from some civilization that already collapased and is gone, its not 2012, it’s not dooms day. It’s a economic collapse, happens all the time, fiat currency has a 100% mortality rate in human history, not if, but when.

      I have been able to dismiss all the conspiracies, except these 3 are real and are having real time effects.
      1) Economic collapase
      2) Peak Oil
      3) Global Warming

      To deny is the first stage of the process for death.

      Even though I have potatoes and onions already sprouting thanks to global warming in Central Illinois :) -had to turn on me AC on ST. Paddy’s day, for the luv of me self, we are plucked.

  • Kevin2

    The people that put the Bretton woods Agreement and later the Oil Peg together were brilliant. You might not like their intentions but damn they are crafty. The Oil Peg had another advantage that during an economic slump the price of oil would drop and the USD would become stronger because one USD bought more oil then previously. This allowed the Federal Reserve to inject more money into the economy without an inflationary result (if not overdone) and propel the economy upward.

    Like the kid that eats too much candy and decades later gets health issues the government took advantage of “money for nothing” and suffers later because of it.

    The US will go to war (actually has went to war) to maintain the current system because it is linked at the hip to the core might (economically and military) of the United States. Basically it’s the glue of MIC.

  • Joe Dirt

    Why do you all not see this is why the oligarchs want the pipe line from the north to the gulf, to send the oil over seas and not to be refined and used here. The refineries could be built and used in the north much cheaper and with less EPA crap. The line is just to sell more of our oil to China and India,,,

  • Thomas James

    Maybe this is what the attacks of 911 were really all about. The majority of the hijackers were Saudi yet it was every other country except Saudi Arabia that was attacked by the US military. Maybe the Saudi hijackers were deliberately picked by the “planners” of 911 so as to have leverage against the Saudis if they ever try to abandon the petro dollar. If they did, then all of a sudden, newly exposed evidence reveals direct involvment by the Saudi government giving US an excuse to invade and occupy the country and oil fields. Just a theory.

  • George

    At the beginning of the 20th century, the US dollar was backed by gold. In the 1930s, the dollar was backed by silver and gold. In the 1970s, the dollar was no longer backed by silver or gold because the US had run a decade of trade deficits and Nixon had to close the gold window. Silver coins and silver certificates were removed from circulation. The Saudis rescued the dollar and the value of the dollar was backed by “black gold” as of 1975. If the dollar is no longer backed by “black gold”, then the price of oil will probably rise dramatically in dollar terms.

    Higher prices are one way to ration gasoline. The other way is government enforced rationing, which Americans normally tolerate only in the case of war.

  • Economist

    The United Kingdom’s (Britain) pound sterling was the primary reserve currency of much of the world in the 19th century as was the Spanish Dollar before that.

    The US Dollar has only been for the past few decades and this too, shall pass. History teaches us it will, prepare yourselves as it wont be pretty. The perverbial writing is on the wall, read it!

  • German Ralle

    Honestly, I did not expect that you Americans can practice self-criticism. But these comments have convinced me otherwise. Now there is only one question which is:

    “When you pack your things and fuck off from Germany finally?”

    The German people had enough of your imperial behavior and your tutelage.

    Give us our patents and our property back and start telling the true story about Germany, the first and the second WW. Start telling the truth about the jews and the non existing and Hollywood-made Holocaust. Don’t think that only the winner writes history books.

    A lie requires constant support, but the truth is standing on its own. (Thomas Jefferson)

    • Arkaden

      Oh man, it’s all made up huh? Funny, the serial number tattooed on my grandfathers arm and first and atrocities he lived through tell a different story. As do the artifacts taken from the camps. America has it’s problems, no doubt, but to claim the holocaust never happened is either blind, ignorant, brainwashed. I feel a little sorry for you.

      • Mal R.

        “America has it’s problems, no doubt, but to claim the holocaust never happened is either blind, ignorant, brainwashed”

        Or Aryan…

      • Paul

        Yes the holocaust did happened,but please tell the true story why it happened if you know why?Is it something to do with Leo Szilard and Eduard Teller stealing something from Germany?

