INTERNATIONAL BUSINESS MANAGEMNET

PROJECT OF E-COMMERCE AND INTERNATIONAL BUSINESS

Submitted To:

“DR SOHAIL YOUNUS”

Submitted By:

Student names: Roll numbers:

Gulraiz maryam Bba-F19-A-59
Esha ghazanfar Bba-F19-M-92
Safoora haroon Bba-F19-M-61
Shiza Naveed Bba-F19-A-83
Sehar Ahsan Bba-F19-M-50

SESSION: 2019-23

BACHELORS OF BUSINESS ADMINISTRATION

DEPARTMENT OF BUSINESS ADMINISTRATION

OCT, 2022

UNIVERSITY OF THE PUNJAB JHELUM CAMPUS

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Table of Contents
1.1 Introduction :............................................................................................................................. 2
1.2 History of petro dollar............................................................................................................... 2
1.3 Impact of petrol dollar on us Economy:.................................................................................... 2
1.4 Saudi Arabia consider accepting yuan instead of dollar:...........................................................2
1.5 Advantages and Disadvantages:................................................................................................. 2
1.6 End of petrodollar...................................................................................................................... 2

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1.1 Introduction:

The petro dollar is the revenue from oil that is denominated in US dollars. Petrol oil is not a
separate currency, they are just the US dollars accepted as payment by an oil exporter.With the
help of a 1945 agreement between the United States and Saudi Arabia, the U.S. dollar has
become the accepted currency for paying for oil around the world. The relationship between the
dollar and oil started as a result of this arrangement, which led to other oil-exporting nations
accepting the dollar as payment for oil.

Some nations were unable to use all of the dollars they had accumulated due to their excessive
oil exports and oil exports, respectively. If the nation taking US dollars as payment is unable to
spend all of them, the US dollars are effectively taken out of circulation. Petrodollars are the

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names given to the dollars that these nations were unable to spend.

1.2 History of petro dollar:

In 1994, World War II was at its end. Germany suffered a lot in this world war. The economy of
the major countries of the world was destroyed. The question was how to redevelop these
countries. To find the answer to this question, a conference was called in July 1944 in which 730
delegates of 44 Allied nations participated. This conference is called Bretton Wood conference.

In this conference, it was decided to create the IMF and the World Bank. In this conference, a
decision was made that made the United States very powerful because in World War II, the
United States was the only country whose economy was in good condition at that time. It was the
only currency that was both reliable and stable, which is why Breton supported the US and made
the US dollar the world reserve currency by making the US dollar compulsory for transactions
with the World Bank and the IMF.

When a country exports or imports, if its exports are more than its imports, the profit is invested
somewhere either in a bank or in a currency that is stable. When American dollars were made the
result currency, at that time the United States made two promises to the world. The first is that
the United States will keep limited printing of dollars and the second is that any country can
exchange gold for $35 per ounce.

This system was called the Bretton Wood system, after that all the international transactions
began to be done in dollars, but the Vietnam War that took place between 1955 and 1975, then
the world realized that the United States was printing more dollars and that in exchange for
keeping gold low, the US FRB which prints US notes, has refused to audit all countries in the
world.

In 1971, when France realized this, it asked the United States to return its gold in exchange for
dollars, which was refused by the then President of the United States, Richard Nixon, sitting on
international TV. In addition, on August 15, 1971, the United States Temporarily suspended the
Bretton Wood system, which will reduce the value of the dollar to zero

But at that time, almost every country in the world not only had dollars in reserve, but some

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countries also had nuclear acid, due to which the United States felt the danger that it would have
to give something in exchange for dollars. When this scenario was created, US President Richard
Nixon went to Saudi Arabia and convinced King Faisal to sell his oil in dollars and in return the
US would protect his oil fields.

Apart from this, this offer was also given to OPEC countries (oil producing exporting countries)
E.g. Iran, Iraq, Nigeria, Kuwait United Arab, Qatar, UAE etc.

In fact, when Richard Nixon went to Saudi Arabia, it was the period when the Arab world had
lost badly to Israel in the 6-day war, and the protection that the United States was talking about
meant that either it sold its oil in dollars. Do it or get ready for the next attack and the Arabs, who
were selling their oil in real gold, started selling it in their dollars, it is called petro-dollar.

