PetroDollar System In Trouble As Saudi Arabia Continues To Liquidate Foreign Exchange Reserves

The U.S. PetroDollar system is in serious trouble as the Middle East’s largest oil producer continues to suffer as the low oil price devastates its financial bottom line.  Saudi Arabia, the key player in the PetroDollar system, continues to liquidate its foreign exchange reserves as the current price of oil is not covering the cost to produce oil as well as finance its national budget.

The PetroDollar system was started in the early 1970’s, after Nixon dropped the Gold-Dollar peg, by exchanging Saudi Oil for U.S. Dollars.  The agreement was for the Saudi’s only to take U.S. Dollars for their oil and reinvest the surpluses in U.S. Treasuries.  Thus, this allowed the U.S. Empire to continue for another 46 years, as it ran up its ENERGY CREDIT CARD. 

And run up its Energy Credit Card it most certainly did.  According to the most recent statistics, the total cumulative U.S. Trade Deficit since 1971, is approximately $10.5 trillion.  Now, considering the amount of U.S. net oil imports since 1971, I calculated that a little less than half of that $10.5 trillion cumulative trade deficit was for oil.  So, that is one heck of a large ENERGY CREDIT CARD BALANCE.

Regardless… the PetroDollar system works when an oil exporting country has a “SURPLUS” to reinvest into U.S. Treasuries.  And this is exactly what Saudi Arabia has done up until 2014, when it was forced to liquidate its foreign exchange reserves (mostly U.S. Treasuries) when the price of oil fell below $100:

So, as the price of oil continued to decline from the mid 2014 to the latter part of 2016, Saudi Arabia sold off 27% of its foreign exchange reserves.  However, as the oil price recovered at the end of 2016 and into 2017, this wasn’t enough to curtail the continued selling of Saudi’s foreign exchange reserves.  The Kingdom liquidated another $36 billion of its foreign exchange reserves in 2017:

According to the Zerohedge article, Economists Puzzled By Unexpected Plunge In Saudi Foreign Exchange Reserves:

The stabilization of oil prices in the $50-60/bbl range was meant to have one particular, material impact on Saudi finances: it was expected to stem the accelerating bleeding of Saudi Arabian reserves. However, according to the latest data from Saudi Arabia’s central bank, aka the Saudi Arabian Monetary Authority, that has not happened and net foreign assets inexplicably tumbled below $500 billion in April for the first time since 2011 even after accounting for the $9 billion raised from the Kingdom’s first international sale of Islamic bonds.

….. Whatever the reason, one thing is becoming clear: if Saudi Arabia is unable to stem the reserve bleeding with oil in the critical $50-60 zone, any further declines in oil would have dire consequences on Saudi government finances. In fact, according to a presentation by Sushant Gupta of Wood Mackenzie, despite the extension of the OPEC oil production cut, the market will be unable to absorb growth in shale production and returning volumes from OPEC producers after cuts until the second half of 2018. Specifically, the oil consultancy warns that due to seasonal weakness in Q1 for global oil demand, the market will soften just as cuts are set to expire in March 2018.

The Saudi’s have two serious problems:

  1. As the Saudi’s cut their oil production due to the OPEC agreement, the U.S. shale energy companies ramp up production because they are able to produce oil by shifting any losses to Brain-Dead investors looking for a higher yield.  This destroys the ability for OPEC to drain global oil inventories, so the oil price continues to trend lower.  Which means the Saudi’s may have to liquidate even more foreign exchange reserves in the future on lower oil prices.  Rinse and Repeat.
  2. The Saudis are planning a 5% IPO – Initial Public Offering in 2018 of their estimated $2 trillion of their oil reserves and are hoping to get $200 billion.  However, energy analysts Wood Mackenzie estimates that the value of the reserves are more like $400 billion, not $2 trillion.  This is due to all the costs, royalties and 85% income tax to support the Saudi Government and the 15,000 members of the Royal Saudi Family.  Thus, Wood Mackenzie doesn’t believe there will be much in the way of dividends left over.

