馃攳
UNDERSTANDING PETRODOLLAR: US DOLLAR, OIL PRICES & SAUDI ARABIA (EITS #5) - YouTube
Channel: The Duomo Initiative
[0]
hi traders it's Nicolas Prix here the
[2]
focus of this channel is obviously about
[4]
Layden's trade however so many new
[6]
traders only ones focus on the charts
[8]
themselves and completely neglect of
[10]
fundamental analysis this is
[13]
particularly true for private Forex and
[15]
commodities traders who often have a
[17]
broad view of one or two fundamental
[19]
topics and base everything else on the
[22]
chance of course you can trade
[24]
profitably doing this but it's sort of
[26]
like driving a car without checking your
[28]
mirrors most of the time you'll be safe
[30]
but every now and then you'll have an
[32]
accident so in order to avoid that we're
[35]
going to be including more fundamental
[37]
analysis style videos on this channel
[39]
now some of these videos will be
[41]
entertaining like some of the eye in the
[43]
sky videos that we've done while others
[45]
will be purely factual now this video in
[48]
particular is going to be a factual one
[50]
and in fact it's going to be a bit more
[52]
like a formal lesson so I recommend you
[55]
sit back and relax maybe take some notes
[57]
or even put it on in the background
[58]
while you're doing something else like
[60]
maybe your analysis driving the car or
[62]
doing the washing-up whatever you want
[64]
you don't necessarily need to be
[66]
watching the video but you just have to
[68]
be listening now this video is going to
[70]
be the first in a series that discusses
[72]
the massive global impact Saudi Arabia
[75]
has and how their current situation can
[77]
affect global markets particularly
[80]
having a direct effect on oil and the US
[83]
dollar this video is based on an article
[86]
we wrote recently which was featured as
[88]
an editor's pick on seeking an alpha
[90]
calm the link today is in the
[92]
description box
[93]
now the relationship between the US and
[96]
Saudi Arabia continues to gather
[97]
headlines in the global financial
[99]
political press while this expected to
[102]
continue the near future considering
[104]
president-elect Trump's stubborn stance
[106]
on the issue it is currently unclear how
[108]
these issues will conclude in order to
[111]
fully appreciate the background of these
[113]
issues and the relationship between the
[115]
US and Saudi Arabia it's important first
[117]
of all to understand the system that
[119]
underpins this connection the so-called
[121]
petrol dollar in this video will explore
[125]
the history of the relationship between
[126]
these two nations and the formation of
[129]
the petro dollar system with the
[131]
ultimate aim of comprehending the
[132]
implications on the world economy and
[134]
the potential decline of the US dollar
[136]
this video is part of a series that will
[139]
provide the viewer with an overall
[141]
understanding of this situation
[143]
concluding with a breakdown of the
[144]
current issues and potential solutions
[147]
for this ongoing matter the fascinating
[153]
origins begin with the Yom Kippur War
[154]
commencing on the 6th of October 1973
[157]
when Arab countries including Egypt and
[160]
Syria launched an attack on Israel on
[163]
yom kippur day causing israel to go on
[165]
for nuclear alert in an attempt to
[168]
defuse the conflict u.s. axud an
[170]
intermediary between the parties with
[173]
Secretary of State Henry Kissinger
[175]
facilitating the so-called shuttle
[177]
diplomacy beginning on the 5th November
[180]
1973 nevertheless they opted to supply
[183]
Israel with war materiel and other
[185]
supplies in retaliation OPEC countries
[189]
triggered an oil price increase from
[191]
three US dollars per barrel to as high
[193]
as 17 US dollars per barrel in addition
[197]
to this they also chose to reduce oil
[199]
production by 25 percent the
[202]
consequences of this action were severe
[204]
for the u.s. they entered the worst
[206]
recession since World War two
[208]
experiencing rising inflation decreasing
[211]
industrial production and a plunge in
[213]
the stock market which continued for a
[215]
number of years until finally coming to
[217]
an end in the early 1980s
[221]
following the famous Nixon shock
[223]