Due to this, American dollar become valuable again Now, when any country in the world buys
oil from another country, it pays only dollars in return. for example, if China want to buy oil
from Russia then China exchange its currency to US dollars and then give dollars to the Russia
in return Russia give oil to china.

1.2 Impact of petrol dollar on us Economy:

 The impact of petrodollar on US economy and other economies started from here.
 Saudi Arabia convinced OPEC members to trade in USA dollars.
 Oil importers were forced to stockpile dollar in their reserve.
 USD become global dominent currency.
 US can print dollar. US government can have borrowed money at low cost and invested
in economy.
 USA sanctions become powerful
Saudi Arabia prepared to rest of countries to make payment in dollar. Then all dealing of oil
started in dollars so all the oil importing countries were force to hold dollars’ currency in their
reserve. In this way dollar become the global dominant currency So earlier like the gold standard
was used to calculate the value of currency. They could print like same calculation so then the
gold standard ended and American currency staredt to dominate.
Then looking at oil 2,3 commodities began to be traded in Dollars like gas and gold trade. Seeing
all this so much trade started to be done in Dollars that the dollar was dominating in the whole
world. The big benefit the American could have got that they could have been invested in their
own currency.

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Recycling
Petrodollar recycling is an international spending or investment of a country revenues from
petrodollar. It generally refers to phenomena of major petroleum- exporting statuses, mainly the
OPEC members plus Russia and Norway earning more money from the export of crude oil than
they could efficient invest in their own economies. The resulting global Independencies and the
financial flow from oil producer back to oil consumer can reach a scale of hundreds of currencies
some payment to US dollar and some not.
US government take loan easily. They say to Federal Bank to give them billions of dollar as a
loan and in return they. issue them bonds and after that repay the amount of bonds from taxes in
this way they got a large amount of money and make investment.
Second the American institution become very powerful because all the payment system was in
dollar so the restrictions the America could have imposed, their power increased more. Because
if the dealing is being made in dollar then it will pass through any system or Bank of America.
So if the American impose a ban on something, it will be a very powerful The restrictions could
be made by any country but any country has not the same power like the America. Because of
this the US sanctions have become so powerful that it has come into the power to interfere in the
foreign polices of another country.
In this way America become global economic and superpower. Now in between there were some
people who tried to challenge this system then they were removed. As Saddam Hussain argue
that why should I trade in another country currency. America did not like this. And they
pretended that they are making chemical weapon and this is a threat to the world. America
removed them from their position and put the government according to their own will. Same
thing was done by the Ghadafi who was the best ruler and he was a military man he did a lot of
work in his country and make it strong today. China is challenging the dollar because the China
has strengthened its economy alot. Its trade with other countries is now so high that America
cannot stop it. And now China is starting to trade in it's on currency and it’s yaur currency has
come in IMF reserve so China is benefiting in this way.
Few months ago an article in American Newspaper (Wall Street journal) comes that Saudi Arabia
is considering to accept payment for oil sale with China in the Chinese currency yarn.
Along with this there was a danger that the end petrodollar is not going to happen. The news of
sale in the Chinese currency Yarn came through the internal sources. Saudi Arabia has not made
any official announcement about it till now. This year the oil world businesses is expected to
increase till 26 million dollars. This is such a big amount which means that currency in which the
oil is being bought or sold must be highly liquid. The Dollar currency which come into use in
1970's also emerged as the preferred currency for payment in the world businesses. This was the
reason that countries from all over the world start keeping foreign exchange in dollars to buy oil
that they can buy oil and treasury bills, make investment in western countries and can import
goods from other countries. Petrodollar has a very big role in increasing the US power.
And any change will not be limited to economic aspect but also there will be affect on global