That being said, I highly doubt the Saudi’s have the 266 billion barrels of oil reserves stated in the new 2016 BP Statistical Review.  The Saudi’s produce about 4.5 billion barrels of total oil liquids per year.  Thus, their reserves should last them nearly 60 years.

Now… why on earth would Saudi Arabia sell a percentage of its oil reserves if it has 60 more years of oil production in the future????  Something just doesn’t pass the smell test.  Is it worried about lower oil prices, or maybe it may not have all the reserves that it states?

Either way… it is quite interesting that Saudi Arabia continued to liquidate its foreign exchange reserves in April even though the price of oil was above $53 for the majority of the month.  I believe the Kingdom of Saud is in BIG TROUBLE.  That is why they are trying to sell an IPO to raise much needed funds.

As Saudi Arabia continues to liquidate more of its foreign exchange reserves, it means serious trouble for the PetroDollar system.  Again… without “SURPLUS” funds, the Saudi’s can’t purchase U.S. Treasuries.  Actually, for the past three years, Saudi Arabia has been selling a lot of its U.S. Treasuries (foreign exchange reserves) to supplement the shortfall in oil revenues.

If the oil price continues to trend lower, and I believe it will, Saudi Arabia and the PetroDollar system will be in more trouble.  The collapse of the PetroDollar system would mean the end of the U.S. Dollar supremacy and with it, the end of gold market intervention.

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69 Comments on "PetroDollar System In Trouble As Saudi Arabia Continues To Liquidate Foreign Exchange Reserves"

  1. Nice work Steve, thank you

    • Total nonsense! First of all the Saudis have the lowest production cost on the planet as their reserves are the nearest to the surface of any other producer. Their cost are around $10bbl. Secondly the Saudis need capital because of their massive construction projects. Thirdly the petrodollar died years ago as Canada exports over 3 times more oil to the US than the Saudis. The whole idea of the system was to flood the international financial system with dollars and treasuries and that was accomplished decades ago and that is why Congress thru the Saudi under the bus allowing them to be sued. All countries hold dollars and treasuries as part of their reserves because they are needed to settled trade especially commodities and also to service the trillions in dollar denominated debt to foreign entities and this always creates dollar demand. Last month alone China and Russia purchased billions in treasuries. 50% of all trade is still settled in dollars and 75% of all international financial transactions are done in dollars. There is over $52 trillion in dollars floating around the planet with around $20 trillion in the US. Fourthly I remember in Florida in the early 70s with the oil “embargo” every one claiming “peak” oil. Now over 45 years later the world has a glut. Lastly the alt media has claimed that shale producers cannot make money with $60 oil. This is completely absurd as the rig count has increased every week for 21 weeks. Investors are not brain dead and do not invest in oil firms who are losing money nor do banks lend to firms losing money. The internet has become full of people posting total nonsense which is simply not based on any financial or economic reality!

      • jj,

        You say the article is total nonsense. Of course, you are free to your opinion. However, I would like to point out a few points.

        FIRST… while the Saudi’s cost to produce oil is about $10 a barrel, they need something closer to $85 to balance their national budget. So, it doesn’t matter that Saudi can produce oil that cheap… what matters is how much they need to run their national system. Furthermore, Saudi’s true oil reserves are closer to 70-80 billion barrels than the 268 billion they currently claim.

        SECOND….. while the U.S. imports more oil from Canada than Saudi Arabia, they still take U.S. Dollars for that transaction. That is the key. It really has nothing to do with the amount of Saudi oil imports.. rather it has to do with a PETRO-DOLLAR system that was set up in 1974.

        THIRD… yes, I understand all the tens of trillions in U.S. Dollar transactions globally. However, this was originally set up with the Petro-Dollar system with Saudi Arabia in 1974… all other oil exporter countries fell in line afterwards.

        LASTLY… there is a difference between an organized oil shortage in 1973 and the current glut. No one who really understood oil production profiles stated that the world was peaking in 1973. That is a silly thing to say. However, zero interest rates and massive money printing has postponed peak oil, but not for long.


