First, the vast majority of all oil is traded in USD, not just the Mideast. As one example of the impact, take Canada. Their exchange rate against the USD is driven almost entirely by crude oil prices (of which they are a large exporter). The reason for this is that when oil prices are high they end up with a large supply of USD. And so the price of the Canadian dollar increases because, compared to the dollar, it's now in relatively lower supply. You can see how extreme this correlation is here. [1]

Beyond that, this is all about international issues. Those gas stations are oil producing countries, and the people buying from them are countries. Being the person who can "print" the world reserve currency gives you immense geopolitical power, and an inability to economically fail regardless of how hard you try. When foreign currencies are no longer so closely tied to the USD, and demand for the USD declines, its international value will likely start to sharply decline, exactly as it did in 1971. But this time I don't really see anything we'll be able to cling onto.

[1] - https://www.dailyfx.com/usd-cad/link-between-canadian-dollar...

Even if you assuming 100% of all oil is traded in USD that’s still only ~8 billion dollars a day.

As to US Canada currency that relationship would be mathematically identical if oil was traded in Canadian dollars rather than USD with the exact same changes to each currency as oil’s value spiked. It’s a result of the balance of trade not the specific commodity being exchanged let alone the currency the transaction was valued in.

Oil happens to have high price volatility and significant value, but wood or maple syrup has similar effects though on a smaller individual scale.

The average gross trade of just raw oil products is somewhere in the $1 trillion ballpark, total trade overall several times that. It doesn't really matter much either way, as it's the "value" of oil that matters, not the price. When you are able to lock a door that everybody wants in, your key is priceless. The value of oil doesn't spike, its price does - primarily due to OPEC manipulation or yet another US Mideast invasion.

You're absolutely right that balance of trade plays a part in this, but not in the assumption that the currency is irrelevant. If countries were paying Canada in CAD instead of USD, then Canada's reserves of CAD would be constantly increasing while the rest of the world's would be decreasing. The CAD would become extremely strong, extremely quickly. The realistic scenario is that countries would simply stop buying oil from Canada because of this, but if they couldn't (for instance if Canada somehow convinced oil seller's to sell only in CAD...) then the result would be a never-ending and effectively uncapped appreciation of the CAD, subject only to the discretion of Canada itself.

This is literally exactly what happened with the ruble. Russia used to sell their oil in the USD. After we did our sanctions stuff trying to tank their economy, they started selling oil only in the ruble. And the value of their currency not only immediately reversed all of the sanctions inflected weakening, but rapidly became even stronger than before they invaded. It led them to the bizarre scenario of having to actually have to try to weaken their currency, while facing 'nuclear' sanctions, to make sure they didn't (as above) price themselves out of the oil market, by having too strong a currency.

Annual numbers are irrelevant due to the concept of velocity of money.

You can use the same physical 20$ dollar bill to buy a soda several times over a year. You hand it to the 7-11 on Monday, they take it to the bank on Tuesday, the bank puts it into their ATM on Wednesday, you get out of the ATM on Thursday, and then take it back to that same 7-11 on Friday.

Digital currency can cycle the same way just faster. Mexico Joe trades peso’s for OilBucks from Dubai Bank at 9:00AM, use them to buy oil from someone in Bolivia at 9:01. At 9:02 Frank in France trades Euros to Bolivia Co at 9:02 to get those same Oil Bucks for a trade at 9:03 with someone in Saudi Arabia…

PS: The nonsense included in the second half ignores the feedback loops from the balance of trade.

Anytime your pet economic theory results in some asset spiraling to infinite value it’s inevitably wrong. There’s always a point where people say no and do something else because they simply can’t spend infinite money on anything. Instead there’s always some factor not included in your model that moderates the impact you simply aren’t including it.

No, it doesn't. I'll stop being subtle to make this more clear. When I spoke of the issue being up to "Canada's discretion" what I mean is that Canada, in our hypothetical scenario, obviously cannot let their currency appreciate endlessly. They would take actions to prevent that, because it's obviously self defeating otherwise. This is precisely what has happened in the US. The artificial power the petrodollar granted our currency gave us not only the power but the necessity to start doing things like endlessly printing money, sending much of it abroad, spending trillions of dollars on pointless wars, and more.

Until recent times, keeping inflation up was difficult in spite of all of this - which is why we've had 0 interest rates desperately trying to devalue the currency. The big inflection point was 1971. That was the end of the USD being 'hard backed' (fixed exchange rate) by gold. The 'soft backing' (unfixed exchange rate) of oil would begin in 1974, organized by no less than Kissinger. You can see many of the measures we took here [1]. A critical table [2] that site is missing is the trade deficit.

Ultimately the test for all of this will come imminently. BRICS has been developing a new backed (presumably 'hard backed') currency, set to be announced as early as August of this year. And IMO, BRICS as a whole is making their move at this exact moment precisely because the USD is in a situation where this will have maximum impact. Something to keep your eyes on if you're at all genuinely interested in these things!

[1] - https://wtfhappenedin1971.com/

[2] - https://www.macrotrends.net/countries/USA/united-states/trad...