The Petrodollar: How Oil Turned the Dollar into a Tool of Global Power

In 1971, President Richard Nixon ended the fixed conversion of dollars into gold. The move broke the foundation of Bretton Woods. Other countries could no longer take dollars to the US Treasury and exchange them for gold. From then on, the dollar rested on American economic power, military power, and the world’s need for the currency.

Two years later, the 1973 oil crisis drove energy prices sharply higher. Oil was something every industrial economy had to buy. Foreign Relations of the United States documents show that oil prices, royalties, and American-Saudi interests had long been calculated in dollars. After the oil shock, the huge dollar flows received by oil exporters became known as petrodollars: dollars earned from oil and sent back into Western banks, bonds, and assets.