    • Zedge Hero

      Sorry German Ralle, but it sounds like someone hasn’t gotten rid of their Goebells hand book yet, quit believing that Nazi propaganda, it’s almost as good as the US propaganda today. Now for your German History lesson. Don’t think for one second that the US and the Germans haven’t been in this together since day 1.

      excerpt from book
      “Wall Street and the rise of Hitler”

      The post-World War II Kilgore Committee of the United States Senate heard detailed evidence from government officials to the effect that,

      …when the Nazis came to power in 1933, they found that long strides had been made since 1918 in preparing Germany for war from an economic and industrial point of view.

      This build-up for European war both before and after 1933 was in great part due to Wall Street financial assistance(and the NY FED RES) in the 1920s to create the German cartel system, and to technical assistance from well-known American firms which will be identified later, to build the German Wehrmacht.

      -Chapter one- Wall Street paves the way for Hitler.

      So if you think for one second that we owe you the technology that we funded then you need to do a reality check. Also if you think the FED or the Nazis or any government for that matter cares about the American People or the German people and wouldn’t kill the Jewish people then you really need to wake up. And one more jab while I’m at it, your Brothel Baboon Merkel reminds me of my bad one night stands in my college drinking days, she’s as sleezy and easy as they come now a days. BAMMM!

      “The only thing we need to hate, is hate itself.”

      Zedge Hero- March 24th, 2012 Economic collapse blog

      • Alasha

        ha Good response, Zedge Hero.

    • Proftel

      At last someone talking balls!

      hehe.

  • German Ralle

    And this is for those of you who do not know where your president Barry Soetoro comes from.
    (Spoken by Michele Obama)

    http://www.youtube.com/watch?v=gki7vu9Drts

  • susan smith

    the dollar is done it will not take years…The govts. of the u.s.s and china are in bed together to destroy the dollar. Our debt to them will be cheaper and the will be able to control inflation. It is the end of empire and if your still in the dollar you are an idiot.

  • erich

    Petrodollars are so yesterday. Dollars are piling up abroad because of our trade deficits, not because of demand for petrodollars. China owns less than 1/10th of our national debt.
    Today most currencies are freely traded. Heck the FOREX market dwarfs any other. What difference does it make what currency is demanded for oil? Either way it’s the equivalent of $. The value of the dollar is determined by its purchasing power, which in turn is driven by the trust in its backing (real assets as opposed to empty promises).

    • Kevin2

      Where to start.

      1. Energy is the greatest cost of any nation and we force nations to use US dollars thus making a huge demand for dollars. Those petrol dollars easily account for a couple of trillion dollars per year. That ain’t peanuts. This allows the US a much greater pool to dilute unbacked money created far out of proportion to productivity. That huge pool allows the US to create more money with limited inflation. Of course everything has it’s limit and we have met ours.

      2. “Dollars are piling up abroad because of our trade deficits, not because of demand for petrodollars.” Those dollars are accepted because their needed for oil purchases. OPEC only sells in dollars.

      3. “driven by the trust in its backing (real assets as opposed to empty promises).” The USD is not backed up in the classic sense since 1971. It’s now essentially backed up by the promise of protection if you need the protection or not. If you decide to not use those dollars you get thumped if we have the capacity. Notice that Russia and China are abandoning the international use of dollars yet weak nations threatening to do the same have “Guido and Salvatore” pay you a visit. Note: See Libya as an example.

      4. “Dollars are piling up abroad because of our trade deficits,” They’re not piling up, they’re being loaned back to us or spent internationally for other goods.

  • Gold Man

    Chiller, you hit it right on spot. What about alternitive energy. I seen some hydrogen hybreds come out of garages. One of the inventions on U Tube the Congress and the US Army was looking at. All of a suden it got real quiet out there, nothing. Could it be that nobody wants to develop something that runs off water because there is no money in it, imagine that.

    wouldn’t even consideer the oil companies buying patents that cut into their petro dollars. Naw, just my imagination.

  • erich

    a barrel of oil will have the same value whether priced in dollar or yuan or euro – it provides a given unit of energy, period.

    • Nexus789

      Yes that is true…but if it costs you $10 a gallon rather than $1 it will have a serious impact on your finances and those of the US as everything is dependent on oil. End of the world as you know it.

