A notional unit of currency earned by a country from the export of petroleum (i.e. “Petrodollars are pouring into Saudia Arabia”).
In 1973, in an effort to maintain global demand for U.S. dollars when the U.S. dollar was taken off the gold standard, another system was created called the petrodollar system. In 1973, a deal was struck between Saudi Arabia and the U.S. in which every barrel of oil purchased from the Saudis would be denominated in U.S. dollars. Under this arrangement, any country that sought to purchase oil from Saudi Arabia would be required to first exchange their own national currency for U.S. dollars. In exchange for Saudi Arabia’s willingness to denominate their oil sales exclusively in U.S. dollars, the United States offered weapons and protection of their oil fields from neighboring nations.<< Back to Glossary Index