Elon Musk's X Shuts Down Operations in Brazil Amid Legal Dispute
Social media platform says shutdown ‘effective immediately’ but Brazilian users will still have access to X.
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Recent rumors about the expiration of a 50-year-old "petrodollar" agreement between the US and Saudi Arabia, though false, highlight the system's gradual decline.
The petrodollar arrangement, which emerged informally in the 1970s, has been crucial to US economic dominance for decades.
Origins and Stability:
After abandoning the gold standard in 1971, the US secured an agreement with Saudi Arabia to price oil in dollars, effectively creating a new backing for the currency. This system spread to other OPEC nations, stabilizing oil prices between $15-30 per barrel for nearly 30 years. In exchange, Saudi Arabia received US military protection.
The system's resilience was demonstrated during the 1978/79 oil shock when Fed Chairman Paul Volcker's aggressive interest rate hikes helped restore the dollar's credibility.
Cracks in the System:
The petrodollar's stability began to erode in 2003 when oil prices started climbing due to Chinese demand and declining easy-to-extract oil reserves. By 2008, oil reached $145 per barrel, exposing the US's inability to maintain the dollar's value relative to oil.
Unlike Volcker's era, the US response to the 2008 financial crisis prioritized stabilizing the banking system over defending the dollar. This shift, coupled with massive quantitative easing, signaled to oil-producing nations that the US was no longer committed to maintaining the petrodollar system.
China's Response:
China, the world's largest oil importer, recognized this trend early. In 2009, China's central bank called for a new reserve currency to replace the dollar. Over the years, China has sought to buy oil with yuan, limited US Treasury purchases, and accumulated gold, reflecting distrust in the dollar system.
In 2018, China introduced yuan-priced oil contracts, though this didn't immediately challenge dollar dominance in oil markets.
Geopolitical Implications:
The Ukraine conflict and subsequent Western sanctions have accelerated the shift away from the petrodollar. Saudi Arabia has shown increasing willingness to accept other currencies for oil, while Russia has moved to conduct energy trades in rubles.
These developments suggest a gradual erosion of the petrodollar system, potentially weakening the dollar's global reserve currency status and US economic influence.
Conclusion:
While the petrodollar system isn't collapsing overnight, its foundations have been steadily eroding since the mid-2000s. The combination of rising oil prices, changing US monetary policies, and shifting geopolitical alliances are contributing to a slow but significant transformation of the global economic order. As countries seek alternatives to dollar-denominated oil trades, the long-term implications for US economic power and global financial systems remain uncertain but potentially far-reaching.
Social media platform says shutdown ‘effective immediately’ but Brazilian users will still have access to X.
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