After spending more than 700 days under house arrest, a human rights and environmental lawyer was found guilty last month of criminal contempt in a legal saga that has demonstrated the deep-rooted conflicts of interest layered throughout the judicial system when it comes to climate justice. In Steven Donziger’s conviction, the initial judge who referred him to trial, the second judge who was asked to lead the trial, and the private prosecutors who tried him all had deep ties to Chevron, the company Donziger had won a landmark multibillion-dollar ruling against.
The story began in 2011 when Donziger brought litigation against Texaco (now Chevron) in Ecuador for the harm it caused the Indigenous people in the Ecuadorian Amazon, where the fossil fuel company decided to deliberately discharge 16 billion gallons of toxic waste from its oil sites into rivers, groundwater, and farmland. A refusal from Chevron to adhere to environmental regulations—which earned the company an extra $5 billion over 20 years—led to more than 30,000 Ecuadorians being directly harmed by the oil giant’s actions, the judges in that case found. The case Donziger led made it all the way to the Ecuador Supreme Court, and successfully secured $9.5 billion in environmental damages for the Amazonian communities in a historic climate justice decision.ADVERTISEMENT
In a letter sent to the Administrative Office of the U.S. Courts at the end of last month, Sens. Ed Markey and Sheldon Whitehouse brought into question specifically the use of private prosecutors in the contempt case against Donziger. The three prosecutors that Kaplan appointed, Brian Maloney, Sareen Armani, and Rita Glavin (who is also Andrew Cuomo’s personal lawyer), were all at the time with the law firm Seward & Kissel. That firm had represented Chevron as recently as 2018. “These prosecutions,” the senators wrote, “are highly unusual and can raise concerning questions of fundamental fairness in our criminal justice system.”
Indeed, the apparent conflict of interest the private prosecution had is directly at odds with Supreme Court precedent. In the 1987 decision of Young v. United States ex rel. Vuitton et Fils, the Supreme Court ruled that, when it comes to private prosecutors pursuing criminal contempt cases, they “certainly should be as disinterested as a public prosecutor who undertakes such a prosecution.”ADVERTISEMENT
“Public confidence in the disinterested conduct” of the private prosecutor, the court warned, is essential to maintaining the integrity of the judicial system. That means that even the appearance of interest on the part of the private prosecutor can be considered a violation of Vuitton.
“Appearances are really functionally important for the rule of law, and for our judiciary,” said Guha Krishnamurthi, an associate professor of law at the University of Oklahoma. Krishnamurthi argues that one of the “biggest protections” of the criminal justice system is a disinterested prosecutor who can determine whether or not pursuing a case is to the benefit of the criminal justice system. The fact that a public prosecutor is accountable to the government and to the public, he says, reinforces this protection in a way that private prosecutors do not.
“I think it’s such a clear abuse that it violates the defendant’s constitutional right to due process. You can’t have someone who’s got a conflict of interest, who has personal reasons for wanting to see a person they’re prosecuting convicted,” said Louis Raveson, a professor of law at Rutgers Law School and the founder of the university’s Environmental Law Clinic. “That’s not an appropriate procedure, and, in my view, it’s not a constitutional procedure.”
“This is a perversion of justice, the whole idea that you can have a lawyer who previously worked for Chevron then prosecuting Donziger in the criminal case,” said Martin Garbus, Donziger’s attorney and a prominent veteran of human rights litigation. “It’s clear that it violates the law. … If you look at the body of law that deals with disinterest, people are disqualified for something far, far less than the involvement here.”
Raveson acknowledged that in certain instances, like police brutality cases or other times when the government is being asked to prosecute itself, private prosecutors can be truly beneficial. A private prosecutor there would likely be necessary in order to ensure disinterest and justice, as the public prosecutor works for the government. Often, though, they’re used in cases like Donziger’s, after a disinterested public prosecutor declines to pursue the charge and the judge decides to move forward anyway. “That’s all the more reason that judges need to err on the side of no possibility of a conflict,” Raveson said. Speaking of the Donziger case, he added, “It appears that a conflict is almost inevitable … and clearly that’s not by accident.”ADVERTISEMENT
When it comes to the decisions that could prevent one of the largest climate justice judgments of the past decade from taking effect, such appearances of conflict of interest are incredibly significant—and could be detrimental to future climate justice litigation.
“It’s scary going after a large corporation [and] it’s scary going after governments because they have so much power and so much influence that they can do a lot of damage to someone’s life,” Raveson said. “If the lawyers who bring [environmental justice cases like Donziger’s] are subject to biased determinations as to whether or not they should be punished … it’s going to have a deterrent effect on lawyers to bring these kinds of cases.”
Such a deterrence could have massive consequences for the climate, especially at a time when, as this week’s new report from the Intergovernmental Panel on Climate Change showed, the world is barreling further toward climate catastrophe, a crisis that is driven in no small part by fossil fuel companies like Chevron. “It’s up to the judiciary to really ensure that that kind of chilling and deterrence … doesn’t happen,” Krishnamurthi added. “And the way you do that is by having more than just the formality of the rules, [but] having a true fidelity to conflicts of interest and disqualifying where necessary.”
The ruling class is the social class of a given society that decides upon and sets that society’s political agenda.
The sociologist C. Wright Mills (1916–1962), argued that the ruling class differs from the power elite. The latter simply refers to the small group of people with the most political power. Many of them are politicians, hired political managers, and military leaders. The ruling class are people who directly influence politics, education, and government with the use of wealth or power.
There are several examples of ruling class systems in movies, novels, and television shows. The 2005 American independent film The American Ruling Class written by former Harper’s Magazine editor Lewis Lapham and directed by John Kirby is a semi-documentary that examines how the American economy is structured and for whom.
In the novel Brave New World, by Aldous Huxley, everyone is genetically made and classified. The Alpha class is the ruling class because they have the highest positions possible and control most of the world in the novel. This situation can also be found in the George Orwell novel Nineteen Eighty-Four where Big Brother and the government literally control what the nation hears, sees, and learns.
Examples in movies include Gattaca, where the genetically-born were superior and the ruling class, and V for Vendetta, which depicted a powerful totalitarian government in Britain. The comedic film The Ruling Class was a satire of British aristocracy, depicting nobility as self-serving and cruel, juxtaposed against an insane relative who believes that he is Jesus Christ, whom they identify as a “bloody Bolshevik”.
A senior official with U.S. oil and gas giant ExxonMobil was captured on video revealing the identities of 11 senators “crucial” to its lobbying on Capitol Hill, including a host of Democrats.
The footage was obtained by Unearthed, an investigative unit of environmental group Greenpeace UK, which posed as headhunters to obtain the information from Exxon lobbyist Keith McCoy.
Among the senators listed as allies, McCoy calls Joe Manchin the “kingmaker” on energy issues because of his status as a Democrat representing West Virginia, a key natural gas-producing state. McCoy says he speaks with Manchin’s staff every week. Manchin is also chairman of the Energy and Natural Resources Committee.
McCoy also named Sens. John Barrasso of Wyoming, the top GOP member of the Energy Committee, and Shelley Moore Capito of West Virginia, the Republican ranking member of the Environment and Public Works Committee.
Other lobbying targets of Exxon include centrist Democrats Sens. Kyrsten Sinema of Arizona and Jon Tester of Montana.
McCoy also singles out Sen. Chris Coons, a Delaware Democrat, as an important contact because of his close relationship with President Joe Biden.
Other Exxon contacts are up for reelection in 2022, McCoy notes: Maggie Hassan of New Hampshire and Mark Kelly of Arizona.
McCoy also name-checks traditional Republican allies John Cornyn of Texas, Steve Daines of Montana, and Marco Rubio of Florida.
In the leaked video, McCoy also suggested that Exxon is only publicly supporting a carbon tax to appear to be environmentally friendly with little consequence because it sees the policy as politically impossible to pass and thus unlikely to affect the company. Exxon is one of many large oil and gas companies and their lobby groups that have endorsed the concept of a carbon tax as preferable to mandates and regulations.
“I will tell you, there is not an appetite for a carbon tax. It is a non-starter. Nobody is going to propose a tax on all Americans,” McCoy said. “And the cynical side of me says, ‘Yeah, we kind of know that. But it gives us a talking point. We can say, ‘Well, what is ExxonMobil for? Well, we’re for a carbon tax.’”
Among other revelations, McCoy acknowledges Exxon “aggressively” fought against climate science in the past to protect its oil and gas business and joined “shadow groups” to push back against the science underpinning global warming.
“We were looking out for our investments. We were looking out for our shareholders,” McCoy said.
And he claims that Exxon lobbied Congress to limit climate provisions in infrastructure negotiations over Biden’s American Jobs Plan and to focus on roads and bridges.
“If you lower that threshold, you stick to highways and bridges, then a lot of the negative stuff starts to come out,” McCoy said. “Why would you put in something on emissions reductions on climate change to oil refineries in a highway bill?”
Exxon CEO Darren Woods issued a statement Wednesday afternoon condemning the lobbyist’s comments and apologizing for them, specifically those “regarding interactions with elected officials.”
Woods stressed Exxon’s “firm commitment” to supporting carbon pricing to address climate change.
McCoy posted his own apologetic statement declaring himself “deeply embarrassed” and saying his comments “clearly do not represent ExxonMobil’s positions on important public policy issues.”
