Impact of Saudi Arabia Moving Away from US Dollar in Oil Trade

Saudi Arabia's shift away from the US dollar in oil trade towards alternative markets could have significant implications for the dominance of the dollar in the global economy. The longstanding agreement known as the "petrodollar" could be coming to an end, signaling a move by Saudi Arabia to diversify its trade relationships.

Challenges to Dollar Dominance

The potential termination of the 1974 agreement that mandated Saudi Arabia to exclusively use the US dollar for selling its crude oil would challenge the traditional role of the dollar as the primary currency for international trade. The Atlantic Council highlighted that the petrodollar deal has played a crucial role in maintaining the dollar's dominance in the global financial system for the past five decades.

Changing Economic Landscape

Since the inception of the petrodollar agreement fifty years ago, significant changes have occurred in the global economic landscape. The United States' share of the world GDP has decreased from 40% to 25% since 1960, indicating a shift in economic power dynamics. Additionally, the US has reduced its dependence on Saudi oil due to a surge in domestic oil production.

Rise of Alternative Markets

Alternative markets have emerged, offering new opportunities for oil-producing nations to explore diverse trading options. China, in particular, has become a key market for Saudi oil exports, accounting for over 20% of the kingdom's oil sales. The growing economic ties between China and the Middle East have contributed to the decline of US influence in the region.

Riyadh's alignment with the de-dollarization movement reflects a broader trend towards reducing the dominance of the US dollar in global finance. Collaboration with economic blocs like BRICS and initiatives such as mBridge with China's central bank digital currency system demonstrate Saudi Arabia's efforts to diversify its financial relationships.

Implications for the Dollar's Position

If alternative payment systems gain traction, it poses a significant threat to the liquidity of the US Treasury and challenges the greenback's international standing. While the dollar is likely to retain its prominence, it may face increased competition from currencies like the Chinese renminbi, euro, and Japanese yen in the global financial landscape.

As Saudi Arabia navigates its approach towards the petrodollar, it serves as a critical indicator of the evolving financial landscape and the potential shift away from the dollar's dominant position in global trade.

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By: fdemott@insider.com (Filip De Mott)
Title: Impact of Saudi Arabia Moving Away from US Dollar in Oil Trade
Sourced From: markets.businessinsider.com/news/currencies/dollar-dominance-dedollarization-petrodollar-saudi-crude-greenback-china-yuan-brics-2024-6
Published Date: Fri, 21 Jun 2024 23:28:20 +0000