Petrodollar

Petrodollar recycling is the international spending or investment of a country's revenues from petroleum exports ("petrodollars"). It generally refers to the phenomenon of major petroleum-exporting nations, mainly the OPEC members and Russia, earning more money from the export of crude oil than they could efficiently invest in their own economies. The resulting global interdependencies and financial flows, from oil producers back to oil consumers, can reach a scale of hundreds of billions of US dollars per year – including a wide range of transactions in a variety of currencies, some pegged to the US dollar and some not. These flows are heavily influenced by government-level decisions regarding international investment and aid, with important consequences for both global finance and petroleum politics. The phenomenon is most pronounced during periods when the price of oil is historically high. The first major petrodollar surge (1974–1981) resulted in more financial complications than the second (2005–2014).

Especially during the years 1974–1981 and 2005–2014, oil exporters amassed large surpluses of "petrodollars" from historically expensive oil. (The word has been credited alternately to Egyptian-American economist Ibrahim Oweiss and to former US Secretary of Commerce Peter G. Peterson, both in 1973.) These petrodollar surpluses could be described as net US dollar-equivalents earned from the export of petroleum, in excess of the internal development needs of the exporting nations. The surpluses could not be efficiently invested in their own economies, due to small populations or being at early stages of industrialization; but the surpluses could be usefully invested in other nations, or spent on imports such as consumer products, construction supplies, and military equipment (for good or ill). Alternatively, global economic growth would have suffered if that money was withdrawn from the world economy, while the oil-exporting nations needed to be able to invest profitably to raise their long-term standard of living.

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