They’re using the Yes Minister 4-stage strategy. They’re betting that Stage 4 (see below) won’t be reached until theyve had a lifetime of profiteering and profligacy, and – they THINK – setting up their OWN offspring to survive. “Yes Minister” 4-Stage Strategy:1. Nothing is about to happen2. Something may be about to happen, but we should do nothing about it3. Something is happening, but there’s nothing we CAN do4. Maybe we could have done something, but it’s TOO LATE NOW
On the day the little investment firm Engine No. 1 would learn the outcome of its proxy battle at Exxon Mobil, its office in San Francisco still didn’t have furniture. Almost everyone had been working at home since the firm was started in spring 2020, so when the founder, Chris James, went into the office for a rare visit on May 26 this year to watch the results during Exxon Mobil’s annual shareholder meeting, he propped his computer up on a rented desk. As an activist investor, he had bought millions of dollars’ worth of shares in Exxon Mobil to put forward four nominees to the board. His candidates needed to finish in the top 12 of the 16 up for election, and he was nervous. Since December, James and the firm’s head of active engagement, Charlie Penner, had been making their case that America’s most iconic oil company needed new directors to help it thrive in an era of mounting climate urgency. In response, Exxon Mobil expanded its board to 12 directors from 10 and announced a $3 billion investment in a new initiative it called Low Carbon Solutions. James paced around the empty office and texted Penner: “I was doing bed karate this morning thinking about how promises made at gunpoint are rarely kept. Exxon only makes promises at gunpoint.”At his apartment in TriBeCa, Penner, who had conceived and run the campaign since its inception, was obsessively focused on making sure that even the last moments before the annual meeting were used strategically. For weeks he had kept a tally of whom he thought big shareholders would back, but because they could change their votes until the polls closed there would be no certainty until the end. He had stayed up late the previous night writing a speech to give during the five minutes he was allotted to address shareholders, scribbling in longhand in a spiral notebook. He was hearing from major investors that the company was mounting a last-minute push, calling shareholders to swing the vote in its favor.
Penner took a quick shower and sat down at his desk for his speech. He had been sitting at the same spot since the start of the pandemic, holding virtual meetings to drum up support for Engine No. 1’s four nominees. Doubling down on fossil fuels as society tries to decarbonize was only one criticism he levied against Exxon Mobil; he also underscored the company’s declining profitability and the fact that, when the campaign started, no one on the board had experience in the energy industry. When the meeting began, Penner was the first shareholder to speak. “Rather than being open to the idea of adding qualified energy experience to its board, we believe Exxon Mobil once again closed ranks,” he said. Driving humanity off a cliff wasn’t good business practice anymore, he added, and shareholders knew it.
Forty minutes after the meeting started, Exxon Mobil called for an hourlong recess. It was an unusual move; shareholders couldn’t remember the company suspending an annual meeting right in the middle of the proceedings. It had been a bruising year for the industry, with oil prices trading negative last spring and record numbers of shareholder votes pressing major, publicly traded petroleum companies to prepare for a zero-carbon world. Just that morning, as the meeting was starting, the news broke that a Dutch court had declared that Shell must accelerate its emissions-reduction efforts. As Exxon Mobil’s meeting was underway, so was Chevron’s, and shareholders there voted in favor of a proposal to reduce the emissions generated by the company’s product, which would call for a re-evaluation of the core business. Exxon Mobil’s management had appeared confident about the activist threat, but in the last moments of the battle, it seemed that assurance was flagging.
During the break, company management and sitting board members continued making calls to some of the largest investors. Exxon Mobil said it was explaining to shareholders how to vote. The Engine No. 1 crew, huddled around laptops in their office or alone in front of their screens across the country, started speculating about what was going on — they suspected that Exxon Mobil executives saw the vote counts coming in and wanted to buy themselves time to try to make up for a shortfall. Penner texted James and told him to get an Exxon Mobil board member on the phone. “Seriously, tie them up if you can,” he wrote. Engine No. 1 sent out a statement criticizing the company for using “corporate machinery” to undercut the process. James was incredulous. Is this legal? he kept thinking. Can they really do this? An Engine No. 1 public-relations adviser started shouting on the phone at a CNBC producer who didn’t seem to be sufficiently appreciating the significance of the moment. A few minutes later, Penner went live on air. “This is classic skulduggery,” he said. “This is not the way to move this company forward.”
When the meeting reconvened, Exxon Mobil’s chief executive, Darren Woods, sounded hoarse and weary. He took questions for nearly an hour and then abruptly stopped talking so that the election results could be announced. Almost all the people at Engine No. 1 had their heads in their hands, and they went still while the list was read. One of their candidates, Greg Goff, was an oilman who had led a smaller refining company to legendary profitability and thought that mitigating environmental harm was part of corporate responsibility. Goff was elected. So was Kaisa Hietala, a former vice president for renewable energy at Neste, a Finnish petroleum company.
But Penner started shaking his head in exasperation — what about the other two candidates? Andy Karsner, an energy entrepreneur, was still in the running; the vote was too close to call. Anders Runevad, a former wind-power chief executive, was out. Penner didn’t have the final tally, but it was now clear that at least two seats had been wrested from management. Engine No. 1 had gained a foothold at the board of Exxon Mobil based largely on the strength of its argument that failing to plan for the impact of climate change could spell the demise of a business. Penner, usually subdued, raised a clenched fist.
In the corporate world, successful proxy battles are the equivalent of shareholder insurrection. Usually motivated by displeasure with management, activist investors in a company can put forward proposals, including board candidates, to be voted on at companies’ annual meetings. Investors have taken activist stances in their companies at least since a shareholder named Isaac Le Maire started complaining about money management at the Dutch East India Company in 1609. But the practice was weaponized in the United States during the 1980s, when a set of ambitious moneymakers conducted what were eventually called corporate raids, intended to pump up the value of a company’s stock even if that meant carving up the business.
Famous activist investors, like Carl Icahn or Bill Ackman, are often seen as predatory, but they are skilled at reading a company’s vulnerabilities and marshaling shareholder dissatisfaction. Because recruiting and putting forward a slate of candidates is expensive and time-consuming, though, investors often try to engage with a company behind the scenes before initiating proxy battles for board seats. “In terms of corporate America, it’s very aggressive,” said Jeff Gramm, author of the 2016 book “Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism.” Companies have been known to respond with comparable aggression, holding annual meetings in remote locations or adjourning them suddenly to stifle dissent.
While activist investing typically focuses on a company’s financials, socially minded investors have used the levers available to them to press for fairer business practices. Shareholders need to hold only a small stake in a company to put forward a resolution, but disputed proposals have to be approved by the Securities and Exchange Commission, which has rules limiting shareholder influence over day-to-day business operations. Depending on the disposition of a company’s management, though, sometimes even a small amount of shareholder disquiet is enough to change a company’s behavior. In 1969, a civil rights organization of doctors and nurses filed a proposal at the Dow Chemical Company to stop selling napalm for use as a weapon; the S.E.C. backed the company’s decision to block the proposal from reaching the annual meeting. Dow stopped producing napalm for the U.S. military that year.
In the past few years, an increasing number of proposals have aimed to pressure large corporations, and especially oil-and-gas companies, to respond to climate change; more than 1,600 such proposals have been filed since 2010. Of those, less than half were put to a vote, and just a tiny sliver gained majority support; even successful resolutions are nonbinding, so companies can still dismiss them afterward. But when an activist wins board seats, companies have to choke back their dissatisfaction and accept their new directors.
Because the rules for filing a shareholder proposal are different in Europe, generally requiring a bigger stake in the company but not dependent on approval by a regulator, investors have submitted more ambitious climate proposals at the major oil companies there. In 2015, a Dutch activist named Mark van Baal started raising money to buy shares in Shell, and the next year, he went in front of shareholders with demands that the company invest its profits in renewable energy and “take the lead in creating a world without fossil fuels.”
The resolution convinced only 2.7 percent of Shell shareholders, but van Baal returned again with a proposal to put the company’s trajectory in line with the goals set out in the Paris climate accord — the 2015 global agreement committing countries to aim to keep global temperatures below a 1.5-degree-Celsius increase and not allow them to rise more than a maximum of two degrees Celsius above preindustrial levels — and this one garnered 6.3 percent shareholder support. Van Baal saw his approach as an incremental slow burn; as his proposals gained more support at each annual meeting, companies had little choice but to respond and adapt. Last year, many of the major European oil companies, including BP, Shell and Total, said they intended to cut carbon-dioxide emissions to net zero by 2050.
At Engine No. 1, Penner was sensitive to coming across as a fire-breathing activist investor during the Exxon Mobil campaign. But the core of his argument rested on mobilizing shareholders with classic activist tactics: focusing on the company’s financials, underscoring its flagging profitability and setting out an argument for how to raise the value of the company’s stock by making smarter expenditures. He didn’t aim to undercut the core business necessarily; rather than urging Exxon Mobil to give up all oil and gas, he wanted the company to practice what finance people like to call “capital discipline,” which basically just means not spending prodigiously. He also reasoned that, given mounting pressure from society and governments to decarbonize the global economy, it would be strategically smarter for Exxon Mobil to be part of an energy transition, rather than letting itself be outstripped by other companies innovating to meet demand for low-carbon power. There might still be money in oil now, but Penner and James wanted to convince shareholders that the key to profitability involved taking a longer view on the health of the business.
That argument reflected the changing nature of investment and the increasingly powerful role that large funds play in corporate decisions. Three of the largest asset managers, BlackRock, State Street and Vanguard, own nearly 20 percent of Exxon Mobil. Big pension funds, including the California and New York state funds, also own stakes in the company. The New York state comptroller, Thomas DiNapoli, said that the basis of his fund’s engagement with Exxon Mobil was about making sure that its investments would remain fiscally sound over the next 100 years. Once a portfolio is big enough, the risk exacerbated by one part can also start threatening other positions. “Diversification is meant to be one of our risk-management tools,” said Anne Simpson, managing investment director of California’s state pension fund. “But if you’re facing systemic risk, you can run, but you can’t hide. In other words, we can decide not to hold a company that’s producing emissions — that’s the divestment case. However, if the emissions continue, we’re still exposed to the risk of climate change.”
In many ways, Exxon Mobil had made itself an ideal target. Before the proxy battle started, the company’s directors were primarily former chief executives from other industries like pharmaceuticals and insurance. With plans to increase oil-and-gas production by 25 percent over the next five years, the company seemed out of step with the market. Profitability had already been slipping for a decade. Exxon Mobil earned the largest annual profit in U.S. history in 2008 and nearly eclipsed that record in 2012; last year it lost $22 billion.
