Petrodollar
US dollars earned by oil-exporting nations from petroleum sales and recycled into global financial markets.
What is Petrodollar?
Petrodollars are US dollars earned by oil-exporting countries through the sale of petroleum on global markets, which are priced and settled in US dollars. The term emerged in the 1970s following the OPEC oil price shocks and the informal arrangement in which Saudi Arabia and other Gulf states agreed to price oil exclusively in dollars and recycle their dollar surpluses into US Treasury securities and other dollar assets. This "petrodollar recycling" system reinforces the US dollar's status as the world's reserve currency, funds US government debt, and finances dollar-denominated trade globally. Shifts away from dollar-denominated oil pricing — sometimes called de-dollarization — are a recurring geopolitical topic.
Example
Following the 1973 OPEC oil embargo and the fourfold increase in oil prices, Arab oil exporters accumulated vast dollar surpluses that were recycled primarily into US Treasury bonds and dollar deposits at major Western banks. This petrodollar recycling helped fund the US current account deficit and deepened the dollar's global reserve currency role throughout the 1970s and 1980s.