      • mondobeyondo

        If you earn $12.00 an hour as a greeter at Walmart, and have to spend $40.00 a week to get back and forth to work (depending on where you live, it could be much, much more), plus rent, utilities, etc. – you are not doing too well.

  • ben dover

    anyone who actually follows arab news (not this author) would know that conocophillips was the original partner in this refinery back in 2007. When the design was done in 2009, Aramco delayed the project and Conoco backed out. The saudis were set to go at it alone and then cut this deal with sinopec many months ago. All the ‘news’ today was was basically the formalities so the executives had and excuse to have a party. Look up the Sadara project, its even BIGGER

    • Ken Nohe

      Very good point! This underlines what we see on the Internet: The pick up of a “news” with little context and no understanding to make a point. The point may be correct; in this case that the hegemony of the petrodollar will come to an end someday and in this case it is also correct to infer that China will play a role, eventually. But as usual reality is more complicated. China is a competitor and a partner to the US. It sometimes seeks to undermine but mostly cooperate with America, even if imperfectly. There is a lot to be angry at but also incredible successes like pulling a billion people out of poverty. The problem we are facing: Heading strait into an energy and more generally resource wall is a complex one with no simple answers. China itself is not the problem. They are playing “our” game with Chinese characteristics. The Yambu project is a typical example.

  • Jane B

    Finally then, the US will HAVE to fix it’s debt addiction. Too bad it takes this.

  • Newton

    Ron Paul – ” this dime in my pocket will buy a gallon of gas ”

    That DIME is a pre 64 silver Mercury dime – with Silver at 33 bucks an ounce; that dime will buy a gallon of gas.

    Does ANYONE out there get it ?

    ANYBODY ??

    Ok; if you get that then get this ! In Japan
    nat Gas is 15 bucks an MCF – in Indias it’s
    16 in China it’s 13

    In the USA ? the worlds LARGEST producer of Nat Gas ???? With 200 friggin’ years of PROVEN reserves ???? How much you say ???????

    How about 2 dollars and 25 friggin’ cents

    MORONS ! What in the living h@!! are you talking about — China ! Screw China !

    Both Chrysler and GM are delivering nat gas vehicles to the market by June 2012.

    My prediction ? They will both fail miserably

    Wanna know why ???

    Yeah – that’s right

  • Tappedops

    When gas costs more than rent… spoiled americans will learn how to live…

  • farmgirl

    so how many times can you keep printing money to keep the economy going.
    Can someone tell me how people bought houses back in the 1930`s if they did not have money. Or should I say what did they use, money or gold
    Any if the US does go broke, where does this leave Canada.

  • Khalfan Aziz

    Both China and Saudi Arabia have much to lose if the dollar goes down the drain where it belongs. They wouldn’t undermine themselves now would they ?

  • JerryParker

    How good it is to know that the power of the UniTIGHTASStates of AmeriKKKakapeepee can be cut off by a swift slug at the knees through undermining its currency`s worth! This is better than wasting ammunition on such a worthless target as the U. S. of A., which does not even deserve the bullets and bombs to kill it.

  • brian

    When you are “For”, you will not [want to] see the bad side but should you be “Against”, you will not [want to] see the good side. Humanity is like a tree whereby “The West” is like its foliage system and “The East” is like its root system. A tree without balancing the two systems will inevitably wither and perish.

    A human is a creature of The Duelling Duality whereby all are innately provisioned and vacillate between with their feminine side and their masculine side. Any human who claims singularity/absoluteness of behaviour is firstly, a woeful and wilful ignoramus and secondly, a hypocrite and tertiary, an outright liar. This is because existence for all is about, “Don’t get caught” as opposed to, “Don’t do it”, if only because Control/Under is Abandonment/Over suppressed with Abandonment/Over being none other than Control/Under expressed, Co-latencies being Co-limits.

    Reality/Divinity empowers through Sharing & Unity whereas Relativity/Humanity empowers through Exclusivity & Division. For The Hallelujahs, Divinity does not mean Religion & Religiosity, Divinity means absoluteness/singularity of existence/purpose – to be permanently of construction.