In part, the loss was due to a historic $19 billion write-down on the value of its assets. That assessment may still be too rosy; a whistle-blower reportedly told the S.E.C. in January that Exxon Mobil had overvalued its assets by at least $56 billion, in part by pressuring employees to inflate expectations about the drilling timelines in the Permian Basin in Texas and New Mexico, which remains the company’s U.S. cash cow. (Exxon Mobil called the claims “demonstrably false.”) Although it managed to keep shareholders’ dividends intact — mostly by cutting costs, including announcing thousands of layoffs — the company’s stock value plunged in 2020 by 40 percent, its market valuation taking a $120 billion drop. The company has more than $60 billion in debt, borrowed to fund purchases of its own stock to buoy its price and to pay out stockholder dividends. Despite the buybacks, and a significant improvement in the stock’s value since late last year, it is still nearly 30 percent lower than it was five years ago. After almost a century on the Dow Jones industrial average, the corporation that descended from John D. Rockefeller’s Standard Oil was replaced last August by a tech company.
Chris James, the lanky and energetic 51-year-old founder of Engine No. 1, didn’t establish his firm to go after Exxon Mobil. A tech investor who speaks in the parlance of Silicon Valley start-up culture, James decided in 2019 to abandon his hedge fund and seek to reconcile what he saw as an uncomfortable tension between the consequences of his work and his volunteering at a San Francisco homelessness nonprofit. On a hunting trip near his cattle ranch near Jackson, Wyo., James decided to go into impact investing and start a new firm dedicated to reimagining the concept of value. The firm would create an E.T.F., or exchange-traded fund, and then vote actively in favor of positive measures at the companies included in it. It would also have a private offering. For James, the goal was to build something that could convey his belief that the effect a company had on society would determine its long-term success. He was influenced by a 2017 paper by the economists Oliver Hart and Luigi Zingales that rejected Milton Friedman’s canonical argument, published in 1970 in this magazine, that companies should focus exclusively on making money; they instead posited that shareholder welfare includes more than just market worth.
A few months later, in late 2019, James met Penner, now 48, at his office in New York City, having been introduced through a mutual acquaintance. Studious and analytical, Penner had just come off an activist campaign he led as a hedge-fund partner, pressuring Apple to improve parental controls on its smartphones. He also led an effort, resolved privately, to persuade McDonald’s to offer plant-based burgers. A committed campaigner with a deep sense of what he thought constituted right action, Penner had already set his sights on Exxon Mobil, and he was talking to investors who might be interested in taking on the oil company. James told Penner he should join his new firm, which hadn’t yet opened, and spearhead a proxy contest. Penner left his job at Jana Partners, a hedge fund in New York, and joined James in spring 2020. They would take until December to find nominees for the board and articulate a strategy to persuade shareholders. Penner already sensed that Exxon Mobil was an industry outlier, more reluctant than others to recognize that if the world enacted the emissions reductions that its governments had committed to, there would be no viable business for a publicly traded oil company in 30 years.
‘Do you know how you’re going to fulfill your business plan without burning down the planet?’ Penner asked.
As they planned the campaign, James retreated from San Francisco to his ranch and spent the summer learning about what it would mean to rejigger the way society powers itself. What he found astounded him. As a tech investor, he was used to innovations growing on an S-curve, with a long tail of early adopters that suddenly became mainstream. Through conversations with experts, researchers and power-grid operators, he began to see potential energy-sector S-curves everywhere. Grids often rely on natural gas to help bridge over times of peak energy consumption, for example, but James talked to experts who said battery technology had advanced enough that it was poised to replace gas by storing renewably produced energy for later use. Internal-combustion engines in cars waste around 75 percent of the energy produced burning gasoline. James became convinced that, because electric vehicles use energy much more efficiently, they would simply beat out everything else in the market. He had initially thought that, optimistically, maybe half the cars on roads would be electric in the next two decades; now he revised it up to at least 80 percent. “At a price point in the energy transition,” James said, “adoption could just explode.”
One of the most difficult parts of building a system powered by something other than hydrocarbons is that it’s not clear what technology will outpace others in the market; from the perspective of oil executives, that means any particular path is fraught with potentially costly missteps. Companies like Exxon Mobil have more readily committed to reducing emissions intensity by lowering the amount of carbon released per unit of gas or oil than agreed to reduce absolute emissions. Still, in order to keep global warming under certain thresholds, there’s only so much more carbon dioxide that can be emitted into the atmosphere. According to most experts, annual carbon emissions must start declining in the next few years, be halved by 2030 and reach net zero by 2050 in order to stay within that budget. But in the largest areas of fossil-fuel consumption, which include transportation, buildings, industrial manufacturing and power generation, there are still unresolved problems about how to decarbonize.
Because the cost of wind and solar power has fallen so much over the last 10 years, to the point that they can compete with natural gas and coal, converting power grids to renewable energy and then electrifying as much as possible is one of the most popular routes to zero carbon. The approach could work in transportation with electric vehicles, but also in buildings, if gas-and-oil-consuming appliances and heating systems are systematically replaced with electrics and heat pumps. That would mean substituting the notion of energy efficiency, which still ultimately relies on fossil fuels, with the goal of emissions efficiency. “The shorthand for decarbonization is basically electrify everything and then decarbonize that electricity,” said Ed Crooks, a researcher at Wood Mackenzie, an energy consultancy. Some industrial sectors, like steel, whose production emits twice as much carbon annually as global airplane travel, are among the most difficult to decarbonize, because chemical reactions in the manufacturing process create carbon. But it’s possible that using hydrogen could lower some of the sector’s emissions, because it burns clean. Hydrogen could also play a role in long-haul trucking, but isolating it is energy-intensive, and green hydrogen, which is produced using renewable energy, currently amounts to only less than 1 percent of the roughly 100 million tons of hydrogen produced each year.
Just over a week before Penner and James’s proxy battle with Exxon Mobil culminated in the shareholder meeting, the International Energy Agency — the world’s leading energy-policy organization, with vast influence over governments’ plans — released a report that called for global investment in new gas and oil fields to stop immediately. In its assessment, the agency outlined a net-carbon-free future in which solar and wind power doubled in four years, grids were net zero by 2040, sales of internal-combustion-engine vehicles ceased by 2035 and half the world’s heating was supplied electrically by pumps by 2045. By 2050, more than 90 percent of heavy industrial manufacturing was to be converted to low-emissions processes. In addition to laying out a scenario relying primarily on clean electricity, the agency also slashed the role of fossil fuels. After years of forecasting rising demand for oil in the decade to come, the I.E.A. said the world now has 20 years to cut it in half.
Among the world’s major, publicly traded oil companies, Exxon Mobil has carved out a unique place. Before Engine No. 1 began the proxy battle, as other oil companies unveiled plans to reimagine their business models by laying out their own paths to zero carbon by 2050, Exxon Mobil entrenched itself. Last October, leaked internal Exxon Mobil documents obtained by Bloomberg showed that the company’s preliminary assessment of its investment plan included a projected 17 percent increase in its annual emissions — to 143 million metric tons of CO2 — by 2025. That represented emissions generated only by the company’s own operations; it didn’t include “scope 3” emissions, caused by consumers burning Exxon Mobil’s product. The company’s plan, based on expectations of continued growth, preceded the pandemic, but it gave an indication of how executives intended to chart the next few decades. Even as the coronavirus was causing countries around the world to shutter early last year, Woods, the chief executive and architect of the company’s growth plan, promised that Exxon Mobil would continue “leaning into this market when others have pulled back.”
One thing the company has pointed to as a sign of its commitment to addressing climate risk is its carbon-capture and storage projects, an area that oil companies advertise as making use of their expertise with subsurface mining. Most scenarios for reducing global carbon emissions to zero by 2050 include some form of removing carbon; Shell’s plan for the company’s path, for example, includes offsetting 120 million tons of carbon per year by 2030, in large part by planting millions of trees. Carbon capture as it currently exists isolates and removes the molecule at the point of production. Exxon Mobil has removed carbon dioxide as a byproduct of natural-gas extraction for decades; its most significant carbon-capture facility, near LaBarge, Wyo., separates carbon from its main end products, gas and helium, brought up from limestone at least 15,000 feet below the Earth’s surface. Most of the carbon dioxide is offered to other oil companies for use in something called enhanced oil recovery, which means that it is injected at other wells to retrieve more oil. The carbon dioxide that’s injected for oil extraction generally stays in the subsurface, but because that isn’t the end purpose, there’s little monitoring for leaks.
If the market isn’t strong enough to make selling carbon dioxide worthwhile, the company injects it back into the ground, to depths where pressure forces it to take fluid form, keeping it sealed. Researchers have also developed methods for storing carbon in saline aquifers, which are areas of porous rock filled with salty water deep underneath the Earth’s surface. Most carbon stored for environmental reasons is kept in these aquifers rather than in old oil fields. According to Steve Davis, a former Exxon Mobil employee and researcher currently affiliated with Stanford University, of the approximately 40 million tons of carbon dioxide captured annually on a global scale, only about five million is intentionally stored in saline aquifers so that it doesn’t enter the atmosphere. The rest is injected to extract more oil.
During its campaign, Engine No. 1 relied on public information about Exxon Mobil, but the company had historically obscured how much it knew about climate change. There were also signs of internal conflicts. One scientist, Enrique Rosero, publicly said he was pushed out last summer after criticizing the company’s climate strategy, and he expressed doubt about the sincerity of Exxon Mobil’s supposed environmental efforts. “My personal opinion is that most solutions are public-relations efforts and that some of the technologies and partnerships that have been prominently featured may not deliver at scale,” Rosero said, citing the company’s much-hyped algae biofuel and direct carbon capture. Much of the oil company’s long-term carbon-capture strategy depends on establishing commercial viability, either through publicly funded incentives or by establishing a price on carbon; in the absence of government support, it’s not clear how the process would make financial sense.
Other current and former employees, some of whom spoke on the condition of anonymity for fear of losing their jobs, said the rigid hierarchical corporate culture at Exxon Mobil dampened the potential for innovation. Other oil companies have announced plans to acquire renewable-energy ventures, invest in alternative fueling infrastructure and work with other industries to figure out how to remove carbon from their processes. But Exxon Mobil has resisted venturing in a significant way from its traditional bread and butter.