        • Okay. Forget your silly proofs by assertion. Do you want to wager a barrel of WTI (spot, Cushing) that Saudi SAMA net foreign assets denominated in riyals will not decline below 1000 billion by 2022?

          • marmico,

            I don’t know where or how far Saudi Foreign Exchange reserves will fall or rise over the next five years. It will depend on what the magicians at the Fed and Central Banks will do. The only way they will be able to keep the system going is by more QE printing and lower interest rates. Thus, that policy decision could postpone the collapse a bit longer.

            So… we are just going to have to wait and see what the Central Banks do to continue propping up the system and oil industry. However, if oil prices remain low… then it is quite possible that Saudi Foreign exchange reserves will likely fall below 1200-1500 billion SAR over the next 2-3 years.


        • Steve,

          Forget the naysayers and those who cannot deal with rational argument. You are right about the petro-dollars and all other points made by you. Saudis are lying about their reserves, they need more and more money to balance the currency account and cost of a barrel of oil only matters during valuation of ARAMCO.

          When petro-dollar is unpegged in Saudi Arabia, then US dollar will strengthen and number of transactions in dollar will reduce as it will import deflation into the country.

          You are right on, keep writing and do not worry about grammar or language. The message is more important.

  2. I have no doubt in my mind that Kissinger Rockefeller and the rest of upper crust of Anglo-American establishment know full well how currency,energy,and debt operate. After all these are the guys and the roundtables that built this system. They knew to build their corporate empire they needed cheap abundant energy and Saudi Arabia was the obvious choice. I think they’re running out time and cheap energy bc the desperation that I see in the media, politics etc.. have gone looney tunes.

    • I am not so sure about that Adam. They might well have seen it working in their favour and over the course of their generation; beyond that, WELL!! ??. The trouble with many people today is they mistake education (knowledge) with intelligence.

      Today we all have access to the same knowledge if we chose to pursue it and when we do, it’s not too difficult to realise just how dumb some of these people really are. They were perhaps fortunate to have had access to the knowledge much earlier than the rest of us.

      Don’t give them too much credit (if any) they don’t deserve it… Lol

      • I completely disagree with you knowledge is power so that’s not something they’re willing to share with you, me, or anyone else. They built this system from the ground up. They’re the modern day high priest of our society. Do you really believe you even know 5% of what’s actually going on in the world?? zbig said a 3-4 years ago their agenda is in jeopardy bc of a fractured elite and from what have seen he is correct. It’s not bc of incompetence but people not on the same page. Zbig just died and Rockefeller a couple months ago my fear is the people that start stepping in to replace them will be younger smarter and more ruthless.

        • “the people that start stepping in to replace them will be younger smarter and more ruthless.”

          On the contrary. The younger people stepping in while be softer, because their formative years will not have been the 1940’s. They will have grown up in extreme luxury, during times of peace: weaker.

          • You might be right but history says you’re wrong as things degrade the elite become more insane and ruthless. Just take a look at rome’s ruling class towards the end as the empire was running on empty.

    • I think the “masterminds” came up with a VERY elaborate ponzi scheme – hat tip to them – but I am sure, they never gave too much of (initial) thoughts to what will happen when it all blows up. Now as we’re getting closer to the terminal phase, they are trying hard to cover up their scam. By now they must be fully aware that their system is (literally and figuratively) living off on borrowed time, ehm, money. The cryptos (that they can’t manipulate / short) are sniffing this out already. As for me, I’ll stick to elements 47,79; that’s my (longterm) bet, win or lose, we shall see.

  3. MASTERMIND | June 16, 2017 at 6:35 pm |

    The Saudi’s are lying about the size of their oil reserves. Wikileaks proved that.

  4. They have the same reported reserves for the least at least 20 years. Seems strange that the production of the reported 4.5 Billion Bbls has not changed their reserves. Doesn’t pass the smell test. I would not buy this IPO if you paid me.

