Oil Dollar Pricing System Vulnerability Analysis

Petroleum dollar pricing mechanism began to form since the first oil crisis, strengthenedand developed after Iraq War gradually, affected by financial storm which is the result of theSubprime Mortgage Crisis and became fragility. The global strong oil demand, which leadingto the demand for dollars, the petrodollars recycling the United States of America, theAmerican current-account deficit, releasing the dollar supply, are consisted of fiveindispensable orderly links in petroleum dollar pricing mechanism, each link has itsirreplaceable role in itself. Petro-dollar cycle runs through every link, and plays an importantrole in the stability of mechanism. Petroleum dollar pricing mechanism faces thecontradiction between maintaining dollar international solvency and people’s confidence inthe dollar, which are leaded by Triffin Dilemma and the existing of American large persistentbalance-of-payments deficit in the internal. And it also faces three challenges which are thedevelopment and utilization of non-oil energy, non-dollar pricing of oil, petro-dollar notreturning to the USA. This paper analyzes the forming process of petroleum dollar pricingmechanism, and the vulnerability of the mechanisms caused by internal and external factors,deeply discussed the shock direction and degree caused by the change of real value of dollarin the mechanism. According to the price stability analysis comparison between petro-dollarand perto-euro, this paper shows that petro-euro pricing system is a competitor of petro-dollarpricing system. Through the influence of international events on euro exchange rate, oil playsa supporting role on its pricing currency. The influence of vulnerability in petroleum dollarpricing mechanism reflected that oil exporter tend to use non-US dollar currency as pricingand trading settlement, so that oil consumption nations except the USA have more tradingcurrency options, and make oil trading currency sovereign nation strengthen the support of oilon its sovereign currency. All the actions above on the vulnerability in petro-dollar pricingmechanism can intensify in a certain degree. However, because the USA has the first nationalcomprehensive strength in world as support to dollars, the utility and yield of global non-oilenergy’s development and utilization are very difficult to replace oil position in a very longperiod of time, therefore, although the vulnerability exists and has been enhanced in certaincircumstance, petroleum dollar pricing mechanism will be continuous working a long time inthe future. In China’s response, this paper proposes some strategies, which contain reducingoil consumption, using various currencies as trading and settlement to import petroleum,containing a certain amount of oil share in foreign exchange reserves, in order to reduce theinfluence of vulnerability in petroleum dollar pricing mechanism to our country.