One global asset manager, who met with Exxon Mobil a dozen times before the proxy vote, said that while management remained steadfastly convinced that it was right, the company also approached the problem with an engineering mind-set that balked at committing to something like net zero without a detailed plan for getting there — a reasonable concern, but one that other companies have approached as a challenge with 30 years to solve. Some shareholders said the company was uniquely intransigent about responding to mounting demands; after more than 60 percent of Exxon Mobil investors voted in 2017 in favor of producing a report on the risk to the business of addressing climate change, the company published a forecast for demand that would rely on cutting emissions intensity and improving efficiency. “We found the report that they produced to be less than adequate,” said DiNapoli, the New York state comptroller. In it, the company projected a 2.4-degree global temperature increase.
In January, shortly after Engine No. 1 began its proxy battle, Penner and James had a video call with Woods and Exxon Mobil’s lead independent director, Ken Frazier. The encounter was tense, but everyone made an effort to maintain the veneer of friendly deference. At one point, Frazier flashed a peace sign at the camera, acknowledging shareholder frustration with the decreasing profitability of the last decade while also explaining that the board had criteria for vetting new candidates — selecting for chief-executive-level experience at companies with significant market value — that Engine No. 1’s nominees didn’t meet. Woods talked about how the company would play an important role in meeting the energy demands of a growing global population with improving standards of living. He said Exxon Mobil supported the idea of addressing climate change but didn’t know what kind of competitive advantage the company could have in areas like renewable energy.
“A lot of your investors think it would make sense to set longer-term goals,” Penner said midway through the call.
“Hey, Charlie, do you know how anybody is going to meet the 2050 goal today?” Woods replied. “Have you asked any C.E.O.s who have committed to that?”
“Do you know how you’re going to fulfill your business plan without burning down the planet?” Penner asked.
“If all it takes is aspiration,” Woods said and then paused. “We support that ambition.”
“Have you ever accomplished anything that, when you started, you didn’t know how you were going to finish?” Penner replied. To Penner, having a goal of getting to net zero even without an exact map was better business than planning to continue producing oil and gas in a decarbonizing world.
The call ended with the executives and activists saying they would continue to seek a resolution to avoid a standoff. They didn’t speak again.
Less than two weeks after the call, Exxon Mobil’s management announced that it was adding a director to its board — the former head of Malaysia’s national oil-and-gas company. A month later, the company said it was adding two more, an activist investor and the chief executive of an investment firm, bringing the board briefly to 13 directors, although one director’s term was due to expire. It spent more than $35 million blanketing shareholders with appeals to reject the activists and stick with management. It unveiled a $3 billion investment in its new Low Carbon Solutions venture, primarily focused on carbon-capture projects, including many that had already been announced by the company. It revised its production growth targets down. Just days before the proxy votes would be tallied, Exxon Mobil announced that it would add two more yet-unnamed directors, one with “climate experience” and one with experience in the energy industry. But the company’s efforts at placating the activists fell short, and a week after the annual meeting, it became clear by how much; the company announced that Andy Karsner, the energy entrepreneur, had also been elected to the board, giving Engine No. 1’s candidates a quarter of the seats.
Last summer, months before Engine No. 1 went public with its campaign, Penner and James went to Texas to meet Greg Goff, a candidate they were considering nominating to the Exxon Mobil board. It was the middle of the pandemic, a hurricane was forming and travel seemed imprudent. But Goff, who is 64, was revered in the oil industry for his tenure as chief executive at the petroleum-refining company Andeavor, during which its share price went to $153 from $12. He was also known to be unafraid of breaking with tradition; one analyst recalled him shunning the opulent and Central Park-adjacent St. Regis, where industry events with stockbrokers were customarily held, to host a dinner at a wood-paneled Midtown steakhouse. Penner and James had spoken with Goff a few times, and it seemed as if he was warming up to them. Having Goff on the ticket would prove that they weren’t just a bunch of Wall Street types trying to gut the company without understanding the industry. Maybe it would also show that even dedicated oil executives could see the business case for change.
They took private flights to Texas. Goff picked them up, driving a truck that had shotguns in the back of the cab. The plan had been to go out and shoot some clay birds while they discussed business. Instead, they spent the day on a porch outside a hunting lodge in the middle of Hill Country under the August sun. They dined together. They drank wine. They talked late into the night about what the future of the energy industry would look like and how to adapt to a world in which the consequences of burning fossil fuels are no longer acceptable. Goff didn’t like to talk about an energy transition, because that suggested a future free of fossil fuels, which he wasn’t sure was possible. But the oilman, who started his career at Conoco and spent 40 years in the industry, knew that something would give — and that there was potential there. “The world is changing, and many, many stakeholders have different demands and expectations,” Goff said. “The change was primarily about just business.”
Jessica Camille Aguirre is a writer from California. Her last article for the magazine documented conservation efforts in Australia.
Electronic copy available at: http://ssrn.com/abstract=2621599
USAEE Working Paper Series
Has the Petrodollar Had Its Day?
Dr Mamdouh G. Salameh
International Oil Economist
World Bank Consultant
UNIDO Technical Expert
Visiting Professor of Energy Economics at ESCP
Europe University, London
Oil Market Consultancy Service
Surrey GU27 3SJ
Tel: (01428) – 644137
Electronic copy available at: http://ssrn.com/abstract=2621599
Has the Petrodollar Had Its Day?
Dr Mamdouh G Salameh*
The petrodollar came into existence in 1973 in the wake of the collapse of the
international gold standard which was created in the aftermath of World War II under
the Bretton Woods agreements. These agreements also established the US dollar as
the reserve currency of the world. The Nixon Administration understood that the
collapse of the gold standard system would cause a decline in the global demand for
the US dollar. Maintaining demand for the US dollar was vital for the United States’
economy. So the United States under Nixon struck a deal in 1973 with Saudi Arabia.
Under the terms of the deal, the Saudis would agree to price all of their oil exports in
US dollars exclusively and be open to investing their surplus oil proceeds in US debt
securities. In return, the United States offered weapons and protection of Saudi
oilfields from neighbouring countries including Israel. For the Americans, the
petrodollar increases demand for the dollar and also for US debt securities and
allows the US to buy oil with a currency it can print at will. In 1975, all of the OPEC
nations agreed to follow suit. Maintaining the petrodollar is America’s primary goal.
Everything else is secondary. However, as the US dollar continued to lose
purchasing power, several oil-producing nations began to question the wisdom of
accepting increasingly devalued petrodollar for their oil exports. Several countries
have attempted to move away from the petrodollar, or already moved away.
Examples include Iraq under Saddam Hussein, Iran, Syria and Venezuela.
Additionally, other nations are choosing to use their own currencies for oil like China,
Russia and India. This paper will deal with the actions, incentives, and related
consequences that the United States has created through its attempts to maintain
global hegemony through the petrodollar. It will examine the latest challenges facing
the petrodollar and how the petrodollar system influences the United States’ foreign
policy. The paper will conclude that the petrodollar has had its day and that it will be
a matter of time before it becomes redundant with huge repercussions for the US
economy and the global economy.
Key Words: Petrodollar, Yuan, Reserve Currency, Inflation, Federal Reserve.
The petrodollar came into existence in 1973 in the wake of the collapse of the
international gold standard which was created in the aftermath of World War II under
the Bretton Woods agreements. These agreements also established the US dollar as
the reserve currency of the world. Former president Richard Nixon and his then
foreign secretary Henry Kissinger understood that the collapse of the gold standard
system would cause a decline in the global demand for the US dollar.
Electronic copy available at: http://ssrn.com/abstract=2621599
Maintaining that “artificial dollar demand” was vital for the United States’ economy.
So the United States under Nixon struck a deal in 1973 with Saudi Arabia under
which every barrel of oil purchased from the Saudis would be denominated in US
dollars only. Any country that sought to purchase oil from Saudi Arabia would be
required to first exchange its own national currency for dollars. Under the terms of
the deal, the Saudis would agree to price all of their oil exports in US dollars
exclusively and be open to investing their surplus oil proceeds in US debt securities.
In exchange, the United States offered weapons and protection of Saudi oilfields
from neighbouring countries including Israel.
For the Americans, the petrodollar increases demand for the dollar and also for US
debt securities and allows the US to buy oil with a currency it can print at will.
Maintaining the petrodollar is America’s primary goal. Everything else is secondary.
Without it, the US dollar would collapse. 1
In 1975, all of the OPEC nations agreed to follow suit. However, as the US dollar
continued to lose purchasing power, several oil-producing nations began to question
the wisdom of accepting increasingly worthless paper currency for their own oil
exports. Today, several countries have attempted to move away from the petrodollar,
or already moved away. Examples include Iraq under Saddam Hussein, Iran, Syria
and Venezuela. Additionally, other nations are choosing to use their own currencies
for oil like China, Russia and India. The petrodollar created an immediate demand
for US dollar around the globe thus enhancing its artificial value. And of course, as
global oil demand increased, so did the demand for the dollar. As more countries
continue to move away from the petrodollar, massive inflationary pressures could be
expected to strike the US economy. 2
What is Petrodollar?
The Petrodollar is the money that oil-exporting nations receive from selling their oil in
US dollar-denominated currency which is deposited into Western banks. The term
was first coined by Egyptian-born American economist, Professor Ibrahim M Oweiss
of Georgetown University in a pioneering work on petrodollar surpluses in 1974. 3
Under the Bretton Woods agreements, the US Dollar was pegged at a fixed rate to
gold. This made the US dollar completely convertible into gold at a fixed rate of $35
per ounce within the global economic community. This international convertibility into
gold allayed concerns about the fixed rate regime and created a sense of financial
security among nations in pegging their currencies’ value to the dollar. After all, the
Bretton Woods arrangements provided an escape hatch: if a particular nation no
longer felt comfortable with the dollar, they could easily convert their dollars holdings
into gold. This arrangement helped restore a much-needed stability in the financial
system. But it also created a strong global demand for US dollars as the preferred
medium of exchange (see Figure 1).
And along with this growing demand for US Dollars came the need for a
larger supply of dollars. This begs the question: Are there any obvious benefits from
creating more dollars? And if so, who benefits?
The United States government benefits from a global demand for US dollars. How?
