The 50-year petrodollar deal between Saudi Arabia and the US expired with Saudi Arabia deciding not to renew the agreement.
The decision made by Saudi Arabia marks a significant departure from the long-standing financial agreement between the two countries, which dates back to 1974. That was a period marked by the effects of the Arab oil embargo and a marked spike in global oil prices. The agreement was aimed at creating a stabilised world oil market and ensuring a steady flow of oil from Saudi Arabia to the US. In return, Washington agreed to help Saudi Arabia with military strength and economic co-operation.
Saudi Arabia’s 50-year-old petrodollar agreement with the United States has expired, with no new agreement in place, BRICS News tweeted.
The decision puts a strain on trade relations between Riyadh and Washington. Historically, the petrodollar deal has provided stability and economic benefits to both countries, but Saudi Arabia’s move signals a shift away from dependence on the US dollar.
Furthermore, Saudi Arabia’s decision comes across as a significant step towards a global de-dollarisation programme. The country now has the ability to conduct sales of its largest asset in multiple currencies. By choosing to trade oil in multiple currencies, including the yuan, euro, yen and renminbi, Saudi Arabia diversifies its foreign exchange reserves and reduces its dependence on the US dollar.
The adoption of a multipolar monetary system is in line with broader global trends by alliances such as BRICS (Brazil, Russia, India, China, South Africa) and ASEAN (Association of Southeast Asian Nations).
Saudi Arabia has recently been actively exploring the use of digital currencies. The country recently joined the mBridge project, an initiative led by the Bank for International Settlements (BIS), which is exploring a multi-central bank digital currency platform.
In addition, the expiration of the petrodollar agreement between Saudi Arabia and the US will have major implications for the global economy, as Saudi Arabia’s subsequent financial manoeuvres will open the door to a paradigm shift. The US has long benefited from the dollar’s status as the world’s dominant currency. The currency’s position has provided the US with significant economic advantages.
