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How The Petrodollar Quietly Died, And Nobody Noticed

Zero Hedge writes: Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company – the end of the system that according to many has framed and facilitated the US Dollar’s reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop.

The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance themselves from the US-led, “developed world” status quo spearheaded by the IMF, global trade would increasingly take place through bilateral arrangements which bypass the (Petro)dollar entirely. And sure enough, this has certainly been taking place, as first Russia and China, together with Iran, and ever more developing nations, have transacted among each other, bypassing the USD entirely, instead engaging in bilateral trade arrangements, leading to, among other thing, such discussions as, in today’s FT, why China’s Renminbi offshore market has gone from nothing to billions in a short space of time.

And yet, few would have believed that the Petrodollar did indeed quietly die, although ironically, without much input from either Russia or China, and paradoxically, mostly as a result of the actions of none other than the Fed itself, with its strong dollar policy, and to a lesser extent Saudi Arabia too, which by glutting the world with crude, first intended to crush Putin, and subsequently, to take out the US crude cost-curve, may have Plaxico’ed both itself, and its closest Petrodollar trading partner, the US of A.

As Reuters reports, for the first time in almost two decades, energy-exporting countries are set to pull their “petrodollars” out of world markets this year, citing a study by BNP Paribas (more details below). Basically, the Petrodollar, long serving as the US leverage to encourage and facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove itself into irrelevance.

A consequence of this year’s dramatic drop in oil prices, the shift is likely to cause global market liquidity to fall, the study showed.

This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling.

But no more: “this year the oil producers will effectively IMPORT capital amounting to $7.6 billion. By comparison, they EXPORTED $60 billion in 2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations.”

In short, the Petrodollar may not have died per se, at least not yet since the USD is still holding on to the reserve currency title if only for just a little longer, but it has managed to price itself into irrelevance, which from a USD-recycling standpoint, is essentially the same thing.

A spokesman for the Center for Security Policy says that the threat of Electro Magnetic Pulse (EMP) is real. With Iran developing multi-stage Space Launch Vehicles (SLV) the possibility of such an attack will become even more probable than ever before:

From WND:

And experts forecast if such an attack were a success, it effectively could throw the U.S. back into an age of agriculture.

“Within a year of that attack, nine out of 10 Americans would be dead, because we can’t support a population of the present size in urban centers and the like without electricity,” said Frank Gaffney, president of the Center for Security Policy. “And that is exactly what I believe the Iranians are working towards.”

A recent launch of an SLV by Iran has sparked renewed concern of an attack that could send an electromagnetic pulse powerful enough to wipe out computer controls for systems on which society has come to rely, officials say.

As the G2 Bulletin reported last week, Ronald Burgess, director of the U.S. Defense Intelligence Agency, revealed that Iran successfully launched a multi-stage SLV, the Simorgh. The device ultimately could be equipped with a nuclear bomb, which the U.S. intelligence community assesses Iran is developing.

Officials also report Iran has been testing detonation of its nuclear-capable missiles by remote control while still in high-altitude flight. The development makes a potential EMP attack on the U.S. more probable.

An enemy of the United States, be it Iran, North Korea or a terrorist organization, does not need to detonate a nuclear weapon on the ground.We believe this is the only reason why Iran would be testing SLV’s with in-flight detonations. With this kind of weapon, Iran (or anyone else) would simply need to strike first. Once the weapon goes off, it would be difficult to determine from where it came and to respond appropriately, as all forms of traditional communication would be wiped out.

A small-scale, five to ten kiloton weapon detonated 200 miles above Nebraska, or a few weapons detonated 50 miles or so above the eastern, western and central United States would do the job.

The effects would be nothing short of disastrous – literally the end of the world as we know it.

All unprotected and unhardened electrical devices would be left useless.

This means that everything, from the refrigerator in your kitchen to the semi-trucks that carry food across the country, would be non-functioning.

If an enemy of the USA wants to bring America to its knees without rendering the land completely useless, they could do so with an EMP weapon.

We’ve always believed that a mainland invasion of the United Stated would be difficult, if not impossible. But, if an EMP weapon were to be used, our country could effectively be invaded within a matter of months, as most of the population would be wiped out and the government and military infrastructures in disarray.

We consider EMP as one of the most significant threats out there. The recovery period from a collapse of this magnitude would be counted in decades, not years, thus, for those who are “prepping” for a worst-case scenario, consider long term sustainability planning when planning for an EMP SHTF scenario.

SHTF Plan Recommended Research:

One Second After by William Forstchen

Jericho TV Series (Available on iTunes)

Patriots by James Wesley Rawles

Read the article here at SHTF Plan here:

By: Voice of Reason

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