  5. Simply based on logic, you’re analysis makes sense, Steve. An epic change of the world order is occurring.

  6. Bill Sodomsky | June 16, 2017 at 7:12 pm |

    Well Steve, your chronicling of the end of the “Modern Industrial Age” has progressed from exceptional to essential. Those, that we should have counted upon to inform us, the media, academia, politicians, artists and celebrities for the most part, have gone AWOL, captured by the corporate interests. Fortunately, you represent a very tiny sliver of the populace that not only understands the role that energy plays in modern society and commerce but have the uncanny ability to synthesize otherwise complex financial analysis graphically and literally.

    I think a book is in the offing.

  7. Petedivine | June 16, 2017 at 7:36 pm |

    Great article. There are certainly a lot of stresses on the petrodollar. I’m not sure how long it will hold out. I look at the declining return on domestic oil and our neighbors In Mexico have only 10 years worth of oil. In Canada the oil is low grade and expensive to bring to market. It’s also very telling that the ex-CEO of Exxon, Rex Tillerson is the Secretary of State. Back to Saudi… the mayhem in Qatar, Yemen, Syria, etc.. signal something is amiss. The Saudi’s resemble a drowning man clawing at anything to save itself. The U.S. needs good relations with nations that have low EROIs and surpluss energy. Who are those players? The few I can think of are Iran, and maybe some of the African nations like Nigeria or Algeria. I guess it’s a coincidence that Europe allows so many poor Africans and M.E. refugees easy access to the Eurozone. The policy makes more sense once you put it into the context of oil flows. Funny how Obama sent plane loads of cash to Iran and lifted sanctions that were in place since 1979. Russian energy is already spoken for. Russian oil goes to China. Russian natural gas goes to Europe. The U.S. Is hostile and aggressive to oil producers not playing ball…Iraq, Libya, and Russia come to mind. I think the U.S. Is competing with China for the world’s excess oil. China is a low cost super producer with lots of exporting capacity. The U.S. Exports…Dollars, debt, and war. That’s not much of a competitive advantage. The paradigm is changing and I think the U.S. Is in trouble. If we lose the petrodollar then the Thermodynamic decline will occur much sooner for the U.S., as we are cut off from the remaining supplies of low EROI energy. When I look at global events and policies through Steve’s EROI lens, the craziness makes a lot more sense.

    • Good comment Peterdivine! You left one obvious (to me) thing out. Wars have left the WEST, AGED and RUN DOWN. The west needs young people regardless of where they come from to ensure the survival of their countries in the future.

      • If the population dynamic is left alone, imo it will revert back to the mean, a natural balance. There is no need to “import” a younger demographic. If personal economic conditions improve in a labor-scarce market, if that’s possible in an ever-advancing roboworld, then more young wives will stay home and raise babies instead of a drive-thru window career.

      • “The west needs young people regardless of where they come from to ensure the survival of their countries in the future.”

        Just curious GrahamB. Are you jewish?

        • I don’t know what “Jewish” has to do with the price of eggs Eric.. Lol. My youngest daughter (A Millennial) reckons I am a “WPM” I have 3 daughters spanning two generations, you reckon I don’t cop some at home. I come in here for a bit of peace so don’t you start on me as well…… 🙂

  8. Anyone Watching Horton CBI stock?
    $84 in 2014, $34 in March, $15 this week.
    Chicago Bridge and Iron only builds tanks for LNG and Oil, not bridges. Seems to be a sign of the times, while the price of oil is doing a good job pretending its not going down.

    • I had a look at that chart Eric. The LOW for this stock back in 1998 was $2.05, the HIGH was $89.22 in 2014. In 16 Years this stock increased by around 4250%. I mean SUPERMAN can only jump so high! There are heaps of stock in this category. In the last 20 years or so many stocks have increased EXPONENTIALLY. It might just be my imagination BUT they seem to start running into trouble once they get up around the 3000% to 4000% whether it takes them 5 Years or 50 years to get there.

      I mean common-sense says they cannot keep going up. Have a look at Exxon (XOM) 48,000% in 44 years ($0.20 in 1974 to $96.00 in 2014).