economic measures the u.s. chose to
[225]
cancel the convertibility of the US
[227]
dollar to gold in 1971 as a result the
[231]
US dollar experienced a significant
[233]
reduction in purchasing power during the
[235]
period 1971 to 1973 interestingly prior
[240]
to this decision economist and Nobel
[242]
prize-winner Milton Friedman warned
[244]
President Nixon that the gold price
[246]
could fall to as low as six US dollars
[248]
per ounce if the US went ahead in fact
[252]
the gold price rose madly from thirty
[254]
five US dollars per ounce in 1967 the
[257]
fixed convertibility price to as high as
[259]
a hundred and thirty five US dollars per
[262]
ounce in 1973 the weakening power of the
[266]
dollar severely affected the accounts of
[268]
the OPEC countries and provides them
[270]
with further motivation to increase the
[272]
oil price the oil-producing countries of
[275]
the Arab world decided to use their oil
[277]
as a political weapon they will reduce
[280]
oil production by five percent a month
[282]
in addition to this a further issue
[284]
became how to motivate these countries
[287]
to actually hold US dollars considering
[289]
it now become a fire currency and was in
[292]
a state of losing value with the
[294]
situation worsening the US began to
[297]
devise a range of policies to address
[299]
the situation including a military
[301]
solution unofficial accounts towards the
[304]
end of 1973 reveal a scenario under
[307]
which the US were preparing for a
[309]
military invasion of Saudi Arabia to
[311]
secure the oil fields and avoid
[313]
disruption of supply to the West at this
[317]
point there were multiple issues to be
[318]
addressed including neutralizing oil as
[321]
an economic weapon influencing OPEX
[324]
decisions where the Saudi are the most
[326]
relevant party so that they do not
[328]
undermine and disarticulate the world
[330]
monetary system and avoiding the Soviet
[333]
Union from taking advantage of the
[335]
strained relationship and expanding its
[337]
political ideological and military
[340]
influence over the Saudi Kingdom
[343]
in March 1974 the situation began to
[347]
improve
[347]
OPEC lifted the oil embargo and the u.s.
[351]
took this opportunity to redesign an oil
[353]
policy one which could achieve the goal
[355]
of normalizing the political
[357]
relationship and avoiding further oil
[359]
streams this diplomatic option began to
[362]
gain traction and in July 1974 Kissinger
[366]
sent the newly appointed Treasury
[367]
Secretary William Simon named the energy
[370]
Tsar and a former Wall Street investment
[372]
banker and his deputy Jerry passkey on a
[375]
secret mission to Saudi Arabia to broker
[378]
a deal the deal would involve persuading
[380]
the Saudis to finance the increasing US
[382]
deficit with oil profits an unofficial
[385]
sources reports that the mission was
[387]
desperate and the US President was not
[389]
willing to consider failure as an option
[392]
the deal that Simon offered was simple
[394]
the Saudis would agree to price oil in
[397]
dollars and to reinvest these dollars
[399]
into US Treasury securities and
[402]
Eurodollar deposits in US banks in
[405]
exchange the US would commit to take
[408]
steps to stabilize the exchange value of
[410]
the US dollar and agreed to sell
[412]
advanced weapons to the Saudi Kingdom
[415]
weapons that according to some accounts
[417]
were the result of the massive
[418]
overproduction triggered by the Vietnam
[421]
War and that the u.s. were eager to
[423]
place there was also a little-known
[425]
additional piece u.s. banks would use
[428]
the petro dollars as loans to emerging
[430]
markets in Latin America South Asia and
[433]
Africa in turn these countries would
[436]
purchase US European and Japanese
[438]
exports the ultimate goal was to
[441]
reignite global growth and increase
[443]
demand for oil a win-win solution for
[446]
all parties involved with these deals
[449]
being made thus Aldi strongly demanded a
[451]
non-disclosure clause the US would have
[454]
to agree to maintain confidentiality
[455]
regarding the Saudi investments this was
[459]
agreed and maintained for over 40 years
[461]
until May 2016 when the US Treasury
[465]
finally revealed the size of Saudi
[467]
holdings in u.s.
