Saudi Arabia stops using Dollars in exchange for its crude oil exports but….

Introduction:

In the start of June, 2024, the world had a new headline to talk and debate about. But this time, the news was a bit more serious. It was regarding the strongest nation of the world, the United States of America and the strongest nation in the middle east, Saudi Arabia. The news caught up talks not only in the west and the middle east, but also Africa, Europe and Asia. ‘Is the domination of the US Dollar finally on a road of collapsing? Has the domination of the US Dollar ended? Is the world now moving towards de-Dollarisation? The debate caught the headline of every news article and anyone interested in finance and geopolitics can be seen talking about it. For a couple of days, YouTube was filled with videos only about this topic, ‘the Petrodollar Agreement.’

What is the Petrodollar Agreement and is it even a thing?

Anyone could easily spot articles confirming that Saudi Arabia’s 50-year-old Petrodollar Agreement with the United States has expired, with no new agreement in place. Some articles even claim that Saudi Arabia will now sell oil in multiple currencies, including the Yen, Euro, Yuan, instead of exclusively in US dollars.To understand the agreement and the story behind it, we need to jump back in time. Back to the early 70s when in 1969, Richard Nixon was elected as the 37^th US President. President Nixon is infamous in India for his open support to Pakistan in the 1971 Indo-Pak war, which eventually led to the formation of Bangladesh from East Pakistan. But, for the people of China, the people of the USA and the people of Saudi Arabia, Nixon is remembered for something else. He, during his tenure as the President, took such big steps which revolutionized the US Dollar and even decided the fate of the US Dollar for the next 50 years. He is the only US President to have a Wikipedia page dedicated to the actions he took while in office, known as ‘Nixon Shock.’ Nixon was responsible for ending the direct convertibility of the US Dollar with Gold. Nixon truly believed that any country, whether democratic or not, doesn’t matter to him, what matters is, whether the US benefits from that country or not. Henry Kissinger, former Secretary of State in the USA during the term of Nixon truly believed in this idea. Both looked at Saudi Arabia and always wondered about the bad relations with such an oil rich nation just because Saudi Arabia is a monarchy whereas the US is a democracy. They ignored the differences and shifted their focus in maintaining a healthy relationship with Saudi Arabia. In 1973, Kissinger was able to develop an understanding between Saudi Arabia and the USA regarding the future deals of crude oil. But this is entirely a ‘myth’ to state that the USA & Saudi Arabia signed an official document stating that from then onwards all the deals made by Saudi Arabia for its crude oil will only be in the US Dollars and not in any other foreign exchange and in exchange, US would provide the Arabian nation with its military for defenses against rivals and invasions and also help in the economic and technological development of the nation.

The truth or myth?

Now, there has been a broad talk regarding that the deal, known as the Petrodollar agreement which was signed on 6^th June, 1974, expired on or around 9^th June, 2024. But, for us to understand, there was no official signing of any such deals between the two nations. There is no proof in front of the world which could confirm the signing of this pact. Even if someone believes that the documents were signed, Saudi Arabia in 2023 itself sold crude oil in exchange of Chinese Yuan, which automatically means the pact had already been broken by the Arabian nation or maybe no deal or pact was ever signed between the United States and Saudi Arabia? What we can conclude from this is that a deal was never signed but an understanding was successfully developed by the US with Saudi Arabia which made the Arabian nation sell crude oil only for the exchange of US Dollars. There was no binding rule on the Arabian nation though. Had this been true, the dollar would have collapsed drastically and maybe resulting in 50 Rupees being equally valued to 1 US Dollar. But that never happened and Rupee is falling in front of the US Dollar. 1 US Dollar on 21^st June, 2024 is equivalent to 83.56 Indian Rupees. No governments from either of the two nations said anything about this agreement. But what we can conclude from this is that the world is slowly moving away from the Dollar being the dominated currency. Russia no longer accepts the dollar in exchange for its resources. But that dream is still very far away. It will take several hundreds of years for any currency to overthrow the Dollar as the hegemon. Even India’s Minister of External Affairs, Dr. S Jaishankar stated in an interview in Kolkata that de-Dollarisation is an exaggerated thought and the Dollar is still the Dollar.