After Nixon took us off the gold standard...in an effort to prop up the value of the dollar,Nixon negotiated a deal with Saudi Arabia that in exchange for arms and protection they would make all future oil sales in U.S. dollars. The other OPEC countries agreed to similar deals thus ensuring a global demand for U.S. dollars and allowing the U.S. to export some of its inflation. Since these dollars did not circulate within the country they were not part of the normal money supply, economists felt another term was necessary to describe the dollars received OPEC in exchange for oil, so the term petrodollar was coined.
Because the United States was the largest producer and consumer of oil in the world, the world oil market had been priced in United States dollars since the end of World War II. All transactions go through the Federal Reserve and they make $$ on every transaction! When this ends look out dollar. Russia and China have already been making deals in their own currencies. Just something to ponder.
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