    All this talk about “Reserve Currency” and “Dominance” has forgotten what the exchange between a comedian and his acquaintance is about:

    A: I’ve never been to prison.
    C: You are not supposed to go to prison, you dumb XYZ.

    You are not supposed to dominate another nor are you supposed to parasite off another. Has any “politican” or “G_d Bless Amerikan”, ever got thus far in his intropsection? Really? Has the “Preseedent” and his “Electorates” forgotten that the hegemony of “The West” was/is phoenixed from the wages of Genocide, Slavery and Opportunity? Of course not otherwise people will not deny their reality in preference of an imagined personna. Those who lack conscience, conscience being the awareness that one is human.

    Realise because merely knowing is inadequate that when conscience is lacking, its alterego/latency/shadow will compensate by acting overly conscienced, Cruelty/Overtness being Cunning/Covertness expressed whereas Cunning is none other than Cruelty suppressed. Better The Devil you know than The Saint whom you do not, to demand being the latency of denial. No reserve but a fair exchange, fairness being the reality and not trust when it comes to the dual natured human. Trust none and soon, faith will be realised, trust being knowledge/potential whereas faith is self/empowerment/kinetic. Should fairness be defacto, trust will have to standby as its loyal pet.

  • M.L.Myrianthis

    Yet china is strongly interdependent to US economy holding bonds, participating in the share capital of many American corporations, etc. I think that the wise men in China’s administration have a serious motive not to destabilise the dollar and face their consequences. A usual check & balance game is more likely with a weak dollar to loose its real value gradually, up to the next global equilibrium.

    • realitycheck

      no lmao wtf are you talking about?

      the net result of the petrodollar for China’s government is, they’re forced to gain dollars in order to buy oil, and since dollars = oil, they are forced to invest in US bonds to gain more dollars and by proxy, more oil. if oil wasn’t denominated in dollars, wtf does China need dollars for? pretty looking green paper?

      that is why any government invests in US bonds, in fact. they’d love to invest elsewhere, but since there is no country in the world that cannot survive without oil, they MUST make dollars, unless they happen to be born with oil. If you were born with oil, then you’ll either accept dollars, or you’ll end up like Saddam and Gaddafi.

  • Pravien

    Guess they will be warming up Haarp soon.

  • erich

    Kevin, do you realize that you refuted your own argument with item 4? The money isn’t piling up it is circulating. So if it is coming back here, what do you mean by demand for dollars?

  • Greg Jones

    We have the abilities to survive, even prosper, with a petro-dollar disconnect. It requires a National government that gets out of the way, (completely) of the energy industry. Rewards and lends aid ONLY to true allies. Uses our military for stratigic purpose only, no humanitarian involvment. Let FREE ENTERPRISE free once again. This all requires a mind shift, at the federal level that this system works BETTER without government meddling. It is a mega change. But it is a principal that, I believe is center to the survival, or not, of our country.

  • antisocialist

    No matter how you slice it, things are going to change and in a way that the innocent are not going to be able to react to. We will all just go for the ride wishing we could make it end but it will not. I fear many will only see relief when they breath their last. Who would have imagined that America would become like a bad acid trip that won’t end.

    Fear God because in the end he is the only thing that does not change.

  • Jcodey

    Greg, are you suggesting that we abandon regulations? That we take away the police? I think we know where lack of regulation leads by now. We tried letting complex derivatives go unchecked while many “alarmists” told the government they needed to regulated. The government refused for a decade, citing “Free Market is Best”. Look where that lead- to the callapse of our economy.

    Free market is like putting a bunch of children in a room with sharp and dangerous toys, and candy, and saying, “Ok, they’re fine, let’s come back in an hour and they’ll be ever better.

    Are you a parrot who heard free market is best and you’re just repeating it, or have you really given it years of scholarly study? As it stands with the energy market- the “Free Market” system actually regulates our elected official via lobby $$$$$$, and who ever has the most $ makes the rules, no matter how bad they are for you or for me. Free Market + Natural Greed = Criminals galore & your money is not save anywhere from fraud & scammers. Regulation is paramount to the US not going out like Rome. Learn from our collective mistakes Greg.