It’s because a global demand for dollars gives the Federal government a
“permission” to print more. Is it a coincidence that printing dollars is the US
government’s preferred method of dealing with its economic problems?
Source: Courtesy of Jerry Robinson, FTM Daily.com.
One has to remember that Washington only has four basic ways to solve its
economic problems: (1) Increase revenue by raising taxes; (2) Cut spending by
reducing benefits; (3) Borrow money through the issuance of government bonds and
(4) Print money.
Raising taxes and making meaningful spending cuts can be political suicide.
Borrowing money is a politically convenient option, but you can only borrow so much.
That leaves the final option of printing money. Printing money requires no immediate
sacrifice and no spending cuts. However, printing more money than is needed can
lead to inflation. Therefore, if a country can somehow generate a global demand for
its currency, it will have a “permission” to print more money. Understanding this
“permission” concept will be important as we continue.
Finally, the primary beneficiary of an increased global demand for the US Dollar is
America’s central bank, the Federal Reserve.
The U.S. Dollar is issued and loaned to the United States government by the Federal
Reserve. Because the dollars are loaned to the US government by the Federal
Reserve, which is a private central banking cartel, the dollars must be paid back.
And not only must the dollars be paid back to the Federal Reserve. They must be
paid back with interest. And who sets the interest rate targets on the loaned dollars?
It’s the Federal Reserve, of course.
To put it simply, the Federal Reserve has a clear vested interest in maintaining a
stable and growing global demand for US Dollars because they create them and
then earn profit from them with interest rates which they set themselves.
In summary, the American consumer, the Federal government, and the Federal
Reserve all benefit to varying degrees from a global demand for US Dollars. There is
an old saying that goes, “He who holds the gold makes the rules.” This statement
has never been truer than in the case of America in the post–World War II era. By
the end of the war, nearly 80% of the world’s gold was sitting in US vaults, and the
U.S. Dollar had officially become the world’s undisputed reserve currency. 4
As a result of the Bretton Woods arrangements, the dollar was considered to be “as
safe as gold.”
A study of the United States economy in the post-World War II era demonstrates that
this was a time of dramatic economic growth and expansion. By the late 1960’s,
however, the American economy was under major pressure. Deficit spending in
Washington was uncontrollable as former US President Lyndon B. Johnson began to
realize his dream of the “Great Society.” Meanwhile, an expensive and unpopular
war in Vietnam funded by record deficit spending led some nations to question the
economic underpinnings of America. Vietnam, the Great Society, and deficit
Spending undermined the gold standard.
After all, the entire global economic order had become dependent upon a sound US
economy. Countries like Japan, Germany, and France, while fully on the mend from
the devastation of World War II, were still largely dependent upon a financially stable
American economy to maintain their economic growth.
By 1971, as America’s trade deficits increased and its domestic spending soared, the
perceived economic stability of the United States was being publicly challenged by
many nations around the globe. Foreign nations could sense the severe economic
difficulties mounting in Washington as the United States was under financial
pressure at home and abroad. According to most estimates, the Vietnam War had a
price tag in excess of $200 billion. This mounting debt, plus other debts incurred
through a series of poor fiscal and monetary policies, was highly problematic given
America’s global monetary role. 5
But it was not America’s financial issues that most concerned the international
economic community. Instead, it was the growing imbalance of US gold reserves to
debt levels that was most alarming.
The United States had accumulated large amounts of new debts but did not have the
money to pay for them. Making matters worse, US gold reserves were at all-time
lows as nation after nation began requesting gold in exchange for their dollar
holdings. It was almost as if foreign nations could see the writing on the wall for the
end of the Bretton Woods arrangements.
As 1971 progressed, so did foreign demand for US gold. Foreign central banks
began cashing in their excess dollars in exchange for the safety of gold. As nations
lined up to exchange their dollar holdings for Washington’s gold, the United States
realized that the game was over. Clearly, America had never intended to be the
globe’s gold warehouse. Instead, the convertibility of the dollar into gold was meant
to generate a global trust in US paper money. Simply knowing that the US dollar
could be converted into gold if necessary was good enough for some — but not for
everyone. The nations which began to doubt America’s ability to manage their own
finances decided to opt for the recognized safety of gold.
One would have expected that the large and growing demand by foreign nations for
gold instead of dollars would have given a strong signal to the United States to get
its fiscal house in order. Instead, America did exactly the opposite. As Washington
continued racking up enormous debts, foreign nations sped up their demand for
more US gold and fewer U.S. dollars. Washington was caught in its own trap and
was required to supply real money (gold) in return for the inflows of their paper
money (US dollars).
Soon the United States was bleeding gold. Washington knew that the system was no
longer viable, and certainly not sustainable. But what could they do to stem the
crisis? There were only two options. The first option would require that Washington
immediately reduce its massive spending and dramatically reduce its existing debts.
This option could possibly restore confidence in the long-term viability of the US
economy. The second option would be to increase the dollar price of gold to
accurately reflect the new economic realities. There was an inherent difficulty in both
of these options that made them unacceptable to the United States at the time. They
both required fiscal restraint and economic responsibility. Then, as now, there was
very little appetite for reducing consumption or changing the American way of life for
the sake of “sacrifice” or “responsibility.”
The Bretton Woods agreements created an international gold standard with the US
dollar as the ultimate beneficiary. But in an ironic twist of fate, the system that was
designed to bring stability to a war-torn global economy was threatening to plunge
world back into financial chaos.
On August 15, 1971, under the leadership of former President Nixon, Washington
chose to maintain its reckless consumption and debt patterns by detaching the US
Dollar from its convertibility into gold. By “closing the gold window,” Nixon destroyed
the final vestiges of the international gold standard. Nixon’s decision effectively
ended the practice of exchanging dollars for gold as directed under the Bretton
Woods agreements. It was in the year 1971, that the US dollar officially abandoned
the gold standard and was declared a purely “fiat” currency, a currency which
derives its value from its sponsoring government and is issued and accepted by
By “closing the gold window,” Washington had not only affected American economic
policy but also global economic policy. Under the international gold standard of
Bretton Woods, all currencies derived their value from the value of the dollar. And
the dollar derived its value from the fixed price of its gold reserves. But when the
dollar’s value was detached from gold, it became what economists call a “floating”
currency”. Put simply, a “floating” currency is a currency that is not fixed in value.
Like any commodity, the dollar could be affected by the market forces of supply and
demand. When the dollar became a “floating” currency, the rest of the world’s
currencies, which had been previously fixed to the dollar, suddenly became “floating”
currencies as well.
In this new era of floating currencies, the US Federal Reserve had finally freed itself
from the constraint of a gold standard. Now, the US dollar could be printed at will —
without the worry of not having enough gold reserves to back up new currency
production. And while this new-found monetary freedom would alleviate pressure on
America’s gold reserves, there were other concerns. One major concern that
Washington had was regarding a potential shift in global demand for the US
dollar. With the dollar no longer convertible into gold, would demand for the dollar by
foreign nations remain the same, or would it fall?
The second concern had to do with America’s extravagant spending habits. Under
the international gold standard of Bretton Woods, foreign nations gladly held US debt
securities, as they were denominated in gold-backed US dollars. Would foreign
nations still be eager to hold America’s debts despite the fact that these debts were
denominated by a heavily indebted paper currency? Once one understands this
“dollars for oil” arrangement, it becomes easier to get a better understanding of what
motivates America’s foreign policy.
Dollars for Oil Replace Dollars for Gold
Despite pressure from foreign nations to protect the dollar’s value by reining in
excessive government spending, Washington displayed little fiscal constraint and
continued to live far beyond its means. It had become obvious to all that America
lacked the basic fiscal discipline which could prevent the destruction of its own
Like previous governments before it, America had figured out how to “game” the
global reserve currency system for its own benefit, leaving foreign nations in an
economically vulnerable position. After America and its citizens have tasted the
sweet fruit of excessive living at the expense of other nations, they are not going to
change their way of life.
It is unfair, however, to say that the decision-makers in Washington were blind to the
deep economic issues confronting their country in the late 1960’s and early
1970’s.They were aware that the “dollars for gold” arrangement had become
completely unsustainable. But instead of seeking solutions to the global economic
imbalances that had been created by America’s excessive deficits, Washington’s
primary concern was how to gain an even greater stranglehold on the global
In order to ensure their economic hegemony, and thereby preserve an increasing
demand for the dollar, the Washington elites needed a plan. And in order for this
plan to succeed, it would require that the artificial dollar demand that had been lost in
the wake of the gold standard collapse be replaced through some other mechanism.
That plan came in the form of the petrodollar system.
Saudi Arabia to the Rescue
Saudi Arabia has a very long history of collaborating with the United States in
economic and geopolitical matters. The deal struck in 1973 between the United
States and Saudi Arabia to denominate all Saudi oil exports exclusively in US dollars
is but one case among many with the Saudis doing America’s bidding.
The most recent example of this collaboration is the steep decline in crude oil prices
since July 2014 with Saudi Arabia not only refusing to cut its production to bolster the
oil price but also exerting strong pressure on OPEC not to do so. Circumstantial
evidence suggests some political collusion between Saudi Arabia and the United
States behind the steep decline in the oil price since July 2014. 7
Saudi Arabia took advantage of the low oil prices to inflict damage on Iran’s
economy and weaken its influence in the Middle East in its proxy war with Iran over
its nuclear programme whilst the United States is taking advantage of the low oil
prices to weaken Russia’s economy and tighten the sanctions against Russia over
History repeats itself. Early in the 1980s, Sheikh Ahmad Zaki Yamani, the veteran,
former oil minister of Saudi Arabia, suddenly awoke to Saudi Arabia’s need for
market Share. He flooded the market with oil causing the oil price to collapse to
$10/barrel. It later transpired that the Saudi need for a market share was just a cover
for a CIA-Saudi conspiracy to hasten the demise of the former Soviet Union.
And now the Saudi oil minister Ali Al-Naimi is waking up to the same need. Al-Naimi
has followed in the exact footsteps of Yamani. He suddenly remembered at the
166th Meeting of the Conference of OPEC on the 27th of November 2014 the need
for Saudi market share. This is probably a cover for a new collusion between the
United States and Saudi Arabia to lower the oil prices in a new conspiracy against
Russia and Iran.
