The largest producer (Saudi Arabia and other OPEC members) of crude will only accept USD for payment. In exchange the US guarantees security. You may read the inverse of the security guarantee as well. Producers defying the arrangement may expect regime change or other hostilities.
>However, by 1971, convertibility into gold was no longer viable as America's gold resources drained away. Instead, the dollar became a pure fiat currency (decoupled from any physical store of value), until the Petrodollar Agreement was concluded by President Richard Nixon and Secretary of State Henry Kissinger in 1973.
The essence of the deal was that the U.S. would agree to military sales and defence of Saudi Arabia in return for all oil trade being denominated in U.S. Dollars. A secondary option to this agreement is the purchase of U.S. debt securities with surplus oil proceeds. By 1975, all OPEC nations agreed to price their oil supplies exclusively in U.S. Dollars and to hold their oil proceeds in U.S. government debt securities.
>However, by 1971, convertibility into gold was no longer viable as America's gold resources drained away. Instead, the dollar became a pure fiat currency (decoupled from any physical store of value), until the Petrodollar Agreement was concluded by President Richard Nixon and Secretary of State Henry Kissinger in 1973.
The essence of the deal was that the U.S. would agree to military sales and defence of Saudi Arabia in return for all oil trade being denominated in U.S. Dollars. A secondary option to this agreement is the purchase of U.S. debt securities with surplus oil proceeds. By 1975, all OPEC nations agreed to price their oil supplies exclusively in U.S. Dollars and to hold their oil proceeds in U.S. government debt securities.
https://www.sandstoneam.com/insight/rise-of-the-petrodollar https://en.wikipedia.org/wiki/Petrodollar_recycling#Petrodol...