  • Alasha

    Lindsey Williams says the dollar will be dead by the end of 2012. mmmm. It is hard to say with him – some things he said were spot on, others were not … maybe he should stick to the scriptures more instead of selling the cds ALL the time. sigh.

  • Gary2

    This is how I see the election bioling down to these choices:

    If you want higher taxes for the poor and middle class and less taxes for the rich, vote for Romney and the Republicans. If you want Voucher Care instead of Medicare where the elderly and the disabled will virtually have no insurance, vote for Romney and the Repubicans. If you want higher budget deficits, vote for Romney and the Republicans. If you want a war on women and women’s health, vote for Romney and the Republicans.

    If you think that healthcare should be available for all Americans, vote for Obama and the Dems. If you think that the middle class deserve tax cuts and the rich should pay their fair share, vote for Obama and the Dems. If you think that women should have healthcare that doesn’t put the government or their employer between them and their doctor, then vote for Obama and the Dems. If you believe that the LGBT community has rights and should be treated equally, then vote for Obama and the Dems.

    The choice is clear to me.

    Comment from Huff post copy/paste

  • tappedops

    if you think other nations shunning us as a terrorist nation is bad… wait till the big, big, boss judges us…

  • Rowell

    Question: “But if China becomes Saudi Arabia’s most important trading partner, then why should Saudi Arabia continue to only sell oil in U.S. dollars?”

    Answer: Because the US Dollar is not so openly manipulated like the Chinese Yuan.

    • CeeGee

      Really? Then just what is QE?

    • G. Valdes

      You naively think the US overnment, the Great Manipulator, doesn’t manipulate the Federal Reserve Note (wrongly called the US dollar)?
      For your information, the so called US dollar is the most heavily massaged currency in the world and it would be too long to name the ways it is accomplished, but suffice to name but just one: GOLD.
      The US government, the Federal Reserve, the ‘Plunge Protection Team’ the Bullion banks and the associated atellite Central Banks every day intervene, pushing down the dollar price of gold, to prop up the value of the dollar in terms of gold.

  • Snoopy_The_Economist

    I think Saudi Arabia and the world know why the USA spends $600B/yr on weapons – it’s so nobody will screw with us. The USA exports war – period. This is why we have been at war in the middle east for over 10 years – and another 10 will be likely to start soon.

    • http://goto.glocalnet.net/pdn/ Urtica dioica

      China and Russia are waiting for the right time to strike N-America. The US of A are in for serious hurt, a total destruction! Before that happens, you can accept Jesus Christ as your Savior… or not.

      • http://Rapturereday.com Thewayiroll

        I totally agreed!!

      • Aburakhman Rosenberg

        Or not.

      • Megashellac

        I agree!

      • Toby

        Considering all the losers and rejects that accept Jesus as their Lord and Savior, I’m really not sure what the point would be. It doesn’t seem to do anything for them except make them act like zombies believing everything their clergy tell them. I’d rather be clear-headed when the US economy goes belly-up rather than zombie-like.

      • Isaac

        Agreed. Done. God Bless you!

    • Raider

      we have been at war in the middle east since 1953 when we booted the primmenister out of Iran and instaled the Shaw.we may not have had troops on the ground,but we supplyed Iraq with weapons to fight Iran.

  • Chin

    $600B sounds like good insurance against $600T in a derivative hole to me.

  • http://shelter101.com Dave Shelter

    Obama was just caught making a POST election deal with Russian President Medvedev on a accidental open mike about missile defense. Obama basically telling Medvedev he will be reelected. Sure after marshal law is declared. here is the video
    http://www.shelter101.com/obama-caught-making-secret-dirty-election-deal-with-russians.html

  • eric taylor

    Obama’s motor vehicle conservation alone will
    drive down the cost of oil/gasoline over the next 10 years (it takes a long time!) Remember
    Jimmy Carter’s automobile conservation in the late 1970′s that benefited Reagan greatly, it wasn’t just the the Paul Volcker induced recession that dried up demand. The supply-side school took the credit for the conservation, even though Reagan killed the green conservation movement, and went
    back to big oil consumption; Still, the lower
    fuel consumption for vehicles stood the test of time…

  • http://jwpegler.blogspot.com jwpegler

    Supply and demand.