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power and international relationship. Therefore, when a country tries to destabilize the dollar it is
threatened with the situation of Iraq and Libya.
According to 2020 China has become one of the biggest energy consumers so only China can
change the price of oil than Russia is a very big trader of oil in global market. In global market
not just the China has arosen as a big customer of oil but also many Asian countries like Japan
Indea and South Korea.
Recently the Saudi company Armako has made contract with the China on the partnership of
Petro chemical company and refinery. This is the start of new strategic relation. From the past
few years the debate on sale through Yarn currency has become fast. In future if there is any
restriction on the dealing through dollar. so Yarn will be the best alternative currency. If this will
happen so this will be the start of many wars from America.
The first impact this nexus leaves on Pakistan is that it adversely affects independent foreign
policy. Since, we know that Israel mostly has relations with all powerful countries including
China and the United States of America and now this Nexus will further strengthen Israel’s
authority in the wider gulf region. It might affect our relations with these Arab States along with
long-headed Turkey, China, India and the United States because they already have friendly
relations with Israel.
The economy of Pakistan will be directly affected by this connection. Since gaining
independence, Pakistan has seen numerous economic crises. Pakistan cannot exist on its own
because the country's economy and GDP are heavily dependent on the regular loans and aid that
we receive from Arab nations, other nations, and financial institutions like the IMF. If these Gulf
nations stop providing Pakistan with aid and loans, Pakistan's economy will suffer greatly. It
either slows down or entirely halts our trade with these nations, which causes high rates of
inflation and a lack of both goods and raw materials in the nation, which we already experience.
Pakistan should show moderation while making its foreign policy towards powerful and
developed countries keeping in mind its own national interest. Pakistan should compromise in
making relations with world countries wherever it is possible. Pakistan should immediately make
better relations with Turkey, Iran and other regional countries aim to counter anti-Pakistan waves
and it will be fruitful for Pakistan in near future. Pakistan can also take support from
Chinbecause The economy of Pakistan will be directly affected by this connection.
Since gaining independence, Pakistan has seen numerous economic crises. Pakistan cannot exist
on its own because the country's economy and GDP are heavily dependent on the regular loans a
nd aid that we receive from Arab nations, other nations, and financial institutions like the IMF.
If these Gulf nations stop providing Pakistan with aid and loans, Pakistan's economy will suffer g
reatly.
It either slows down or entirely halts our trade with these nations, which causes high rates of
infation and a lack of both goods and raw materials in the nation, which we already experience.

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1.4 Saudi Arabia consider accepting yuan instead of dollar:
According to reports, Saudi Arabia is thinking about buying some oil using Chinese cash.

China and Saudi Arabia are "actively talking" about pricing some of their oil shipments to the
People's Republic in yuan rather than in US dollars.

The negotiations had been ongoing for six years, but lately "increased" as a result of Saudi
worries regarding US security obligations to the country. According to the site, the Biden
administration's stance on the Yemeni civil conflict, the negotiations over the Iranian nuclear
deal, and the disorganized US pullout from Afghanistan have particularly infuriated Saudi elites.

The United States and Saudi Arabia decided to price oil sales in US dollars in the 1970s, which
contributed to the dollar becoming the dominant reserve currency.

On August 15, 1974, Saudi Arabia and the United States of America made a deal that led to the
creation of the petrodollar. USA asked Saudi Arabia when you trade oil, do it in a stable
currency. As a result, the US provides security to Saudi Arabia and Saudia will be promoted to
the main energy supplier in the whole region. In exchange, Saudi Arabia has to make sure that
the dollars it earns from the trade will go back to the USA.USA issues treasury bills which means
USA bounds, whenever we need the money we go to the international market and say give us
money for ten years we will give you 2.5% interest rate in return. So today the money we have
earned from trade we purchase treasury bills with that money.

So in this time it was said that Saudia has almost 150 to 200-billion-dollar debt.

The idea has three Axis the kingdom of Saudi Arabia accepts to dominate its oil in US dollars
only and convince other OPEC countries by the same idea.

Oil revenues will have reinvested in US treasuries. USA will offer full military security to Saudi.

Saudia will accept this and try to convince other countries to also trade in US dollars. This will
always keep the dollar high in the international market and other countries will always depend on

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the dollar because first they will ask Pakistan to take their rupees, there they will pay rupees and
get dollars, then they will buy oil from Saudi Arabia with their dollars. The money earned by
Saudi Arabia came back to the USA, then the USA helped Saudi Arabia to earn more money and
bring that money back to the USA.This complete deal was done in 1974 which seems to be
coming to an end today because Saudi Arabia is at war with Yemen where USA is not supporting
Saudi Arabia.

It has been said by Saudi Arabia that till now our borders are safe but the USA has not ensured
our security. So they are trying to attack Saudi Arabia. Saudia wants USA to eliminate them
already but USA is not listening to Saudia, so Saudi Arabia has decided that we will trade with
China and not ask them for dollars. Saudi Arabia has threatened the USA that we have to replace
the dollar with the Chinese currency yuan and the dollar may collapse.

