petrodollars are crude oil export revenues denominated in u s dollars usd the term became widely used in the mid 1970s when soaring oil prices generated large trade and account surpluses for oil exporting countries 
then as now oil sales and the resulting current account surpluses were denominated in dollars because the u s dollar was and remains by far the most widely used currency 1 the u s dollar s global popularity doesn t depend on the goodwill of oil exporters it s based on the u s s status as the world s largest economy and goods importer with deep liquid capital markets backed by the rule of law and military power 2understanding petrodollarspetrodollars are oil export revenues denominated in u s dollars petrodollars are not a distinct currency they are simply the u s dollars accepted as payment by an oil exporter global oil production averaged about 96 million barrels per day in 2023 3 that pace would generate an annual global petrodollar supply of about 2 98 trillion annually assuming an average price of 85 per barrel 4petrodollars are the primary source of revenue and wealth for many members of opec as well as non opec oil and gas exporters including russia qatar and norway just as the petrodollar is not a currency neither is it a global trading system the wide use of the u s dollar as payment for crude oil reflects the traditional preferences of non u s oil suppliers 5petrodollar recyclingoil exporters prefer the usd because it is the preeminent global investment currency that makes it the most convenient store of value for accumulated oil revenue which needs to earn a rate of return to be useful an early example of petrodollar recycling is the 1974 deal between the u s and saudi arabia to funnel saudi petrodollars into u s treasurys 6subsequent deals deployed saudi oil export proceeds to pay for u s aid and development projects in saudi arabia and to finance u s weapons sales to the kingdom 7many oil exporters now invest their petrodollars in stocks bonds and other financial instruments through sovereign wealth funds norway s sovereign wealth fund the world s largest had a value of about 1 5 trillion at the end of 2023 inflows into the fund from the norwegian state during the year amounted to just over 67 billion and they were awarded with an annual return of 16 1 in 2023 71 of the fund was made up of stocks with significant holdings including microsoft corporation msft apple inc aapl and alphabet goog 89can the petrodollar collapse speculation is often found online about this usually springing up in crypto forums from people who show little knowledge of what it means only that it s doomed that the petrodollar system is on the brink of collapsing 10 more serious analyses examine u s facing rivalries with rising powers its aggressive use of sanctions against other countries and the development and strengthening of relations between major opec nations and brics members an increasing number of powerful and fast growing countries including china and russia are making settlements in currencies other than the u s dollar 11while the possibility of the petrodollar becoming less influential can t be entirely dismissed it s unlikely to happen anytime soon for now talk of a petrodollar collapse is far fetched while u s dollar holdings have fallen significantly over the past few decades it remains the world s top reserve currency with no real rival in sight according to the international monetary fund in the first quarter of 2024 the u s dollar accounted for about 58 of allocated currency reserves that s significantly more than the reserves held in euros 20 japanese yen 5 5 british pound sterling 4 9 and chinese renminbi 2 6 12the supposed rivalry with the petroyuanto assess the advantages of an oil exporter getting paid in u s dollars consider periodic claims over the past decade that the petrodollar would soon face a challenge from the petroyuan oil exports denominated and paid for with chinese currency all buyers of exported oil hold or can easily access u s dollars while only china and mostly chinese companies hold the chinese national currency called the yuan or renminbi unlike the u s dollar the renminbi is not a freely convertible currency its exchange rate against other currencies including the u s dollar continues to be managed by china s central bank 1314u s dollars from crude exports can be easily invested worldwide including in the huge eurodollar market for short term dollar denominated deposits in european banks 1516 crude export proceeds in chinese currency cannot be invested outside china as widely as usd and can only be invested inside china at the discretion of the chinese government though chinese capital markets have grown fast they remain much smaller and less liquid than those of the u s 1718to sum up claims that the u s dollar s primacy rests on its status as the settlement currency for oil exports have it backward the dollar s status as the global reserve currency makes it indispensable to oil exporters the dollar was the established global store of value decades before non u s crude oil exporters rose to prominence the real problem with petrodollarspetrodollars recycled into investments overseas or development programs at home can produce positive financial and social returns results are decidedly less positive when petrodollars are spent on fortifying domestic oppression fueling an arms race or waging war abroad in recent years actions including the murder of u s resident jamal khashoggi by saudi state agents in turkey and russia s invasion of ukraine have raised concerns that petrodollars are financing war and human rights violations while shielding perpetrators from accountability 19 while russia in the wake of u s sanctions has been working with its allies to counteract the crushing sanctions imposed in 2022 it s not an example others are likely to want to follow in de dollarization 