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Examining the Dynamics Between U.S. Energy Dominance and Currency Exchange Rates

By Frances Coppola

Global energy markets have seen many changes since World War II, but one thing has remained relatively stable: the strength of the U.S. dollar exchange rate, partly derived from USD's role as the currency in which energy is priced, worldwide. Beginning with the country's past as a major oil producer and extending to its present oversight of the supply of U.S. dollars, USD's role in the global energy market has been an important factor leading to the phenomenon economists refer to as the U.S.'s "exorbitant privilege."

But, as the poet said, the times they are a-changin'. As non-OPEC oil producers grow and energy dominance changes hands, exchange rates could see profound levels of volatility – including USD. Meanwhile, with its stated plan to re-emerge as a dominant oil producer, the U.S. aims to become a net energy exporter and achieve energy independence.


Beginning with the evolution of U.S. energy dominance in the mid-20th century, this four-part series examines how the past and present of global energy markets continue to effect international trade and, especially, currency exchange rates.


Part 1: The Evolution of U.S. Energy Dominance and Its Potential Effects on Exchange Rates


Over the course of history, the U.S. has held dominance in the global energy market in one way or another. From control of the oil supply to the supply of U.S. dollars, the U.S.'s role in energy markets has affected exchange rates – especially because all globally traded energy sources, including oil, are traded in USD. The first article in the series explores the ways current global energy market trends may affect exchange rates, with regard to the U.S. government's energy dominance strategy.


Part 2: The Erosion of OPEC and a Rising "Petroeuro" Threaten the Dollar Exchange Rate


Historically, USD's exchange rate stability and prevalence as the world's premier currency has largely been upheld through "petrodollar recycling" between the U.S. and foreign oil producers via an arrangement with the Organization of Petroleum Exporting Countries (OPEC). But of late, non-OPEC oil producers are flourishing while the EU has become the world's largest oil importer. Here's how the potential rise of a "petroeuro" may lead to uncertainty for the "petrodollar" and, therefore, USD exchange rates.


Part 3: What the U.S. Becoming a Net Energy Exporter Could Mean for Exchange Rates


As the U.S. plans to re-emerge as a net energy exporter, this article explores impacts on a far-more complex global energy market than ever before and the potential effects on global energy markets and, especially, for USD exchange rates.


Part 4: What Would U.S. Energy Independence Mean for USD Exchange Rates and Import-Export Businesses?


Part of the U.S. government's global energy plan includes the goal of achieving "energy independence," or being self-sufficient without a need to import energy. This could result in cheaper energy for U.S. businesses. But due to the size and scope of the U.S. economy and USD's role in the global economy, U.S. energy independence might change the course of international import-export business.

Frances Coppola - The Author

The Author

Frances Coppola

With 17 years’ experience in the financial industry, Frances is a highly regarded writer and speaker on banking, finance and economics. She writes regularly for the Financial Times, Forbes and a range of financial industry publications. Her writing has featured in The Economist, the New York Times and the Wall Street Journal. She is a frequent commentator on TV, radio and online news media including the BBC and RT TV.

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