      I reckon generational demographics are in play here. I would be interested in other opinions on this.

  9. pennies onthedollar | June 16, 2017 at 8:11 pm |

    Plain and simple. Bold red lettering helps. Years go by and still waiting on the day for someone with the nards to use these two words in a sentence: “population” and “bubble”.

  10. just someone | June 16, 2017 at 8:32 pm |

    >> why on earth would Saudi Arabia sell a percentage of its oil reserves

    Saudis would be selling the oil forward so that the buyers have a vested interest in protecting The Kingdom. The US interest in defending The Kingdom is diminished as the PetroDollar system ends. Investors would soon be wondering how they can reduce the losses on that investment, and so The Kingdom will really be trading one risk for another. For today though, the sale buys allies and weapons that are needed on short notice.

    • just someone,

      Yes… your reason that the Saudi’s would sell a portion of their oil reserves as “Protection” does make sense. However, most of the motivation for the Saudi IPO, coming straight from Saudi Arabia, is that they need the money and that they want to break with their “dangerous” addiction to oil. That was an actual quote.

      Here are some quotes from two articles:

      Presenting “Saudi Arabia’s vision for 2030,” deputy crown prince Mohammed bin Salman said the kingdom’s huge oil wealth was now holding the country back.

      “We have a state of addiction in the Saudi Arabian kingdom, by everyone, and that’s dangerous. That is what held up many sectors from developing in the past years,” he told Al Arabiya television in an interview.

      Oil makes up 87% of Saudi Arabia’s revenues and the collapse in world crude prices since 2014 has left the kingdom struggling. It has already cut subsidies and borrowed billions to try to balance its books.

      Saudi Arabian oil is among the cheapest in the world, costing just under $10 per barrel to produce. But the kingdom needs to sell it for about $86 per barrel — or double the current world market price — to keep its budget balanced, according to International Monetary Fund estimates.

      The IMF expects GDP growth to slow to 1.2% in 2016 from 3.4% last year, and it has warned that without a major overhaul, the kingdom will run out of cash in less than five years.

      So… while the Saudi’s may need some protection in the future via their IPO, it seems like the real motivation is being CASH STRAPPED and that the Saudi’s want to TRANSITION away from Oil by 2030. I believe their REAL OIL RESERVES are much lower.. and they know it.


  11. Robert Forshee | June 16, 2017 at 8:34 pm |

    Another excellent analysis.

    And more pain for Saudi Arabia et al…
    “Libyan officials said they are indeed targeting production of 1 million barrels per day by the end of July. Meaning the crude market might have a lot more supply coming over the next six weeks.

    What should happen to the metrics of Exxon, Chevron, Conoco? Currently – P/E for XOM is 35,the yield is 3.75% and the new price target is $87. Everything on Wall Street is just Peachy Keen.

    Bob F.

  12. Thanks for another awesome article!

  13. Steve,
    It is true that the Saudis burning all those cash and fast, my question how could they afford to made the recent deal with Tramp to spend $125b on new weapons they do not need, and another $400b?

  14. Maybe there is a derivatives trade where you need to swap out real oil for oil debt (the 5% of the saudi aramco) and people will think the petro dollar is still functional, for a while…

  15. Could be they need cash for the deal POTUS withe 110 Billion Saudi deal to Boeing Commercial and Defense aircraft deal, another point of view $$$$$$$$$$$

  16. Thats why the us has agreed a big arms deal with saudi 350 billion was it?
    So they can steal oil reserves and resources from Yemen. Next thing is israel, going into the golan heights and doing the same thing. Fighting so amerika can have oil organised by the fiemds in the east

