With this background, it is clear how US is having an economic free lunch where all it needs to do to be an economic superpower is to keep up this dollar hegemony by having friendly regimes in oil exporting states that continues to denominate oil trade in dollars. As long as oil could be bought using only dollars, all nations however big or small, would need dollars which only USA can print. Beyond all the façade of the strong economic credentials and higher GDP growth, US economy primarily depends upon how long and how well this petrodollar cycle is maintained. Any threat to this cycle would lead to devaluation of dollar and the collapse of the US economy and economies of countries like Japan, holding a huge reserve currency in dollars owing to its enormous trade surplus. All went well, until the sick man of world economy, Europe, woke up and created Euro. The Europeans lead by France and Germany, wanted a fair share of this economic free lunch which the US was enjoying solely all these years. With an ageing population and increasing labor costs that saw bulk of manufacturing and services shifting to China and India, Europe is finding increasingly difficult to service it welfare state economic model with high pension and social security obligations. Euro was floated primarily to rival dollar as the world’s reserve currency and efforts were on to make it possible for oil exporting countries to use petroeuros.
Amongst these developments, there was Mr Saddam Hussain, defeated militarily, crippled economically with a plethora of sanctions, waiting patiently for an opportunity to strike back at the empire where it would hurt them the most. And allowing Euros for trading oil was Saddam’s response to US’s unilateral foreign policies. In Nov 2000, Saddam’s Iraq became the first oil producing nation to denominate Euro as the currency standards for oil exports. Euro appreciated in value compared to dollars and as a result, Iraq’s kitty with the UN food for oil program swelled to more than 26 billion Euros from $ 10 billion. Things started taking more unpleasant turns for US with more oil exporting countries like Malaysia and Iran openly talking about a shift to Euro. North Korea, in a desperate attempt to increase its bargaining chip, restarted its nuclear program and also became the officially converted all its currency reserves to Euros. Thus it became a part of the Axis of Evil as termed by the US. Iran was to follow suit very soon, with open discussion to trade oil in Euros. From June 2003, all oil exports from Iran to Europeans and Asian countries were required to denominate in Euros, and experts believe that Iran also actually converted 40% of its currency reserves to Euros. And, no wonder it became the third nation to be a part of the Axis of Evil. Here is a chart as to how the major events in the oil trade, lead to the fluctuation of Euros.
Another country, which circumvented this oil trade in dollars in its own way, was Venezuela. Venezuelan President Chavez worked out a barter deal with 12 latin American countries and Cuba, cutting out this petrodollar cycle, directly buying goods and services in exchange for oil. Not surprisingly, CIA engineered a coup in April 2002, to throw away a democratically elected Govt to institute a friendly regime which would serve American interests. The coup failed and when the traitors were exposed, all hands pointed to US. Interestingly, the Bush administration did not deny the allegations. So much so, for the promotion of democracy rhetoric by the US.