Modern industry, trade, mining and agriculture all consume vast flows of petroleum, and of course the modern military is dependent on oil to power its air force, navy and land forces. The industrialised world today operates on the tacit assumption that future supplies of oil are pretty much guaranteed.
Humanity currently consumes about 88 million barrels of oil every day, that's roughly 2 liters of oil per person, per day. Of course, most use a lot less than that, while a few use much more. For example, the five percent of humanity that lives in the US consumes nearly 20 percent of the world's oil supply.
The US ranks alongside Saudi Arabia and Russia as one of the biggest oil producers in the world - at nearly 10 million barrels a day - but whereas Russia and the Saudis are net exporters of oil, the United States import almost as much oil as they produce.
The oil industry concentrates more wealth than any other industry. Every year, world trade in oil transfers more than one trillion dollars from importing to exporting countries. This wealth transfer mostly accrues to the Middle East, where production costs are a small fraction of the value of the exported oil.
| White House Factoid The Kingdom of Saudi Arabia is the largest US Foreign Military Sales customer, with active and open contracts valued at approximately $97 billion. |
Furthermore, the petrodollar system - based on a security agreement between the US and Saudi Arabia - requires that OPEC oil is traded solely in US dollars. This means that oil importing countries like Australia must acquire US dollars in order to purchase OPEC oil, resulting in continuous and expanding international demand for US dollars, which ultimately sustains the value of the US dollar.
The petrodollar system is an extension of what de Gaulle called the 'inordinate privilege' bestowed on the US under the post-war international monetary system established at the Bretton Woods conference of 1944, which set up the IMF, the World Bank and elevated the US dollar to world reserve status, the principal currency for post-war reconstruction and development, as well as international trade and investment.
Whereas most nations must produce goods or services to exchange for US dollars, or borrow US dollars at interest from the IMF or World Bank, in order to purchase oil on the world market, the US can simply print dollars to cover its purchases of oil. In this way, the US exports its inflation to the rest of the world.
For seventy years this international arrangement has been the bedrock of American hegemony, the foundation of US power and influence around the world. More important than its military strength, the role of the US dollar in the global financial system is what enables Washington to dictate the terms by which the rest of the world does business.
The bias and imbalance resulting from this anachronistic arrangement have become increasingly apparent and important economic figures are beginning to reveal cracks in the system, with countries like Russia, China and Iran now openly challenging dollar hegemony. Indeed, powerful forces are quietly working to reorder the international system in ways that reflect contemporary geopolitical reality.
These moves are clearly gathering momentum, inducing a notable shift in the balance of power on the world stage.
