If the petrodollar dies, so does America as a superpower
The term petrodollar refers to the money received from the sale of oil. Petrodollar as a device was invented by former US Secretary of State Henry Kissinger and former US president Richard Nixon. The standard of living of the Americans can be traced back to the vast, oil-rich deserts of Saudi Arabia. In the early seventies, after the Arab crisis that gave rise to concept of oil embargo, Organisation of Petroleum Exporting Countries (OPEC) basically tripled the price of oil to the Western world. At that time, the United States realized that they were vulnerable to the price hike owing to the fact that they were importing about 70 percent of their total oil consumption.
In order to secure a reliable foreign source of oil, President Nixon sent his Secretary of State and National Security Advisor, Henry Kissinger, to Saudi Arabia for a secret meeting. The result was a pact that stands till today. The pact envisaged that Saudi Arabia, the world’s largest producer of oil, will sell oil in US dollar, and, in return, the US would defend it from any foreign aggression and would ensure that the House of Saud remains in power. All other oil-producing nations also adopted dollar as the sole medium of oil trade.
Demand for oil increased exponentially all over the world and soon they had a new name, the petrodollar. Indeed, your currency is as strong as its demand just like anything else.
Why petrodollar is important?
Because it causes a demand for US dollar! Most Americans don’t know that over 70 percent of all the $100 bills are actually outside their country; there are more $100 bills in Russia than in America. This stockpile of US dollars in other countries is because oil is bought and sold using the greenback. If oil starts trading in non-petrodollar medium like gold or a basket of currencies, or if China and Russia start trading in yuan and ruble rather than US dollar, then there won’t be demand for dollars, and the standard of life of an average American will fall and it could ensue in events like the Great Depression.
In the recent past, those who dared challenge the status of petrodollar were eliminated by the Americans. For instance, Libya’s strongman Colonel Muammar Gaddafi publically pushed for the Pan-African gold-backed currency to trade Libya’s oil. He was brutally killed during the US-orchestrated ‘revolution’ in 2011. Only a few years before that, Iraq’s “Saddam Hussein” tried to trade oil in Euro, the US invaded under the guise of looking for weapons of mass destruction (WMDs), which were never found. Interestingly, after years of American invasion, and after they installed their own puppet regimes there, the concept of selling oil in Euros never surfaced again.
Today, many countries, not surprisingly spearheaded by the Russian President Vladimir Putin are against the petrodollar system. Americans should be worried about what Putin can do. He is stripping America of its superpower status. But he’s not using bombs or tanks to do it. He plans to destroy the petrodollar that underpins demand for dollar, and the American way of life. There’s a new Colder War going on, at a time when the only thing that holds America at the top is petrodollar.
Now let’s discuss the effects of using petrodollar on Pakistan.
During the last 70 years, Pakistan’s external debts have kept on piling up. Although there are many reasons behind this e.g. corruption, lack of accountability, no transparency, absence of visionary leadership, etc.), in my opinion, another BIG cause for this malady was petrodollar. I find some statistical evidence regarding petrodollar.
During the rule of civilian governments in Pakistan, the use of thermal (oil-based) power increased which directly supported petrodollar/American dominance in our country. Contrarily, during military regimes, the use of hydropower (water-based power) increased while that of thermal power saw a visible decline. Doesn’t it support the assertion that if you want to rule Pakistan, just talk to the Americans and conclude a secret agreement that you will purchase oil in US dollar and you will be the next prime minister of Pakistan?
In the light of the abovementioned facts, it seems clear that Pakistan was forced by America (with the connivance of rulers here) to import a combination of fuels from Iran, Qatar and other Middle Eastern countries. The principal beneficiaries of such imports include the exporting countries, the United States, and Pakistani government (on account of taxes). The profits earned by the US and Pakistani government were, and are still, used to manoeuvre politics within the country.
The second, and perhaps more important, dimension of our energy policy (petrodollar policy, in fact) relates to the IPPs (Independent Power Producers) as they are assured of minimal profits by the state of Pakistan. The owners of the IPPs, governments in Pakistan and the United States have common interests in the political economy of our country. They jointly manoeuvred the socio-political environment here only to promote their interests by establishing control on country’s economy and its economic policies.
To generate funds for political manoeuvring, Preferential Trade Agreements Plus (PTAs+) were signed between power-generation companies and textile manufacturing companies in Pakistan with their counterparts in the United States (PTA+ is not signed between countries or states; rather between companies). Such Pakistani companies pay a part of the profits they earn under PTA+ to politicians and other entities to manoeuvre politics in the country. Breaking this vicious nexus has not proved to be an easy task. Hence, the country continues suffering from such intrigues.
The 2015 Senate election in Pakistan offers a clear example of political manoeuvring through such an intricate web of financial corruption. The reportedly exorbitant deal to import LNG from Qatar also alludes toward the organized system of international corruption (Japan imports LNG for US$12 per MMBTU while Pakistan will import the same for US$18 MMBTU). These international manoeuvrings include financial ratings of the country by Moody’s and other rating agencies.
To conclude, it is difficult to understand and address Pakistan’s governance and socio-politico-economic issues by merely focusing on local politics. We must understand the role of regional and global forces to deal with Pakistan’s sociopolitical and economic maladies. Our foreign policy has a great relevance to national growth and development. The incumbent government must appreciate these dynamics and play its due role in improving socioeconomic health of Pakistan.