  17. Saudi is doing just fine, its their neighbours without access the weapons that have the problem

  18. Northwest Resident | June 17, 2017 at 1:17 am |

    How much remaining economically extractable oil Saudi Arabia has left is a closely guarded state secret. But the numbers asserted by Saudi Arabia are demonstrably false. We know they’re lying. We know they’re desperate. Saudi Arabia is in deep trouble. Knowing that, we can make the connection to the dire state of global energy supply, and we can further connect the dots to the failing global economy. Of course elites in government, national security intelligence, industry (especially those in financial and energy sectors) and law enforcement are keenly aware of the approaching apocalyptic breakdowns. We see it in their planning and in their actions, though in public they are obligated to support the official illusion of “all is well”. When they lie, we know why. Sometimes we can decipher the intent behind major propaganda themes that the collective elite are broadcasting globally to manipulate public opinion. How much oil Saudi Arabia has left is one of the key determining factors in how much longer our current version of industrial civilization can continue, and the truth is probably (almost certainly!) shockingly bad. So yeah, they lie and create propaganda to divert attention and obscure the facts. Fortunately we have writers like Steve that are knowledgeable and dedicated enough to dig out the real facts and publicize it for those few of us (relatively speaking) who are keenly interested in knowing the truth, no matter how bad the reality is.

  19. Steve

    Am I a bad person for dancing at the news that Saudi Arabia might collapse like Venezuela in the next 5 years. I’ve seen these f*ckers build hundreds of Mosques across Europe as they encourage the flooding of my nation and he replacement of my people, with full compliance by Europe’s leadership. I assume this was a condition for the steady cheap supply of oil.

  20. This petrodollar story is grossly overblown. As of April 2017, Saudi held $127 billion Treasuries or 2.1% out of the $6074 billion Treasuries held by foreigners.

  21. MASTERMIND | June 17, 2017 at 7:04 am |

    Collapse of Global Civilization by 2020-Irrefutable Evidence

  22. The Saudi reserves are much lower than advertised. The Saudi have one big field called ghawar. It produces more than half of the kingdom’s oil. It was first produced in the late 1940s and originally contained about 10% of the world’s total oil. It contained a nice light oil and was permeable. Back in the 1960s chevron was the operator. Back then it was estimated to contain about 90 billion barrels. Since that time it has produced heavily. Now tertiary recovery is used in spots and water flooding is used throughout. In fact the wells bring up more water than crude. I suspect the Saudis are not producing at $10 bbl. This may explain selling financial reserves and selling oil fields. They are depleted. The major western oil companies may buy in. Their reserves and prospects are worse.

  23. OutLookingIn | June 17, 2017 at 11:35 am |

    As the Saudi’s reduce their pile of US Treasuries, watch tiny Belgium and the Cayman Islands pick up the slack. These behind the scene “unnamed entities” have of course, the Feds fingerprints all over it. Just another form of QE only by covert means. This is what constitutes “reducing the balance sheet”. LMFAO

    • Yes “Belgium” could be a proxy for the US, China or any other country’s central bank. Although ‘Belgium is down to under $100 B from over $350 Billion two years ago
      “Ireland” now has $300 Billion in treasuries!

  24. Interesting that as Saudi Arabia ditches overall reserves it INCREASES its USTbond holdings and keeps gold reserves steady
    Saudi Arabia T Bond holdings

    April 2017 $126.8B
    March 2017 $124.5B
    February 2017 $116.7B
    January 2017 $112.3B
    December 2016 $102.8B
    November 2016 $100.1B
    October 2016 $96.7B
    September 2016$89.4B
    Note- The US Treasury lists treasury holdings by country NOT by central bank so these some of these holdings may be held by individual saudis and not by the govt of Saudi arabia
    Gold Reserves 323 Tons

    • Smaulgld,

      While the list shows that Saudi Arabia holds $126.8 billion in U.S. Treasuries, speculation from a former Treasury official who specialized in central bank reserves made this remark:

      Yet in many ways, the information has raised more questions than it has answered. A former Treasury official, who specialized in central bank reserves and asked not to be identified, says the official figure vastly understates Saudi Arabia’s investments in U.S. government debt, which may be double or more.

      The current tally represents just 20 percent of its $587 billion of foreign reserves, well below the two-thirds that central banks typically keep in dollar assets. Some analysts speculate the kingdom may be masking its U.S. debt holdings by accumulating Treasuries through offshore financial centers, which show up in the data of other countries.

