Changes

===Impact of the [[Iran war]] and closure of [[Hormuz Strait]]===

===Impact of the [[Iran war]] and closure of [[Hormuz Strait]]===

The petrodollar system became essentially a protection racket for the large oil-producing countries in the [[Middle East]] aligned with the [[US]], such as [[Saudi Arabia]], [[Kuwait]], the [[United Arab Emirates]] (UAE), [[Bahrain]], and [[Qatar]]. The US [[military]] supposedly granted "[[security guarantee]]s" to these countries in exchange for their agreement to denominate oil sales in [[US dollar]]s and recycle the dollars into the [[US Treasury]] [[market]] to finance the US [[federal government]] [[budget deficit]], thereby creating [[demand]] for the US dollar outside the [[United States]] and helping keep [[interest rate]]s lower than they otherwise would be. Ant country that needed Persian Gulf oil needed US dollars to buy the oil.

The petrodollar system became essentially a protection racket for the large oil-producing countries in the [[Middle East]] aligned with the [[US]], such as [[Saudi Arabia]], [[Kuwait]], the [[United Arab Emirates]] (UAE), [[Bahrain]], and [[Qatar]]. The US [[military]] supposedly granted "[[security guarantee]]s" to these countries in exchange for their agreement to denominate oil sales in [[US dollar]]s and recycle the dollars into the [[US Treasury]] [[market]] to finance the US [[federal government]] [[budget deficit]], thereby creating [[demand]] for the US dollar outside the [[United States]] and helping keep [[interest rate]]s lower than they otherwise would be.  

 

Any country that needed Persian Gulf oil needed US dollars to buy the oil. [[Congress]] constantly looked for any excuse to inflate the US monetary base to [[export]] dollars to meet global demand.

   

   

The petrodollar system was a massive prop for the US dollar ever since [[Nixon]] severed the dollar's last link to gold in 1971. As a US ally, [[Iran]] was originally intended to be a major buyer of US Treasury debt in the petrodollar system before the [[1979 Islamic Revolution]]. A break in [[diplomatic]] relations and the imposition of [[economic sanctions]] made a disproportionate reliance on the weaker [[Gulf States]] more imperative.

The petrodollar system was a massive prop for the US dollar ever since [[Nixon]] severed the dollar's last link to gold in 1971. As a US ally, [[Iran]] was originally intended to be a major buyer of US Treasury debt in the petrodollar system. After the break in [[diplomatic]] relations and the imposition of [[economic sanctions]] as a result of the [[1979 Islamic Revolution]] made a disproportionate reliance on the weaker [[Gulf States]] to buy Us Treasury debt more imperative.

The [[Iran war]] became a stark illustration of the limits of US [[military]] power and its inability to provide the protection the oil-rich [[Persian Gulf]] [[Sunni]] [[Arab]] states believed they had. Iran has shown that it is the new sheriff in town and that US promises of protection are not only worthless but counterproductive, as the US presence makes them not only a target, and invites uncontrolled instability among their majority [[Shi'ite]] [[population]]s. With the [[Hormuz Strait]] closed and oil [[infrastructure]] damaged, far less of their oil was being sold and, therefore, far less is being recycled back into the US [[T-bills]] and [[Treasury bond]]s to [[finance]] the US [[federal deficit]].

The [[Iran war]] became a stark illustration of the limits of US [[military]] power and its inability to provide the protection the oil-rich [[Persian Gulf]] [[Sunni]] [[Arab]] states believed they had. Iran has shown that it is the new sheriff in town and that US promises of protection are not only worthless but counterproductive, as the US presence makes them not only a target, and invites uncontrolled instability among their majority [[Shi'ite]] [[population]]s. With the [[Hormuz Strait]] closed and oil [[infrastructure]] damaged, far less of their oil was being sold and, therefore, far less is being recycled back into the US [[T-bills]] and [[Treasury bond]]s to [[finance]] the US [[federal deficit]].