International Politics ///

Will dollar devaluation limit oil production capacity and slow Middle Eastern economic growth? A large sum of the oil earnings of Middle Eastern oil producers is spent on imported goods and services. These countries receive dollars for their exported oil, and then they convert most of these dollars into other currencies to shop around the world for essential and luxury items. If the dollar is sailing high against other currencies, Middle Eastern countries sail with it, as long as they are going East and Northwest. They enjoy a higher purchasing power when they buy from Europe and Japan. In this case, goods from Europe and Japan are cheaper relative to dollar-denominated oil earnings. A grave concern arises when the U.S. dollar declines, imports from Europe and Japan become expensive, and oil earnings lose purchasing power.

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