Whilst the key players have changed, the strategic objectives have remained the
The Primary Benefits of the Petrodollar for the United States
The petrodollar system has proven tremendously beneficial to the US economy. In
addition to creating a marketplace for affordable imported goods from countries who
need US dollars, there are more specific benefits. In essence, America receives a
double loan out of every global oil transaction.
The petrodollar system provides at least three immediate benefits to the United
States. It increases global demand for US dollars. It also increases global demand
for US debt securities and it gives the United States the ability to buy oil with a
currency it can print at will. Let’s briefly examine each one of these benefits.
One of the most brilliant
aspects of the petrodollar system was requesting that oil producing nations take their
excess oil profits and place them into US debt securities. This system would later
become known as “petrodollar recycling” as coined by Henry Kissinger. Through
their exclusive use of dollars for oil transactions, and then depositing their excess
profits into American debt securities, the petrodollar system is a “dream come true”
for a spendthrift government like the United States.
This has enabled the United States to maintain artificially low interest rates. The US
economy has become dependent upon these artificially low interest rates and,
therefore, has a vested interest in maintaining them through any means necessary.
The massive economic distortions and imbalances generated by the petrodollar
system will eventually self-correct when the artificial dollar and US debt demand is
removed. That day is coming.
Another major benefit of the petrodollar system has to do with the actual purchase of
oil itself. With oil priced in US dollars, America can literally print money to buy oil and
then have the oil producers hold the debt that was created by printing the money in
the first place. What other nation, besides America, can print money to buy oil?
Petrodollars & Petrodollar Surpluses
Since petrodollars and petrodollar surpluses are by definition denominated in US
dollars, then purchasing power is dependent on the US rate of inflation and the rate
at which the U.S. dollar is exchanged (whenever there is need for convertibility) by
other currencies in international money markets. It follows that whenever economic
or other factors affect the US dollar, petrodollars will be affected to the same
magnitude. The link, therefore, between the US dollar and petrodollar surpluses, in
particular, has significant economic, political, and other implications.
First, the placement of petrodollar surpluses of the Arab oil exporting nations in the
United States may be regarded politically as hostage capital. 8 In the event of a
major political conflict between the United States and an Arab oil-exporting nation,
the former with all its military might can confiscate or freeze these assets or
otherwise limit their use. It can impose special regulations or at least use regulations
for a time, in order to attain certain political, economic, or other goals. The US
government resorted to such weapons twice in the l980s against Iranian and Libyan
assets. It follows, therefore, that governments placing their petrodollar surpluses in
the United States may lose part of their economic and political independence.
Consequently, the more petrodollar surpluses are placed in the United States by a
certain oil-exporting nation, the less independent such a nation becomes.
Second, an oil-exporting country can have petrodollar surpluses only if its absorptive
capacity is less than its earnings from the sale of’ oil for any particular period of time.
It follows, therefore, that petrodollar surpluses depend on oil prices, volumes
exported, and the nation’s absorptive capacity.
Third, petrodollar surpluses do not represent real wealth but rather are a vehicle by
which the latter can be acquired. If kept in liquid form such as paper dollars, their
purchasing power will gradually be eroded by inflation and adverse foreign exchange
rates. Both are affected in the United States by a host of variables such money
supply, interest rates, marginal productivity and balance-of-payments deficit. Another
factor is US monetary and fiscal policy which in turn affects some of’ these variables.
Therefore, the purchasing power of petrodollar surpluses belonging, for example, to
Arab oil-exporting nations is determined by factors that are not in the control of these
Fourth, efficient allocation of petrodollars for internal investments could increase the
productive capacity of an oil-exporting nation and may work to its relative advantage.
However, dependency on imported consumer goods promotes the export of limited
oil resources that could have been otherwise used for internal capital development.
Fifth, the economic development of an oil-exporting nation is based on the
conversion of its oil resources into other assets such as wealth-creating projects,
diversification, education, technology, infrastructure, and other forms of real wealth,
that is, real capital stock. Obviously the conversion process can be carried on at
different rates. An optimum rate is achieved when oil is pumped at a level that can
maximize the conversion process. By pumping oil in excess of an optimum
production rate, the Arab Gulf oil-producing countries accumulated petrodollar
surpluses until 1981. After that the petrodollar surpluses have turned into deficits.
That was the time when Sheikh Ahmad Zaki Yamani flooded the global oil market
with oil causing the oil price to collapse to around $10/barrel. It is worth noting that
the difference between the volume of oil actually supplied and the volume that
should have been supplied in observance of standard microeconomic theory is in
fact a subsidy granted, in real terms, to oil-importing nations such as the United
States, Germany, France, and Japan. 10
Allocation of Petrodollar Surpluses
The bulk of petrodollar surpluses is held either in US treasury bills and other shortterm instruments or in American and Western European banks. Petrodollar
surpluses have also been used to increase the official reserves of the oil-exporting
countries at both the International Monetary Fund and the International Bank for
Reconstruction and Development.
Petrodollar surpluses have been recycled by commercial banks in the United States
and other industrialized nations as well as by international institutions. By drawing
against petrodollar surpluses as deposits or certificates of deposits, banks were able
to expand their volume of lending. For bankers the most obvious clients were the
developing countries, mainly in Latin America, such as Mexico, Brazil, and
According to US Treasury information, petrodollar surpluses have turned into deficits
since 1982. There are three main reasons for this turn of events: increase in imports
by oil-exporting nations; reduction in the demand for oil, particularly from OPEC; and
the oil glut which led to a reduction in its price.
The Petrodollar Wars: Iraq & Libya
The world currently consumes 92 million barrels of oil per day (mbd) and this is
projected to rise to 97 mbd by 2020. And thanks to the petrodollar system, growing
global demand for oil leads to an increase in US dollar demand. This artificial
demand for US dollars has provided remarkable benefits for the US economy. It has
also required the Federal Reserve to keep the dollar in plentiful supply (see Figure
By perpetually expanding the US money supply, America’s standard of living
increases as well. The problem with this situation is that the only way that it can be
sustained is if the demand for the dollar and for US debt securities remains
On September 11, 2001, America’s relations with the Middle East would be altered
forever. The tragic events of that day still live on in the memory of the world.
Interestingly, just five hours after American Airlines Flight 77 crashed into the
Pentagon, former US Secretary of Defence Donald Rumsfeld began ordering his
staff to develop plans for a strike on Iraq despite the fact that there was absolutely no
evidence linking the country, or its leader Saddam Hussein, to the 9/11 attacks. 11
Source: Courtesy of FTMdaily.com
On September 12, 2001, despite zero evidence against Iraq, Defence Secretary
Rumsfeld proposed to former president George W. Bush that Iraq should be “a
principal target of the first round in the war against terrorism.” Bush, along with his
other advisors, including Deputy Secretary of Defence Paul Wolfowitz, strongly
supported the idea that Iraq should be included in their attack plans.
In fact, Washington had already been preparing for an invasion of Iraq. The Los
Angeles Times reported that one year prior to the attacks of 9/11, the US began in
April 2000 constructing Al Adid, a billion-dollar military base in Qatar with a 15,000-
foot long runway. What was Washington’s stated justification for the new Al Adid
base, and other similar ones in the Gulf region? Preparedness for renewed action
It would later be revealed that an invasion of Iraq was at the top of the Bush
administration’s agenda only 10 days after his inauguration, which was a full eight
months before 9/11. 13
So why Iraq? Why the rush to war with a country that so obviously had no
connection with the events of 9/11? Did the U.S. have some other motivation for
seeking international support to invade Iraq?
On September 24, 2000, Saddam Hussein allegedly emerged from a meeting of his
cabinet and proclaimed that Iraq would soon switch its oil export transactions from
the petrodollar to the euro. By 2002, Saddam had fully converted to a petroeuro – in
essence, dumping the dollar. On March 19, 2003, George W. Bush announced the
commencement of a full scale invasion of Iraq.
Saddam’s bold threat to the petrodollar system had invited the full force and fury of
the US military onto his country. Or was America’s stated purpose to “liberate” the
Iraqi people from a brutal regime actually a clever guise for making an example of a
nation which dared threaten the existing petrodollar system? However, it would be
naïve to assume that this was the real reason for the invasion of Iraq in 2003. The
real reason was oil. 14 Even Alan Greenspan the former chairman of the Federal
Reserve Board for 17 years, concurs. 15
It should be noted that Iraq’s proven oil reserves are considered to be among the
largest in the world. Some experts believe that Iraq’s oilfields, many of which have
yet to be exploited, will catapult Iraq above Saudi Arabia in total proven oil reserves
in the coming years.
It is a matter of conjecture that the Middle East could have had a different shape
today had the petrodollar not come into existence. Being established on a
geopolitical infrastructure, the petrodollar has developed dimensions of security,
economics and development for the US and the major oil exporters in the Middle
The petrodollar has caused much ire for many nations due to the power it gave the
US. Interestingly, anyone who challenged the petrodollar did not fair well.
In Libya, US-backed rebels toppled Muammar Gaddafi who proposed a gold-backed
African currency that would be traded for African oil. Moreover, Russian president
Putin is under scrutiny for his push towards a Yuan-Ruble oil trading system. 16
Defending the Petrodollar System
Since the dawn of the oil age, the geopolitical strategies concocted by developed
nations have increasingly been centred on maintaining easy access to the world’s oil
supplies. Only the truly naive could deny the obvious powerful economic and political
incentives that are derived from access to cheap oil supplies. And while most nations
have a clear motivation to maintain easy access to the world’s cheapest oil supplies
out of sheer economic necessity, this is certainly not the sole concern for the United
States. The United States has an additional unique incentive regarding the world’s
oil, namely, ensuring that all oil around the globe, both current supplies and future
discoveries, remain priced in US dollars.
A simple examination of America’s foreign policy efforts in the wake of the ‘oil shock’
of 1973 and in the ensuing foundation of the petrodollar system in the mid-1970s,
makes it painstakingly clear to any casual political observer that a central goal of
Washington has been to control global oil supplies, specifically in the Middle East.