[468]
shuri's however the official figure
[471]
flees Hodgins could potentially be
[472]
misleading since it also ignores the US
[475]
Treasury securities owned by Saudi
[477]
Arabia but held by offshore
[479]
intermediaries in the Cayman Islands and
[481]
other offshore banking centers while the
[485]
deal appeared to have been made there
[487]
were several problems in the
[489]
implementation the Saudis are notorious
[492]
for delaying in decision making and in
[494]
this case they chose to vacillate and
[496]
knock me immediately they wanted time to
[499]
consider alternative mechanisms for oil
[501]
pricing such as gold for example
[503]
additionally the resignation of
[505]
Kissinger in 1974 as a result of the
[508]
Watergate scandal provides them with yet
[510]
another excuse for delays to overcome
[514]
the gridlock the u.s. sought to apply
[516]
pressure by openly discussing the
[518]
military option of occupying Saudi
[520]
Arabia on the 1st of January 1975
[523]
commentary magazine published one of the
[525]
most famous articles in the history of
[528]
American foreign policy the article was
[531]
written by Robert W Tucker head of the
[533]
American foreign policy Institute and a
[536]
member of the inner circle of the White
[537]
House the title was oil the issue of
[541]
American intervention and it made
[544]
explicit references to the military
[546]
scenario the US was working on the
[549]
article served his purpose
[550]
and convinced the southeast signed the
[553]
deal despite a range of highs and lows
[557]
all administration's since President
[560]
Carter have shown commitment to the
[561]
mantra of a strong dollar for 35 years
[565]
from 1975 to 2010 the petro dollar deal
[569]
has remained intact despite oil price
[572]
increases and dollar volatility the
[574]
dollar has solidified his role as the
[576]
leading reserve currency and the leading
[578]
payments currency but by 2009 a new
[583]
economic crisis eroded the stability of
[586]
the petrodollar deal in September of the
[588]
same year world leaders gathered for the
[591]
g20 leaders summit and President Obama
[594]
proposed a plan to boost world growth
[596]
based on a simple idea that each major
[599]
economic bloc or region were
[601]
commit to move away from a sector has
[603]
been overly relying on and towards an
[606]
area that offered growth potential for
[608]
China and Japan this would mean moving
[610]
from capital investment consumption
[612]
Europe would move from exports to
[615]
investment and the u.s. itself would
[617]
take on the task of increasing exports
[620]
the main obstacle in attaining of growth
[622]
in export was that without being able to
[624]
double the size of the labor force or
[626]
the productivity of labour which are the
[628]
main drivers of industrial production
[630]
growth the only viable option would be
[633]
to cheapen the currency by July 2011
[637]
just 18 months after the meeting the
[639]
dollar index stood at 80 point four
[641]
eight which represents the decline of 8
[644]
percent and a new all-time low a
[646]
currency war had started which continues
[649]
to survive until today
[651]
relations between Saudi Arabia and the
[653]
US have deteriorated sharply over the
[655]
course of the Obama administration there
[658]
are a number of causes for this one
[660]
being the Iran u.s. nuclear negotiations
[663]
and the u.s. acknowledgment of Iran as
[664]
the leading regional power seconds the
[668]
release of a top-secret 28 page section
[670]
of the 9/11 Commission report that
[672]
clearly reveals links between the
[674]
members of the Saudi royal family and
[676]
the 9/11 hijackers the Saudis have
[679]
threatened sell the US Treasury
[680]
securities in response but they failed
[682]
so far to keep their word on that and
[684]
thirdly the u.s. is now a net exporter
[687]
of energy and supposedly has the largest
[690]
oil reserves in the world in response to
[693]
the weakening of the US dollar
[695]
several OPEC nations are now allowing
[697]
oil transactions to be carried out in
[699]
other currencies in January 2016 India
[703]
and Iran agreed to settle their oil
[705]
sales in India rupees in 2014 Qatar
[709]
agreed with China to be the first hub
[710]
for clearing transactions in the Chinese
[712]
yuan in December 2015 the United Arab
[716]
Emirates and China creates the new
[718]
currency swap agreement for the yuan and
[719]
all of these strongly indicate that the
[722]
Gulf states are taking measures to
[723]
reduce their dependence and exposure to
[726]
the US dollar all of the conditions that
[728]
gave rise to the petrodollar agreement
[730]
now stand in the exact opposite position
[732]
of where they were in line
[734]
seventy-five neither the u.s. nor Saudi
[737]
Arabia have much leverage over the other
[739]
a new oil pricing mechanism is possible
[743]
and once identified and announced it
[746]
will signify the end of the US dollar as
[748]
the leading currency the oil price will
[751]
pave the way and we'll certainly soon be
[753]
followed by other goods and commodities
[755]
will this be the start of a new era so
[761]
guys thank you so much for watching I'd
[763]
love to continue this discussion in the
[765]
comment section so if you have any
[766]
questions comments opinions on this any
[769]
viewpoints please leave a comment below
[771]
and we can continue the discussion there
[773]
if you like the video please give it a
[775]
thumbs up I know it's been a bit
[776]
difference what we normally have here
[778]
and of course if you want more videos
[780]
about learnings trades and also now
[781]
about the fundamental sides of the
[783]
markets then make sure you hit that
[784]
subscribe button so you can stay up
[786]
state on the videos that we release on a
[788]
weekly basis and of course just finally
[791]
if you do want to learn more about our
[792]
unique and exclusive method of trading
[794]
the financial markets make sure you sign
[797]
up front in a circle mailing list is
[799]
free the links in the description box
[800]
and when you sign up you can get access
[802]
to our four part video miniseries about
[804]
learning our method of trading thanks a
[807]
lot for watching stay tuned for the
[808]
second part of this video coming very
[810]
soon take care see you soon
Most Recent Videos:
You can go back to the homepage right here: Homepage