    China (customer), Saudi Arabia (supplier).

    Simple.

    Opps, not so simple…

    Over the last 70 or so years, during WWII and after, the U.S. built their international relationships based on military might, not economic prowess.

    Not a smart move.

    Now economics are poised to rule again… Unless American politicians start another war.

    We’ve had Cold War, Hot War, War on Poverty, War Against Drugs, War on “Terror”… I guess that it is time for a War For Energy.

    Yahoo!!!

    It’s sick and wrong.

    Supply and demand. That’s what actually works.

  • Joe Mojohovits

    How did the USA make it in the 50s and 60s without the petrodollar, shame we may have to go back to those days

    • http://GLP Tom

      Our manufacturing base….which started to disappear with the emergence of the petro dollar…it seems anyway.

    • Jerry

      Just to jog your memory, OPEC was created in 1961.

  • Greg

    Fear and Greed rule the world.
    Just depends on what you are greedy about
    and fear most…don’t you think?

    Love to hear all of the expert opinions and
    how to solve problems that are not solvable.
    Things will be over soon, so don’t worry.

  • Kelby

    In the words of Dr. Ron Paul:

    “Capitalism should not be condemned, since we haven’t had capitalism.”

    What we have is fascist corporatism

  • Txbluebonnet

    I guess the news media are so blinded (or gagged) by Obama’s persona that they just can’t be bothered with the impending collapse of the US.

  • Gordon Williams

    With a huge excess of US dollars to get trade with why would China want to trade in another currency?

  • http://kbr.com KSA

    I just returned from brokering a $7 billion deal with the KSA in Dubai. We are building the new Yanbu facility as well. The world is globalizing. The USA WAS the leader but has frittered that privilege away. For the past 40 years I have been involved at the forefront of Arab/US business and watched as the Congress has continually been available at a low price for the selling out of America.

    So blame yourselves America, not China, who Nixon gave the ‘leg up’ to (and not as a dog does). The old days of nationalism are being eclipised by globalism. Learn to be a citizen of the world not the USA.

    The resentment internationally against the USA is being hammered out in new policies determined to humble the USA. The current RNC propaganda machine is augmenting the international hatred of all things American. It may be winning over the jingoistic extrem white is right side but it is making billons of people very happy to see China take the lead. Africa has been developed by China and Korea who are buildign infrastructures there while the USA has been playing “let’s bury our heads in the sand politics.”

    As Albert Einstein once was quoted as saying,”There are only two things that are infinite: the universe and human stupidity, and I am not so sure about the first one.” So America remain as sheep and follow the paranoid delusions your polticians are feeding you as you blithely amble to the slaughter. Also Adoph Hitler once wrote, “It’s lucky for governments that people don’t think.” Payback is never pleasant. The only hope for the USA is President Obama who can guide us through the transition to becoming global and avoid isolating ourselves in the right wing paranoid delusion of greatness.

    • Rhynn

      Wow. You were right on the money until the very last sentence.

      Obama is simply the puppet of the month. The same tools running the RNC are making the left think the Dems are something different. They’re not. There are no separate parties in this country and haven’t been since the late 1800′s. Obama has all but finished Bush’s sentences and yet people are still fooling around thinking that’s coincidence.

      It is not coincidence. And if Romney ends up benefiting from the fact that Obama is losing favor with his handlers at AIPAC we’ll all have a front row seat while Romney finishes the things Obama hasn’t, such as war with Iran, while implementing the same martial law, forced healthcare plans, domestic drone programs, and raping of social services and the middle class that the right thinks will be flushed with Obama.

      Cut from the same cloth. Dancing to the same tune on strings only different because they hang from the fingers on the other hand of the same controlling body.

