Saudi Arabia Ends 80-Year Petrodollar Deal with US

Confidence UbaniJune 13, 20241 Mins read343

Saudi Arabia has decided not to renew its 80-year petrodollar agreement with the United States, marking a significant shift in global economic dynamics. The deal, signed on June 8, 1974, ensured that Saudi oil sales were conducted exclusively in US dollars. It was a significant boost to US economic influence worldwide.

Origins of the Agreement

The petrodollar system was established during the 1970s oil crisis. In exchange for selling oil only in US dollars, Saudi Arabia received military aid and equipment from the US. This arrangement provided the US with a steady flow of oil and a market for its debt, reinforcing economic ties between the two countries.

As of June 9, 2024, Saudi Arabia has allowed the deal to lapse. Moving forward, the kingdom plans to diversify its oil sales by accepting other currencies such as the euro, yuan, ruble, and yen. It is also considering digital currencies like Bitcoin.

Impact on the US Dollar

The end of the petrodollar deal could weaken the US dollar. Analysts warn this change may lead to higher inflation, increased interest rates, and a weaker bond market in the US.

If oil were to be priced in a currency other than the dollar, it could lead to a decline in global demand for the greenback, experts say

This decision could also significantly alter the global financial order. The petrodollar system helped maintain the US dollar’s dominance as the international reserve currency. Without it, the dollar’s influence might diminish.

Global Trends

Saudi Arabia’s move aligns with trends promoted by the BRICS alliance (Brazil, Russia, India, China, and South Africa). BRICS countries aim to reduce reliance on the US dollar by using their currencies for international trade. The global financial landscape is set for substantial change. As Saudi Arabia shifts to multi-currency oil sales, the ramifications for international trade and finance will be closely monitored. The dominance of the US dollar in global markets is no longer guaranteed.