      The article was published May 30, 2016 when Saudi Arabia’s total Foreign Exchange Reserves were $587 billion. Today they are $490 billion.


  25. joe lindell | June 17, 2017 at 1:57 pm |

    The Petro Dollar is in serious trouble, mines are cutting production, EROI sucks, big oil companies are head over heels in debt and losing money, stock market is a FED bubble, bonds
    will take a hit as rates rise, debt is everywhere, dollar is going to crash, Korean and USA
    could be close to a war, no peace anywhere in the East and on & on. If all of this is true, why is silver heading south. Is it because silver isn’t a precious metal as you say?

  26. Digby Green | June 17, 2017 at 2:07 pm |

    Also, there will soon be a massive drop in demand for oil and solar and wind power increase and electric cars become the biggest sellers.
    Just wait till electrics are the same price or lower than petrol cars!

    • Petedivine | June 18, 2017 at 7:28 am |

      1.Unfortunately, it takes a lot of oil to make an electric car. For example: The metal used to make the car is mined and processed all very energy intensive. The Lithium in the battery is mined and processed, all very energy intensive, and the solar cells used to charge the battery all mined, processed, and energy intensive.

      2. Tractor trailers that move tons of products from point A to B require high amounts of condensed energy. The technology to make them electric does not exist. The battery would weigh more then the truck.

      3. Big agriculture requires massive amounts of fertilizers, which are mined, an energy intensive process.
      – The combines, tractors, etc run on diesel and gasoline. Agriculture is an energy intensive business derived from oil.

      I could go on..but I get depressed thinking about how many direct and indirect ways modern society depends on oil. If you want to see an oil based economy transition into a non-oil based economy, take a look at Venezuela. If you boil it down…what’s really occurring is Venezuela’s EROI for oil is not returning what it once did. Venezuela has some of the highest proven reserves of oil in the world. They just can’t produce the oil and bring it to market in an economic manner that supports their society in the way that they’ve become accustomed. We are seeing the consequences of that situation manifest.

  27. Currencies are a dead mans tale. So are crypto currencies. They all are based on growing net energy, whether through their natural dillution, or through the inabilaty to maintain their infrastructure.

    The petrodollar was an instrument to provide for diminishing returns in real activity. An excuse maybe. Gravity however will decide in the end.

  28. joe lindell | June 17, 2017 at 5:17 pm |

    Steve: Why didn’t you post my questions ?

    • Joe lindell,

      Do you mean this comment:

      The Petro Dollar is in serious trouble, mines are cutting production, EROI sucks, big oil companies are head over heels in debt and losing money, stock market is a FED bubble, bonds
      will take a hit as rates rise, debt is everywhere, dollar is going to crash, Korean and USA
      could be close to a war, no peace anywhere in the East and on & on. If all of this is true, why is silver heading south. Is it because silver isn’t a precious metal as you say?

      It’s been posted all along.


  29. I wonder if the US is secretly trying to ramp up its domestic shale oil production to drive the price of oil down, and thereby “force” Saudi to deplete its reserves at an accelerated rate to keep its plush economy afloat, thereby causing it to have to invade Yemen, and ultimately Iran to keep the supply of oil flowing for the benefit of both the House of Saud and the US petrodollar. Saudi is still US’s proxy/ errand boy.

    If not for the US shale production the price of oil would rise in the short term at least, and take the pressure off Saudi to have to “secure” the oil of its neighbors- a situation the US does not want. US wants control of all the Oil. I guess there is a delicate balance because The US doesn’t want to force Saudi to sell too many of the US treasuries. The US wants to encourage Sufi to invade its neighbors. All these arms deals ( yet to be consummated), are hardly required for defensive purposes.

    My off the wall comments/questions are a result of my inability to comprehend why the shale oil play seems to have all the enthusiasm by investors of the crypto currencies, especially in view Steve’s analysis of the contradictions in the shale oil play from an EROI and financial perspective. What else am I missing?

