The global oil markets have seen structural changes in the recent past with soaring oil prices hitting record highs. Some experts have attributed it to the China factor, as its imports constitute one of the key issues for the price hike in the world oil market. However, beyond the China factor, the dollar devaluation has created several problems for the global oil industry as it is the currency of choice in global crude oil trade. On the supply front, the depreciation of the dollar had an impact on the activities upstream in the form of increased costs, higher inflation rates and lower purchasing power followed by lower RoI. On the demand side, it increases the oil demand by appreciating other currencies and the consequent rise in their purchasing power. Going by the current devaluation of the dollar, analysts expect that oil prices will stay on the higher side in the days to come.
The
reason for the dollar's decline is attributed to the change in its relative attractiveness
in the global market. The dollar as oil currency is further weakened as the newly
opened Iranian oil bourse is now trading in euro. The catch here is that it is
now supported by Russia, Norway and China too. Oil's
intimidating relation with the dollar started way back in 1971 when the world
was struck by an oil crisis that quadrupled its prices. It was during this period
that the US was criticized for playing many Houdini tricks in trying to save its
dollar hegemony in the global oil market. Krassimir Petrov, Professor of Economics
from Ohio University, says, "During oil crises when several countries tried
to sell off dollars to purchase gold from the US, the US government defaulted
which is referred as certain act of bankruptcy." Desperate to save its dollars,
the US found oil as the solution. It immediately oppressed Saudi Arabia and OPEC
with its military might and insisted to sell oil in dollars, which were popularly
known as Petrodollars. That's how oil played the major role in nurturing the hegemonic
status of the dollar.
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