1.5 Advantages and disadvantages:

The petrodollar is a type of global currency paid for oil and petroleum. It is a system in which oil
can be bought by any country only in exchange for the U.S. dollar which means that the
petrodollar is denominated in the U.S. dollar.

The advantages of petrodollar are as follows:

 Liquidity source:

The petrodollar is denominated in the U.S. dollar which is the most liquid currency because of its
high demand in the global market. So, the petrodollar can be considered a good source of
liquidity.

 Foreign capital inflow:

The petrodollar can be recycled, which means that the income earned from the petrodollar can be
reinvested as it is in the form of the U.S. dollar. This enhances the inflow of foreign capital.

 Global decision-making:

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The prices of oil and petroleum products impact the global economy. Since the petrodollar is
related to oil export and import, it would influence global decision-making.

 It helps in getting good establishment in global market

 The inflow of good foreign capital increases due to petrodollar

The disadvantages of petrodollar are as follows:

 Run account deficit:

To preserve the liquidity of the petrodollar in a perpetually expanding global economy, the US
must run account deficits. Running account deficit is a negative aspect for the economy as it
depicts unsustainability and leads to harmful effects in the future.

 Economic slowdown:

To prevent the condition of running an account deficit, if a country stops the account deficit, it
would lead to a slowdown of the world economy

 High prices has to be paid for long term debts

 If the currency will be stopped to buy all deficits will further slowdown the pace of global
economy.

1.6 End of petro dollar:

The US dollar is the most powerful of all currencies today .The Ameria uses its dollars as a
weapon to destroy it's enemy countries.The United States imposes economic sanctions on
countries it does not like. In simple words, these countries are not allowed to buy goods in
dollars.As a result, the value of the currency of these countries continues to fall and inflation in
these countries increases.This causes a lot of damage to these countries and they are forced to
obey everything that America says. The situation has come to the point that people have to pay a
lot of money to buy even small things like milk and bread. There are many examples like Iraq
and Zimbabwe, what happens if a country wants to avoid these sanctions and starts selling in
another currency instead of dollars. The president of Iraq, Saddam Hussein, tried to sell his oil in
euros instead of dollars. America attacked Iraq accusing it of having weapons of mass

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destruction.The US attacked Iraq by making this false accusation and caused a lot of damage to
Iraq, which caused a lot of damage to the Iraqi economy.The conflict between Ukraine and
Russia, the United States also imposed sanctions on Russia at the behest of the United States and
15 countries also imposed sanctions on Russia.Due to these sanctions, the value of the Russian
currency has been falling to the point that 140 rubles will have to be paid for one dollar.

The value would have fallen more and the situation would have been the same as Iraq and Russia
would have been destroyed right away, but Russian President Patton already knew about their
actions. Many countries buy natural gas and petroleum from Russia. 40% of natural gas is
supplied by Russia, then the president of Russia forced these countries that if they want to buy
oil and natural gas, they will have to make the payment in rubles.In this way, Putin ended the
petrodollar game of the United States in one blow, this will cause the value of the American
dollar to fall and the value of the ruble to increase.In a few days, the value of the ruble, which
had reached 140 against one dollar, has now reached 85 rubles.That is, now the dollar will
become weaker and the value of the ruble will increase. One thing is clear, if the oil business
around the world starts to be done in other currencies than the dollar, then the game of the dollar
will end and it simply means that the United States will start to be ruined.It has already started.
Saudi Arabia is also ready to take payment in Chinese yuan instead of dollars for its petroleum.
The United States has pressured Saudi Arabia and the United Arab Emirates by taking expensive
petroleum due to the Ukraine-Russia issue. Wanted to lower the price of petroleum to increase
the pressure on Russia, but Saudi Arabia, UAE, president did not pick up the phone of joe biden
the president of U.S.Now China will pay Saudi Arabia in Chinese currency to buy petroleum
from Saudi Arabia and Saudi Arabia will use yawn to pay for Chinese infrastructure and Chinese
goods. Another big deal with Iran.The United States thought that they would exclude Russia
from the international payment system, but the Russians responded by conducting a surgical
strike on their plan.

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