    • harmie

      Obama is the one to lead us into Globalization alright. Since I know of no American name Barrack Husein Obama or what ever it is, I wouldn’t trust him in a —- house with a muzzle on.
      His transparent Government is held behind closed doors, his whispers to Russia Leaders, and his policy of give away money, defending illegals against Federal Laws, IRS refunds to people who have paid nothing in, outright refusal to enforce Federal Immigration laws, suing states for doing his job, borrowing money from our worst enemy, and so much more I just don’t feel up to listing is sure to make us Global alright! A blank spot on the Globe!
      He took an oath to Uphold and DEFEND the Constitution and has done every thing but. He is doing exactly what Hitler did with Germany. He will disarm us, and break us afterwards. Then we will fold and dissolve into nothing. Buy up Gold and Silver? It will be illegal to own it! The government will take possession of the Gold, Silver, and Guns. Hitler started that way!
      You are no longer a Free Country America. You have elected a man that wants his enemy, America, to have to pay for the sufferings that he feels America has caused his people. He wants America to sink, defenceless, broke, with a people that, like in Europe, depends on the Gov. for everything from food to health care. Without America, Israel can’t stand! Obama has turn against them, so Jesus is the only hope for anyone. forget religion-get salvation!

      • rebecca

        WELL SAID!!

      • cassus

        Crikey.. Hyperbole up the wahzoo..
        A: Obama has done squat to your right to own guns, you lunatic.
        B: Your view of the world is so stereotypically right wing extremist you’d fit RIGHT IN with the islamic extremists. Your view of the world is 1:1.
        C: The republicans would, in the next 8 years if they had the power for that long, completely obliterate the united states. Romney’s policies are pretty much “I’ma drive this *********** into the ground. I gots what’s mine.”

        Get off the fox news drip and wake the ********** up.

  • mmoloki

    what will this mean for Africa getting petrol, diesel at a cheaper price because this petrodollar it has been a nightmare to our financial status thats why there is too much of poverty in Africa because of the US dollar currency imagine where $1 is seven times some of African Currency i think this will bring a recovery to Africa.

  • CIJ

    Just wait until the U.S. military doctrine of full-spectrum dominance meets with the collapse of the petrodollar system… those psychopaths in power depends upon this system and the wealth it transfers to them. It’s not going to die without earth shattering convulsions. Saudi Arabia may find that they cannot reverse their decision.

  • Joe

    they are just setting the stage for armageddon. China is one of few countries that can have a 200 million man army. Read revelation in the bible about it. Time to get serious guys and gals. Give your life to Jesus today don’t delay. And no I’m not a crazy person that believes in fairy tales, I’m a person that loves you enough to tell you the truth. Jesus died to wash your sins away. All you have to do is Realize you are a sinner, repent of your sin, and accept Jesus as your savior. It’s that easy!!! Eternity is a long time to be wrong about, so I encourage all to come and accept the gift of eternal life through Jesus Christ. You will never regret it. Take care and may the Lord richly bless you. Bye

  • http://www.2haber.com haber

    Yet china is strongly interdependent to US economy holding bonds, participating in the share capital of many American corporations, etc. I think that the wise men in China’s administration have a serious motive not to destabilise the dollar and face their consequences. A usual check & balance game is more likely with a weak dollar to loose its real value gradually, up to the next global equilibrium.

  • http://www.2haber.com haberleri izle

    bama is the one to lead us into Globalization alright. Since I know of no American name Barrack Husein Obama or what ever it is, I wouldn’t trust him in a —- house with a muzzle on.
    His transparent Government is held behind closed doors, his whispers to Russia Leaders, and his policy of give away money, defending illegals against Federal Laws, IRS refunds to people who have paid nothing in, outright refusal to enforce Federal Immigration laws, suing states for doing his job, borrowing money from our worst enemy, and so much more I just don’t feel up to listing is sure to make us Global alright! A blank spot on the Globe!

  • http://www.2haber.com haber izle

    It is not coincidence. And if Romney ends up benefiting from the fact that Obama is losing favor with his handlers at AIPAC we’ll all have a front row seat while Romney finishes the things Obama hasn’t, such as war with Iran, while implementing the same martial law, forced healthcare plans, domestic drone programs, and raping of social services and the middle class that the right thinks will be flushed with Obama.

    Cut from the same cloth. Dancing to the same tune on strings only different because they hang from the fingers on the other hand of the same controlling body.

  • http://www.2haber.com/magazin/haberleri/ son dakika magazin haberleri

    Cut from the same cloth. Dancing to the same tune on strings only different because they hang from the fingers on the other hand of the same controlling body.

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