Petro-Dollar Pugilism: What Happens Now That Saudi’s Cancel America’s Petro-Dollar?

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“Oil is too important a commodity to be left in the hands of the Arabs.” 

~ Henry Kissinger

 The United States’ 50 year agreement with Saudi Arabia to trade oil for dollars is at end without renewal.Saudi Arabia, and the rest of the BRICS nations are making a practice of boxing the US dollar into submission.Less than 8 months ago, it seemed unthinkable for Saudi Arabia to trade oil in any other currency than the USD.On Nov. 23, 2023, OilPrice.com reported: 

Expanded BRICS Unlikely To Challenge The Petrodollar Soon

“The Chinese yuan may get a boost in BRICS+ trade, but it’s unlikely that the world’s top oil exporter, Saudi Arabia, would be willing to ditch the dollar anytime soon. The Kingdom’s currency, the riyal, has been pegged to the greenback since the 1980s and the Saudis need dollars to back it. In addition, there has not been any hint from the Saudi rulers that they are willing to make such a big shift, according to some analysts.”

 But it was already happening. China and Saudi Arabia were trading under guise of a “currency swap,” putting good will towards a future BRICS agreement. Reuters reports:

China, Saudi Arabia sign currency swap agreement

“The People’s Bank of China and the Saudi Central Bank recently signed a local currency swap agreement worth 50 billion yuan ($6.93 billion) or 26 billion Saudi riyals, both banks said on Monday, as bilateral relations continued to gather momentum…

The swap agreement, which will be valid for three years and can be extended by mutual agreement, “will help strengthen financial cooperation… expand the use of local currencies… and promote trade and investment,” between Riyadh and Beijing, the statement from China’s central bank said.”

Even though the Saudi’s currency, the riyal, is backed by dollars, the US now has more competition from the gold stacking East.China, Russia, Turkey, India, and Kazakstan all potential members of the new BRICS currency, and the top four buyers of gold have already invited Saudi Arabia to join them.And that means, Saudi Arabia could require much of the world to trade in the new BRICS currency R5 sooner than later, reducing the marketability of the US dollar and bonds even more.Much of the world is tired of the dominant dollar, which has forced them to devalue their currencies for over 25 years. While at the same time, attempting to increase the value of their products sold throughout the world.So the Saudi’s are slowly switching teams to side with their biggest buyers.China and India are buying more than five times the amount of oil products from Saudis than the US. The Observatory of Economic Complexity reports:“The top exports of Saudi Arabia are Crude Petroleum ($236B), Refined Petroleum ($45.3B), Ethylene Polymers ($13.1B), Propylene Polymers ($6.4B), and Acyclic Alcohols ($6.19B), China ($68B), India ($46.2B), Japan ($36.5B), South Korea ($36B), and United States ($23.9B).”Now that the Saudi’s are free to trade their oil in any currency…When the BRICS nations deploy their R5 international currency, what would stop the Saudi’s from supporting the value and distribution of that currency around the world like they did the US dollar?It’s a better deal without the West backing them into one the corner of the ring of the other. This time, the US Dollar will face tougher competition.More By This Author:Is LTCM Replaying Itself Out In U.S. T-bills?T-Bill And Chill? Naw Bro, We Got Gold…The New 60/40 Portfolio In 2024