Bitcoin Comes to the Oil Market

bitcoinWhile the US dollar has long since been the preferred currency in the crude oil market those days may be coming to an end with a new Bitcoin crude oil market making its appearance. Many oil-producing nations still price their oil in US currency but the likes of Iran and Russia are making it clear that they intend to move away from that form of pricing. Iran has indicated strongly that it wants paid for its oil in Euros, and Russia’s President Putin has been strongly advocating that his country too should stop pricing its oil in US currency. This has put a strain on what is commonly referred to as the ‘petrodollar’ and may be heralding the beginning of its demise. Certainly the uneasy relationship between the leading oil-producing nation Saudi Arabia and the United States has only made things more unsettling for the future of the petrodollar.

For decades the United States and Saudi Arabia have had a mutually beneficial arrangement whereby the United States provides protection for the House of Saud and in return Saudi Arabia oil producers only use US currency to price their crude oil. With the currencies of Saudi Arabia and several other countries in the Gulf Cooperation Council (GCC) being fixed to the US dollar it has caused the US currency to be the world’s choice of reserve currency, but now that Saudi Arabia and the US’s relationship is becoming increasingly tense both parties may be reconsidering their previous agreement. The rift between the two countries can be at least partially attributed to the recent passing of the Justice against Sponsors of Terrorism Act (JASTA) bill in the Senate in 2016. The bill allows for family members of victims killed as a result of 9/11 terrorist attacks to sue Saudi officials if they are found to have been involved.

Tension is further aggravated by the Saudi’s annoyance at what they see as the US failure to do anything to shore up former Egyptian President Hosni Mubarak’s regime. For Saudi Arabia at least, all of these issues have caused the nation to try and distance them self from the US, with electing to no longer honor the agreement to sell oil in US currency the result.

If relations between the US and Saudi Arabia do not improve and Saudi Arabia enforces purchasing of oil from them using Euros, the US is likely to lose its position as the reserve currency. Should that happen it then raises the question of what will take its place. One possible answer is the cryptocurrency Bitcoin (BTC).

Senior Founder of NJUF Investments, Shannon Lowery prediction is that the US dollar is about to suffer a major drop in value, that will in turn have a disastrous effect on commodity trading. As oil is one of the major traded commodities and many countries still need the US dollar in order to purchase crude oil, the hit to the value of the US dollar is likely to cause many countries reliant on oil to be hit hard.

Lowery feels tha NJUF Investments’ , considered to be the world’s first Bitcoin Crude Oil Market, is perfectly positioned should his prediction for the US dollar come to fruition. All countries buying and selling crude oil will be able to use BTC in place of US dollars and would therefore not be adversely affected should the US dollar decrease in value. Lowery stated that the short term focus of was to avoid chaos in the crude oil industry should the US dollar take a huge hit to its value. For the long term Lowery believes that can provide a stable market for oil, making it easier for countries to plan long term. He also believes that his BTC crude oil market will encourage fair trade.

Worry over how a hit to the US dollar would adversely affect oil-producing countries and buyers alike has brought many unlikely countries together to join forces in an attempt to shore up commodities, some of those being Iran, Saudi Arabia and Russia. The major oil producers of the GCC are particularly worried as they are pegged to the US dollar and therefore unable to institute their own monetary policies. This leaves them particularly vulnerable to any negative effects the devaluation of the US dollar may create. While the GCC can elect to no longer peg to the US dollar to avoid being vulnerable it could put them in a position of great uncertainty going forward. On the other hand, if they maintain their current status it is likely to seriously impact their growth.

Lowery believes that there are only two choices; adopt BTC as the currency of choice or stay pegged to the US dollar and face economic distress. He firmly believes that although BTC has taken some flack as of late it truly is the only way to survive in the oil industry.