After the 1973 ‘oil shock’, former president Nixon warned US citizens “that American
military intervention to protect vital oil supplies” in the region, was a strong possibility.
This speech marked the first official and formal commitment to deploy US troops to
the Middle East for the explicit reason of protecting America’s oil interests.
On 23 January 1980, former US president Jimmy Carter proclaimed in his State of
the Union Address the “Carter Doctrine” which stated that the United States would
use military force if necessary to defend its national interests in the Persian Gulf. It
was a response to the Soviet Union’s intervention in Afghanistan in 1979 and was
intended to deter the Soviet Union from threatening oil supplies from the Middle
By January 1, 1983, the United States created the Central Command (CENTCOM)
with the stated mission of acting as a deterrent (primarily against the Soviets) and to
help maintain regional stability and the flow of oil from the Arab Gulf to the United
States and other western allies (see Figure 3). After all, maintaining a global order
dependent upon a “dollars for oil” system is no cheap task and requires careful
monitoring and oversight of the world’s oil supplies. Chief among the potential
concerns for the petrodollar
guardians are: threats of
restrictions on oil supplies
and, perhaps most importantly,
devising “permanent solutions” to
the problems presented
by nations who dare challenge
the current “dollars for oil”
Putin’s Revenge: Russia is Actually Abandoning the Petrodollar
Sanctions were imposed on Russia after its intrusion into the Ukraine in February
2014 and the ensuing annexation of the Crimea. Even before sanctions were
introduced, Russia was already in the process of reorienting its energy posture to
Asia in view of the growth in energy demand in that continent and the likely
stagnation or decline of demand in Europe over the next few decades. 17
Angered by the sanctions, the Russians began considering action against the United
States. They are actually making a move against the petrodollar. It appears that
they are quite serious about their de-dollarization strategy. The largest natural gas
producer on the planet, Gazprom, has signed agreements with some of their biggest
customers to switch payments for natural gas from US dollars to euros. And
Gazprom would have never done this without the full approval of the Russian
government which holds a majority stake in Gazprom. 18 When you are talking
about Gazprom, you are talking about a company that is absolutely massive. It is
one of the largest companies in the entire world and it makes up 8% of Russian GDP
all by itself. It holds 18% of the proven natural gas reserves of the entire world, and
it is also a very large oil producer. So for Gazprom to make a move like this is
extremely significant. 19
When Barack Obama decided to slap some meaningless economic sanctions on
Russia a while back, he probably figured that the world would forget about them
soon after. But the Russians do not forget, and they certainly do not forgive.
At this point the Russians are turning their back on the United States, and that
includes the US dollar. What Gazprom is now doing has the potential to really shake
up the global financial landscape.
Gazprom Neft had signed additional agreements with consumers on a possible
switch from dollars to euros for payments under contracts. Nine out of ten
consumers had agreed to switch to euros. 20
And Gazprom is not the only big company in Russia that is moving away from the
US dollar. According to Russia Today TV (RT), other large Russian corporations are
moving to other currencies as well.
Russia will start settling more contracts in Asian currencies, especially the Chinese
yuan in order to lessen its dependence on the dollar market, and because of
Western-led sanctions that could freeze funds at any moment. Diversifying trade
accounts from dollars to the Chinese yuan and other Asian currencies such as the
Hong Kong dollar and Singapore dollar has been a part of Russia’s pivot towards
Asian as tension with Europe and the US remain strained over Russia’s action in
And expanding the use of non-dollar currencies is one of the main things that major
Russian banks are working on right now. Russia’s large exposure to the dollar
subjects it to more market volatility in times of crisis. There is no reason why you
have to settle trade you do with Japan in dollars.
Meanwhile, Russians have been pulling money out of US banks at an
unprecedented pace. In March 2014, without waiting for the sanction spiral to kick in,
Russians yanked their money out of US banks. Deposits by Russians in US banks
suddenly plunged from $21.6 billion to $8.4 billion in one month. They’d learned their
lesson in Cyprus the hard way: get your money out while you still can before it gets
As Russia abandons the US dollar, that will hurt but if other nations start following
suit that could eventually cause a financial avalanche.
What we are witnessing right now is just a turning point. The effects won’t be felt
right away. But this is definitely another element in the “perfect storm” that is starting
to brew for the US economy.
Putin’s support of the BRICS Development Bank is significant. The New BRICS
Development Bank is up and running. It is backed by gold, silver and real
commodities unlike the US Federal Reserve System which is based on Fiat private
China and Russia are together moving to create a parallel financial system,
disentangled from the Western financial system. It includes creating entities such as
the Asian Development Bank. One of the principal tools in the hands of Washington
to control the global system has always been the International Monetary Fund (IMF).
Nations have to go to the IMF to ask for financial help when in difficulties, but
recently it was China – and not the IMF – which bailed out Venezuela and Argentina
and provided financial support to Russia when their currencies came under pressure.
The IMF and the World Bank were no longer at the centre of the global financial
order. They are being displaced by China. 22
European and American leaders thought that Russia would weaken because of
sanctions and the fall of the ruble against the US dollar, but China intervened and
stopped the collapse of the ruble. In short, China is operating as a backstop to a
financial system that is in the process of shifting dramatically away from Western
China Is Also Making A Move Against the US Dollar
There are indications that the Chinese are now accelerating their long-term plan to
dethrone the US dollar. The truth of the matter is that China does not plan to allow
the US financial system to dominate the world indefinitely. Right now, China is the
number one exporter on the globe and the largest crude oil importer in the world.
And soon it will have the largest economy in the world.
The Chinese would like to see global currency usage reflect this shift in global
economic power. At the moment, most global trade is conducted in US dollars and
more than 60% of all global foreign exchange reserves are held in US dollars. This
gives the United States an enormous built-in advantage but thanks to decades of
incredibly bad decisions, this advantage is starting to erode. And due to the recent
political infighting in Washington D.C., the Chinese sense vulnerability. China has
begun to publicly worry about the level of US debt. Chinese officials have publicly
threatened to stop buying any more US debt and have started to aggressively make
currency swap agreements with other major global powers and, furthermore, China
has been accumulating unprecedented amounts of gold. All of these moves are
setting up the moment in the future when China will completely pull the rug out from
under the US dollar.
Today, the US financial system is the core of the global financial system. Because
nearly everybody uses the US dollar to buy oil and to trade with one another, this
creates a tremendous demand for US dollars around the planet. So other nations
are generally happy to take US dollars in exchange for oil, cheap plastic gadgets and
other things that US consumers “need”.
Major exporting nations accumulate huge piles of dollars, but instead of just letting all
of that money sit there, they often invest large portions of their currency reserves into
US Treasury bonds which can easily be liquidated if needed.
So if the US financial system is the core of the global financial system, then US debt
is “the core of the core”. US Treasury bonds fuel the print-borrow-spend cycle that
the global economy depends upon. That is why a US debt default would be such a
big deal. A default would cause interest rates to skyrocket and the entire global
economic system to go haywire.
Unfortunately for the United States, the US debt spiral cannot go on indefinitely. US
debt is growing far more rapidly than GDP is, and therefore the debt is completely
and totally unsustainable.
The Chinese understand what is going on, and when the dust settles they plan to be
the last ones standing. In the aftermath of a US currency collapse, China anticipates
having the largest economy on the planet, more gold than anyone else, and a
respected international currency that the rest of the globe will be able to use to
conduct international trade.
And China is not just going to sit back and wait for all of this to happen. In fact, they
are already doing lots of things to get the ball moving. The following are signs that
China is making a move against the US dollar.
China has just entered into a very large currency swap agreement with the euro
zone that is considered a huge step toward establishing the yuan as a major world
currency. This agreement will result in a lot less US dollars being used in trade
between China and Europe.
China currently owns about 1.3 trillion dollars of US debt, and this enormous
exposure to US debt is starting to become a major political issue within China.
There have been media reports that China is looking to diversify its $3.66 trillion of
foreign exchange reserve into real estate investments in Europe.
Xinhua, the official news agency of China, called for a “de-Americanized world” ” and
also made the following statement about the political turmoil in Washington:
“Politicians in Washington have done nothing substantial but postponing once again
the final bankruptcy of global confidence in the US financial system“. The
commentary in the government-run media also declared that the debt deal “was no
more than prolonging the fuse of the US debt bomb one inch longer.”
China is the largest producer of gold in the world, and it has also been importing an
absolutely massive amount of gold from other nations. But instead of slowing down,
the Chinese appear to be accelerating their gold buying. In fact, China plans to buy
another 5,000 tons of gold. There are many who are convinced that China eventually
plans to back the yuan with gold and try to make it the number one alternative to the
US dollar. 23 This could have devastating effects on the US economy. Demand for
the US dollar and US debt would drop like a rock, and prices would soar. If the rest
of the world (led by China) starts to reject the US dollar, it would result in a massive
tsunami of currency coming back to the US and a very painful adjustment in US
standard of living. Today, most US currency is actually used outside of the United
Oil-rich Nations Are Selling off Their Petrodollar Assets
In the heady days of the commodity boom, oil-rich nations accumulated billions of
dollars which they invested in US debt and other securities. Now that oil prices have
dropped by half to just over $50 a barrel, Saudi Arabia and other oil-rich nations are
fast drawing down those “petrodollar” reserves.
If oil and other commodity prices remain depressed, the trend will cut demand for
everything from European government debt to US real estate as producing nations
seek to fill holes in their domestic budgets.
This is the first time in 20 years that OPEC nations will be sucking liquidity out of the
market rather than adding to it through investments. And for the first time, too, we
see the end of the petrodollar as a system for recirculating oil revenues to
Wall Street. It is sucking liquidity out from Wall Street, not putting it in. The fall in the
price of oil has suddenly created huge financial turbulence, which is endangering the
global financial system. 24
Saudi Arabia, the world’s largest oil producer, is a prime example of the swiftness
and magnitude of the selloff: its foreign exchange reserves fell by $20.2 billion in
February 2015 alone, the biggest monthly drop in at least 15 years according to data
from the Saudi Arabian Monetary Agency. That’s almost double the drop after the
financial crisis in early 2009 when oil prices plunged and Riyadh consumed $11.6
billion of its reserves in a single month. 25
The International Monetary Fund commodity index, a broad basket of natural
resources from iron ore and oil to bananas and copper, fell in January to its lowest
since mid-2009. Although the index has recovered a little since then, it still is down
more than 40% from a record high set in early 2011.
