Sputnik
Saudi Arabia and other oil producers are gradually diversifying away from the US dollar in their energy trade, a move that could eventually dethrone the "petrodollar" and undermine the US financial system, international political and economic analysts told Sputnik.
The Saudi Central Bank has joined the Bank for International Settlements’ (BIS) central bank digital currency (CBDC) project, mBridge, to enable instant cross-border payments.
Meanwhile, a so-called "petrodollar agreement" concluded between the US and Saudi Arabia in 1974, is said to have expired on June 9, 2024. Neither Washington nor Riyadh have confirmed the rumors so far.
The developments are seen as harbingers of a possible dollar demise in the global oil trade.
"These two significant developments serve one strategic purpose which is granting Saudi Arabia flexibility in its future dollar-based oil trade transactions," Dr Mamdouh G. Salameh, an international oil economist and a global energy expert, told Sputnik. "Put bluntly, it will enable Saudi Arabia to accept the petroyuan as payment for its oil exports to China without appearing to offend the United States. However, the damage to the petrodollar as the global oil currency since 1973 is incalculable particularly when all the Gulf Cooperation Council (GCC) countries follow suit as widely expected."
Under a special deal, 50 years ago Riyadh got an opportunity to buy US treasuries bypassing the competitive bidding process. In exchange Saudi Arabia agreed to sell its oil in dollars and invest revenues into US debt; subsequently, Riyadh convinced other OPEC members to follow suit.
The "petrodollar deal" was struck several years after the Nixon administration ended the US dollar's convertibility to gold, thus turning the Bretton Woods system into a fiat one. Earlier, in 1944, US partners agreed to peg their currencies to the dollar which, in turn, was fixed to gold. Under the US-Saudi deal, the greenback became "pegged" to oil.
According to some estimates, nearly 80 percent of global oil sales are priced in dollars. However, Russia, Iran, Saudi Arabia, China, and other countries are increasingly shifting to local currencies in energy trade.
In 2022, Saudi Arabia and China were reported to be in negotiations about settling part of their oil deals in yuans. In January 2023, Saudi Finance Minister Mohammed Al-Jadaan announced that the kingdom is open to using currencies other than the greenback in its energy trade.
In November 2023, China and Saudi Arabia signed a $7 billion national currency swap deal to facilitate mutual economic cooperation, according to Bloomberg.
A month later, the Wall Street Journal reported that an estimated 20 percent of global oil deals were settled in currencies other than dollars in 2023. However, Salameh believes that the figure is poised to grow higher.
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