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Follow the Money: The Political Economy of Petrodollar Accumulation and Recycling

Author

Listed:
  • Noble, Leonie
Abstract
This thesis makes two unique contributions to the International Political Economy literature. It presents the first comprehensive, empirical investigation of petrodollar accumulation and recycling spanning the period 1980-2021. It also corrects the misconception that petrodollar recycling in the 1970s and 1980s involved the extension of loans to developing countries using fractional reserve banking and argues that these loans were the extension of created credit. Petrodollars garnered significant academic attention in the 1970s and 1980s when increased oil prices led to large influxes of petrodollars to oil-exporting states and widespread deficits and stagflation in oil-importing states. The recycling of these petrodollars led to increased militarisation in oil-exporting states, as well as increased national debts in oil-importing states which precipitated the developing world’s debt crisis. Between 1999 and 2021, oil prices have hit peaks higher than those reached in the 1970s and this has resulted in a similar transfer of petrodollars. This thesis uses a quantitative and qualitative methodology to explore the key role of petrodollars in the current global political economy, and to illustrate the impact they are likely to have in the future as resources deplete. Over the period 2004-2021, petrodollar accumulation averaged $1.27 trillion annually, with approximately 54.6 percent of this accumulated by the Organisation of Petroleum Exporting Countries. These petrodollars predominantly flow back into the global economy through one of two channels: economic, through increased imports and domestic expenditure; or financial, through foreign investments and the purchase of foreign exchange reserves. These recycling methods will have lasting implications as they impact on which oil-importers’ deficits are financed and which are not, and which businesses/industries are funded and which are not. The significance of petrodollar accumulation and recycling is likely to further increase in the future. While advances are being made in alternative energy, oil’s unique characteristics and its embeddedness in the petrochemical, agriculture, and transportation sectors make it invaluable in a petro-market civilisation which is dependent upon transnational supply chains and large-scale agriculture. This makes it likely that high oil-consumption rates will continue, as will petrodollar accumulation, until we reach depletion. (Posted with the author's permission.)

Suggested Citation

  • Noble, Leonie, 2023. "Follow the Money: The Political Economy of Petrodollar Accumulation and Recycling," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 284467, September.
  • Handle: RePEc:zbw:esthes:284467
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    File URL: https://www.econstor.eu/bitstream/10419/284467/1/Noble-Follow-the-money.pdf
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    References listed on IDEAS

    as
    1. Di Muzio, Tim & Noble, Leoni, 2017. "The Coming Revolution in Political Economy: Money Creation, Mankiw and Misguided Macroeconomics," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 80, pages 85-108.
    2. Friedrichs, Jörg, 2010. "Global energy crunch: How different parts of the world would react to a peak oil scenario," Energy Policy, Elsevier, vol. 38(8), pages 4562-4569, August.
    3. Werner, Richard A., 2014. "How do banks create money, and why can other firms not do the same? An explanation for the coexistence of lending and deposit-taking," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 71-77.
    4. Berazneva, Julia & Lee, David R., 2013. "Explaining the African food riots of 2007–2008: An empirical analysis," Food Policy, Elsevier, vol. 39(C), pages 28-39.
    5. Nitzan, Jonathan & Bichler, Shimshon, 2018. "Arms and Oil in the Middle East: A Biography of Research," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 30(3), pages 418-440.
    6. Mr. Johannes Wiegand, 2008. "Bank Recycling of Petro Dollars to Emerging Market Economies During the Current Oil Price Boom," IMF Working Papers 2008/180, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    capital accumulation; capital flow; debt; finance; foreign investment; IPE; Middle East; militarization; oil; OPEC; petrodollars; price; war;
    All these keywords.

    JEL classification:

    • P - Political Economy and Comparative Economic Systems
    • P1 - Political Economy and Comparative Economic Systems - - Capitalist Economies
    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
    • N45 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Asia including Middle East
    • F3 - International Economics - - International Finance

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