A concomitant drop in foreign reserves, revealed in data from national central banks
and the IMF, is affecting nations from oil producer Oman to copper-rich Chile.
Algeria, one of the world’s top natural gas exporters, saw its funds fall by $11.6
billion in January, the largest monthly drop in a quarter of century. At that rate, it will
empty the reserves in 15 months.26
OPEC members are expected to earn $380 billion selling their oil this year,
according to US estimates. That represents a $350 billion drop from 2014 — the
largest one-year decline in history.
“The shock for oil-rich countries is enormous,” Rabah Arezki, head of the
commodities research team at the IMF in Washington, said in an interview. Oil-rich
countries will sell more than $200 billion of assets this year to bridge the gap left
between high fiscal spending and low revenues.
The drawdown reverses a decade-long inflow into the coffers of commodity-rich
nations which helped to increase funds available for investment and boost asset
prices. Bond purchases have helped to keep interest rates low.
Are the Petrodollar’s Days Numbered?
Today, the geopolitical sands of the Middle East are rapidly shifting. The faltering
strategic regional position of Saudi Arabia, the rise of Iran (which is not part of the
petrodollar system), failed US interventions, Russia’s increasing power as an energy
giant and the emergence of the BRICS nations (which offer the potential of future
alternative economic/security arrangements) all affect the sustainability of the
One needs also to be aware of what Vladimir Putin is doing. Putin would like nothing
more than to sabotage the petrodollar, and he’s forging alliances across the world
that he hopes will help him achieve his goal. At the same time, one should also
watch the deteriorating relationship between the US and Saudi Arabia.
The Saudis are furious at what they perceive to be the US not holding up its end of
the petrodollar deal. They believe that as part of the US commitment to keep the
region safe for the Kingdom, the US should have attacked its regional rivals Syria
and Iran by now. And they may feel they are no longer obliged to uphold their part of
the deal, namely selling their oil only in US dollars. They’re already heavily involved
with China and could also tilt toward Russia. Oil traded in rubles or yuans could be
the future result.
The US is really not importing much Arab oil anymore. If that were the case, it’s
really hard to see why the Arabs would continue to price their oil in dollars, especially
that their biggest customers would be China, Japan and other Asia-Pacific countries
that have no particular reason to deal in dollars.
The petrodollar system breaking down, where oil is no longer paid for in dollars
internationally, essentially would be the death knell to the US dollar as the global
reserve currency. It means the US may not be able to borrow with great ease
anymore, and it means that the US Treasury market is set for an out-of-control
interest rate spiral.
As it is, the Arab oil-producing nations have more dollars than they know what to do
with. By one expert estimate, some $8–10 trillion in currency balances lie in Middle
Eastern hands, much of it in dollars. How long will they want to keep all those dollars
lying around especially when the Asia-Pacific region now accounts for one-third of
global oil consumption and the US only 20%? 27
Meanwhile, the world’s leading oil importer –China- is doing its part to undermine the
petrodollar. In recent years, China has been striking agreements with many of its
trade partners to do business using each other’s currencies. China and Russia,
China and Brazil, China and Australia, even China and its old/new enemy Japan —
they all have currency swaps and other arrangements in place to bypass the dollar.
Last November brought word the Shanghai Futures Exchange was thinking about
pricing its new crude oil futures contract in both yuan and dollars, with the aim of
making that contract the new Asian benchmark.
But while the Arabs fret about the value of their dollars and the Chinese move
actively to diversify away from the dollar it might be the Russians who will deliver the
The chaos that one day will ensue from the United States’ 44-year experiment with
worldwide fiat money will require a return to money of real value. The US will know
that day is approaching when oil-producing countries demand gold, or its equivalent,
for their oil rather than dollars. 28
This is critically important, because once the dollar loses its coveted reserve status,
the consequences will be dire for Americans. At that moment, Washington will
become sufficiently desperate to enforce the radical measures that governments
throughout world history have always implemented when their currencies were under
Since 1980, America has devolved from being the world’s greatest creditor nation to
the world’s largest debtor nation. But thanks to the massive artificial demand for US
dollars and government debt made possible by the petrodollar system, America
could still continue its spending spree, reckless wars, and record deficits.
At one point in America’s history, the country’s largest export was a variety of
manufactured goods. Today, America’s largest export is the US dollar. And the dollar
costs the United States practically nothing to print. How long will it be before the
nations of the world figure out that the petrodollar game is over. This shift is being
accelerated by joint Chinese/Russian efforts to dethrone the US dollar as a reserve
currency and also as the currency for global trade and oil transactions. Even Saudi
Arabia now acknowledges the eventual end of the petrodollar probably by 2032.
They are planning to invest a total of $109 bn in solar energy with the aim of
becoming an exporter of solar electricity.
And while the US economy with its great power of innovation and inherent strengths,
could support a powerful currency, it certainly can’t support the very many trillions of
dollars circulating around the world.
It is probable that the Chinese yuan will emerge as the world’s reserve currency
within the next two decades backed by gold, currency swap agreements, real
purchasing power and Russian oil and natural gas reserves.
*Dr Mamdouh G. Salameh is an international oil economist, a consultant to the World
Bank in Washington DC on oil & energy and a technical expert of the United Nations
Industrial Development Organization (UNIDO) in Vienna. He is a member of both the
International Institute for Strategic Studies in London and the Royal Institute of
International Affairs. He is also a visiting professor of energy economics at the ESCP
Europe University in London.
1 James D Hamilton, “Historical Oil Shocks” Department of Economics.
University of California, San Diego. Revised: February 1, 2011.
2 “Petrodollar Profusion”, The Economist, April 26th, 2012.
3 Ibrahim M. Oweiss, “Petro-Money: Problems and Prospects,” in Inflation and
Monetary Crisis, ed. G. C. Wiegand (Washington, D.C.: Public Affairs Press,
1975), pp. 84-85.
4 Jerry Robinson, “Preparing for the Collapse of the Petrodollar System”, FTM
7 Mamdouh G Salameh, “Economic & Financial Crisis Management in the
Light of Dwindling Oil Prices” (a lecture given at the invitation of the National
Defence College in Muscat, Oman on the 21st of April, 2015).
8 Ibrahim M Oweiss, “Petrodollars: Problems & Prospects” (a paper given at
the Conference on ‘The World Monetary Crisis’, Colombia University, March 1-
11 Jerry Robinson, “The Petrodollar Wars : The Iraq Petrodollar Connection”,
14 Mamdouh G Salameh, “Over a Barrel”, Joseph D. Raidy Printing Press sal,
Beirut, Lebanon, June 2004, p. 191.
15 Alan Greenspan, “The Age of Turbulence”, published by Penguin Books, USA,
in 2007, p.463.
16 Nabegh Al Sabbagh, “Opinion: Oil and Economics at a Geopolitical
Crossroad”, posted in Breaking Energy on April 28, 2015.
17 Mamdouh G Salameh, “Turning the Gaze Towards Asia: Russia’s Grand
Strategy to Neutralize Western Sanction” (a USAEE Paper Series No: 14-
168, posted on 19 July 2014).
18 Michael Snyder ”Russia is Doing it – Russia is Actually Abandoning the
Dollar”, posted on 11 June, 2014 on Infowars.com.
19 Preston James & Mike Harris, “ Putin’s Opportunity to Bust the US Petrodollar,
VT Veterans Today, 7 January 2015
20 A report by the ITAR-Tass News Agency.
21 Michael Snyder ”Russia is Doing it – Russia is Actually Abandoning the
22 Alastir Crook, “Expert: Oil Price Wars Fatally Wounded the Petrodollar”
(Interview with Zaman Today’s Daily (Turkish English-language Daily) on 15
23 Addison Wiggin, “The US Energy Boom Will End the Dollar’s World
Reserve Status”, published in Daily Reckoning, was published in June 4, 2014.
24 Alastir Crook, “Expert: Oil Price Wars Fatally Wounded the Petrodollar”.
25 Javiar Blas, “Oil-Rich Nations Are Selling Off Their Petrodollar Assets at
Record Pace” Bloomberg, April 14, 2015.
27 Nick Giambruno, “Ron Paul Says: Watch the Petrodollar System” Casey
A Short Biography
Dr Mamdouh G. Salameh is an international oil economist, a consultant for the
World Bank in Washington D.C. on oil and energy and also a technical expert
with the United Nations Industrial Development Organization (UNIDO) in
Vienna. He holds a PhD in Economics specializing in the economics &
geopolitics of oil and energy. Dr Salameh is also a visiting professor of energy
economics at the ESCP Europe University in London.
Dr Salameh has presented papers to numerous international energy
conferences on the economics and geopolitics of oil and energy and has been
frequently invited to lecture on these topics at universities around the world. He
has written three books on oil: “Is a Third Oil Crisis Inevitable?” (published in
London in April 1990), “ Jordan’s Energy Prospects & Needs to the Year
2010: The Economic Viability of Extracting Oil from Shale” (published in
London in October 1998) and “ Over a Barrel” (Published in the UK in June
2004) as well as numerous research papers published in international Oil and
Energy Journals. Dr Salameh has undertaken research assignments for the US
Department of Energy, the World Bank, the Institute of Energy Economics in
Japan, the Indian Government, OPEC, the Canadian Energy Research Institute,
Boston University working on the Encyclopedia of Energy and also the
Handbook of Energy and the government of Jordan among others. He regularly
appears on TV to discuss oil prices and other developments in the global oil
Dr Salameh is a member of many International Institutes and Associations
including the International Association for Energy Economics (IAEE) in the US,
the British Institute of Energy Economics, the International Energy Foundation in
Canada, the International Institute for Strategic Studies (IISS) in London, and
the Royal Institute of International Affairs (RIIA) in London. He is also an advisor
to the Oil Depletion Analysis Centre (ODAC), London.