The Beginning Of The End
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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.

  • son dakika spor haberleri

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

    • Mick Price

      Makes sense if you think about it. Sure the petrodollar system is great if you want the dollar held high, but that’s bad for American firms (and therefore American workers) who export or compete with imports. Basically the petrodollar system subsidised spending and taxed investment in America. Feels good in the short term, in the long term not so much.

  • Paul


  • http://na Isk.Ibr

    Guys _ all items discussed serve the purposes _ with enlightening thoughts. Also check this _ All things will work out good upon provisions _ all financial instruments need controls vs regulations rather than abuses _ as follows :

    Fiat money _ FED USA printing paper without back up of gold _ should serve the purposes of building USA Economy; it did work for a while 194x _ 196x _ until USA government abused that on all subsequent events ex. on Vietnam wars spending plus other. Now the FED USA printed Fait money has gone hay wire _ there would be no turn back _ you guys USA like it or not _ are exposed to liability to pay them all back in retroactive manner _ like it or not. Hence explanations _ the world populations are turning away from the Petro Dollars _ this acts are natural _ real bad problems to the USA Economy. But who created that in the first place ?? You guys created that by the famous H Kissinger Economic Foreign Policy Acts to persuade Saudi Arabia to agree with that 1973.
    What would be the rest at rescue ? _ Gold _ Silver _ Alt Energy Development etc ? The answers are yes _ but again all options are limited in scopes vs time constraining those all. The world management must realize _ the need of BALANCING all acts _ don’t ABUSE vs or even take advantage of the case for your selves indulgent _ any of them let alone committing destructions through WARS _ that won’t solve the problems _ only delay the problems to form in different shapes. You guys abuse them hence you are getting caught with the problems _ Now you have the answers _ Who are the idiots in these cases ?? HUMAN RACES themselves _ you can not get away from those facts. Study and learn back your BIBLE _ OK ??? Advise comment _ Tks.

  • Joseph Lizak

    When the petro dollar collapses it will be a good change. Then America will no longer look to Saudi Arabia for oil, we will use our own oil for which we have plenty. Americans will become self dependant and start manufacturing things again, not depend on China-Mart (walmart). Americans will be proud again for what they can make and sell. American citizens will make their own cars and use current technology allowing those cars to get 100 miles per gallon. Today oil company’s make us drive cars that get 25 mpg and cost us an extra 5000 dollars more at the pump per year. Now that Americans feel more impowered because they feel independant and self reliant they will close down the FED who is charging us interest on the money government prints forcing Americans into debt. It will be an awakening for the American people, it will be a good thing.

  • Greg Burton

    This speaks volumes on the true agenda of Israel (City of London) in regards to the so-called economic war against China initiated by the 9/11 false-flag event; a war started using US ally Saudi Arabia, which funded and trained the proxy army (al Qaeda) used to undermine targeted regimes for overthrow abroad, while being used as the pretext for the massive police state edifice we find ourselves in at home (Muslim boogieman).

    A war funded with US tax payer monies, US military resolve, fighting in the central Asian “graveyard of empires, and US Treasurys, sold to the target…China, while US jobs were being off-shored to China, leading to the evisceration of the US middle-class.

    No, this secret war war was never about benefiting America, but a holding action until the “proper characters” could take over the leadership of the new capitalist China (Hong Kong Triad), while destroying America, rendering it servile to a police state, subordinated to a fascist NWO oligarchy run by the very same Israeli-City of London oligarchy that planned the 9/11 attacks in the first place.

    If the so-called “war on terror” was really a resource war, a war against China’s economic push into central Asia and Africa; a war using Saudi proxy armies to help the US win this war, then why is the house of Saud Wahhabis (Morranos) now signing oil deals with China? Why is the US off-shoring national security strategic jobs when it is fighting an economic war against China? Why are corporations like GM off-shoring national security strategic manufacturing when it is fighting an economic war against China? Why did the so-called “war on terror” enabled a vast global drug distribution chain out of Afghanistan? Why is the Fed (City of London) destroying the US dollar via the printing press (hyperinflation), leading to the implosion of the US economy (global currency)?

    No, the so-called “war on terror” was always about creating an elite global aristocracy centered around the City of London banking/drug cartel and its creation, the nation of Israel; while reducing the US to a 3rd world irradiated thugocracy run by the same people who pulled off 9/11; using the treasonous fool/dupe George W. Bush as their gate-keeper.

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