In a significant shift, the Kingdom of Saudi Arabia (KSA) has decided not to renew its 50-year petrodollar deal with the United States (US), which expired on Sunday, June 9.
“Saudi Arabia’s 50-year-old petrodollar agreement with the United States has expired, with no new agreement in place,” BRICS News wrote in a post on X.
“Saudi Arabia will now sell oil in multiple currencies, including the Chinese RMB, Euros, Yen, and Yuan, instead ofexclusively in US dollars.”
Know about petrodollars
Petrodollars are not currencies, but rather US dollars traded for crude oil exports.
It is a term coined in the 1970s to refer to the US dollars earned by oil-exporting nations through oil sales, which played a significant role in global economics and geopolitics.
The petrodollar system emerged after the US departed from the gold standard, which had tied its currency to gold’s price at 35 dollars per ounce.
In 1971, US President Nixon terminated the petrodollar agreement after the collapse of the US dollar and the global economy’s oversupply of gold bullion.
The petrodollar system was established in 1972.
The petrodollar deal was signed on June 8, 1974, by US Secretary of State Henry Kissinger and Prince Fand Ibn Abdel Aziz of Saudi Arabia as part of a bilateral agreement between the two countries.
The deal insured that oil sales by OPEC members would be priced in US dollars. In exchange, the US provided military protection and economic benefits to Saudi Arabia.
The end of this deal signifies a significant shift in global economic conditions.
Aftermath of US dollar
The non-renewal of the petrodollar deal could weaken the US dollar’s dominance as the world’s reserve currency, potentially decreasing international demand for the currency.
What will happen if the deal is not renewed?
By not renewing the deal, Saudi Arabia is now able to sell oil for various currencies, including yuan, euros, rubles, and yen, and is exploring digital currencies like Bitcoin.