What are Petrodollars?


The Organization of Petroleum Exporting Countries (OPEC) was formed in 1960 at the
Baghdad Conference in Iraq. This cartel has had a significant influence on crude oil /
petroleum prices. The first major hike in petroleum prices was introduced in 1973. This
event had a major impact on the flow of international funds. The OPEC members received
large fund-flows from the developed countries who were the major importers. Most of the
petroleum exporting countries had small economies with small capital absorbing power.
The surplus funds generated by them were used for lending to the petroleum importing
countries that were facing balance of payment deficits. Most of this recycling of funds was
done through off-shore financial centres in various parts of the world. Since petroleum
trading was invoiced in USD, these surplus funds generated out of petroleum sales and
recycled between exporters and importers, were called Petro-Dollars.

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