    • Hubbs,

      The US has ramped up shale output mainly because Europe completely lacks the capacity to refine unconventional oil. From 2005 onwards over 100% of the increase in global output has been fron unconventional sources. Without the reserve currency and outbidded by China et al, Europe would have been deprived of over 50% of the oil it consumes, and utterly collapse, were it not because the USA did just that. As the biggest consumer, the US made room for Europe in order to allow access to the oil grades Europe can deal with. Believe or not, the largest “crew” at any european refinery are tax agents, ripping off the largest chunk of everything that´s produced there, go figure. In Soviet Europe is unthinkable to promote a project to build a high conversion refinery (and no one would put billions into that anyway) The US, on the other hand, has both, the dollar and the refining capacity to deal with the nasty stuff and so it did. Bad deal for both parts (Europe has now 20% less oil availabe today than in 2006 anyway)But it´s all about more time for the US$, NATO, EU, etc. Always keep in mind that only refiners buy oil, oil in itself is close to useless and there´s very few capacity worldwide to treat unconventional resources. Add to that the eviscerating european aparatchiks and an over-regulation nothing short of grotesque. Well…you get the picture.

      Best regards

      • Thanks Jorge,

        Going one step further to clarify, what type of oil do Yemen and Iran have?… the Saudi “sweet and light” easily refined stuff, or the Venezuelan “heavy and crude” sour stuff which is hard to refine?

        If Iran/Iraq/Yemen have the easily refineable oil, then my hypothesis may make still make sense.

  30. If economy won’t function and no value of paper currency, what gold and silver would buy without any crime? People have to have food. For food, world has to have pollinators, water resources, biodiversity and healthy land. No other species in earth history has damaged earth in such intensity and drove other species to extinction. Difference between mars and earth is earth has living species and 7.5 billion super predators with cats and dogs that drive other species to extinction.
    World hasn’t figured what is real wealth yet and governments are like corporate agents. Biogas plant would be better investment than BMW.
    You doing good job at warning people but I would like to know about your and other reader’s thaught about real wealth on this website.

  31. MASTERMIND | June 18, 2017 at 6:52 pm |

    All the Saudi whabbi cult knows is DEATH TO AMERICA!

  32. Have you listened to this? It was made on the 15th, I believe. It is an interview on the Future of Energy…..

  33. Well It looks like the domino’s are in place. We will finally experience time travel !
    With 23% loss yearly on product while increasing production 14%. The oil industry has about 4 years MAX. Then we go BACK to the 1890’s before oil.
    The only possible alternative is nuclear fuel, for electricity only!
    Bill Gates did a massive investment in Thorium reactors LFTR’s which will come on line in about 10 years! While uranium reactors are being dismantled because they are to expensive to operate. Thorium is CLEAN! So at least we will have affordable electricity in some areas but global deployment will take about 40 years.
    That leaves us with 6 to 36 years, depending on where we live, back in the 1890’s!
    P.S that is when the global population was less than 1 Billion B.O. (before oil)
    Where is my cowboy hat, horse and sixguns!!!

  34. Thanks Steve.

  35. OutLookingIn | June 21, 2017 at 7:27 am |

    The Saudi king has named his 31 year old son “crown prince” therefore cementing his place as next in line to the thrown. He is known for his ultra conservatism and devout Wahibist, while openly displaying his rejection of Sunni Islamism. A militant war hawk.

  36. Petedivine | June 21, 2017 at 8:29 am |

    As of now Brent Crude is $46. Who was it that predicted lower oil prices going forward? Oh yeah…the Hills group. Their ETP price chart has a 96.5 % price correlation. It certainly seems to be accurate so far. Some of these older articles are very prescient.

  37. If I bought an ounce of gold at $1244US today, and the petrodollar system collapsed and all currencies fell to zero tomorrow, how much buying power would an ounce of gold have in today’s money?

    Would $1244 suddenly have the same buying power of $12440, today? (assuming people are trading with it)

    Thanks for any help

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