Guide:
- The authenticity of the message is in doubt
- Sort out the historical context of the protocol
- The agreement makes two things clear
- A win-win cooperation between Saudi Arabia and the United States
- Crude oil trading and currency diversification
- The dollar's position is difficult to shake in the short term
Oil is decoupled from the dollar, and the hegemony of the dollar has been shaken?
Recently, a rumor that the petrodollar agreement between Saudi Arabia and the United States will not be renewed has aroused widespread attention and discussion on social media and major media platforms.
Some people extended their discussion and in-depth thinking on "global currency wars and currency hegemony", which caused the market to worry about the status of the US dollar. However, there are also those who are skeptical, believing that the story may be exaggerated or completely fictional.
In addition, it has been suggested that as the demand for oil for human use and consumption gradually decreases, the importance of the petrodollar will also diminish.
How, then, should we view and understand this phenomenon?
The authenticity of the message is in doubt
Let's take a look at the source of this news, the first to spread the news was BRICS News, but this is not the official media of the BRICS countries, but has repeatedly published unconfirmed news and often tends to report on the idea of de-dollarization.
So far, no official media, including Saudi Arabia or the United States, has published any information about it. Instead, many Wall Street economists issued statements refuting the rumors, pointing out that there was no official news about the so-called "decoupling of oil and the dollar".
Sort out the historical context of the protocol
In fact, according to public information, in 1974 there was indeed an agreement between Saudi Arabia and the United States on the right to exploit oil and to settle the currency.
Source: Internet
The agreement affirms Saudi Arabia's rights in oil extraction and stipulates that Saudi Arabia will use U.S. dollars in the pricing of oil transactions and reinvest U.S. Treasury dollars from oil exports.
This historic agreement not only established Saudi Arabia's position in the oil industry, but also established the US dollar as the settlement currency for crude oil transactions, and its central position in global oil trading.
Over time, there has been a lot of interest about whether the deal will be terminated after 50 years, or whether Saudi Arabia will renew it. Different opinions and speculations have emerged, and some have even questioned the veracity of the 50-year period.
However, regardless of whether the agreement is completely terminated in 2024, we can observe some interesting phenomena in the context of historical development.
The agreement makes two things clear
First of all, the 1974 agreement was epoch-making. It marked Saudi Arabia's nationalization of Saudi Aramco, giving it full control over the country's oil resources. It has gained huge economic benefits and has become an important force in the Middle East.
At the same time, as part of the agreement, Saudi Arabia confirmed that it will use the US dollar as the settlement currency for oil transactions. This decision not only allowed the United States to gain strategic interests and influence in the Middle East, but more importantly, strengthened the position of the dollar in the global economy.
In addition, Saudi Arabia has received military, economic, and financial assistance from the United States, making it the most important ally of the United States in the Middle East, if not one of them.
Thus, the 1974 petrodollar agreement between Saudi Arabia and the United States is not only an economic agreement, but also a bilateral agreement with far-reaching historical significance.
A win-win cooperation between Saudi Arabia and the United States
If we go back to the 1930s, it is not difficult to find that the signing of this agreement was a win-win outcome for both Saudi Arabia and the United States.
Historically, Saudi Arabia discovered rich crude oil reserves in the Persian Gulf region in 1920. At that time, Saudi Arabia was a relatively poor and backward country, with a predominantly tribal system.
In 1933, in order to make money, Saudi Arabia sold the power to explore oil in the east to the American company Chevron, which was the original prototype of Saudi Aramco.
By the end of World War II, Saudi Arabia had gradually become a country with full sovereignty. In the process, Saudi Arabia realized that its greatest source of wealth was crude oil. As a result, Saudi Arabia began to increase its stake and control over Saudi Aramco.
Over time, by 1974, Saudi Arabia owned more than 50 percent of Saudi Aramco, and an agreement was reached to nationalize all of Saudi Aramco in 1980.
But the ownership of Saudi Arabia and the United States was not unconditional, after all, it was an American company at the time. The fact is that in 1974 the United States also had a strong will to broker the agreement.
Source: Internet
In 1968, the United States was mired in the Vietnam War, stagflation economically, and on the defensive in its struggle for hegemony with the Soviet Union.
By the end of 1973, the famous Bretton Woods system collapsed, and the dollar-gold peg system existed in name only, triggering a depreciation of the dollar and market panic.
In order to maintain the dollar's position as the world's main trading currency and reserve currency, the United States urgently needs to find a new anchor commodity – crude oil, as one of the world's most important commodities, has great value for the United States.
As a result, Saudi Arabia and the United States hit it off and reached this win-win deal. This historic partnership has not only changed the fortunes of Saudi Arabia and the United States, but has also had a profound impact on the global economy.
Crude oil trading and currency diversification
Time flies, and after half a century of vicissitudes of life, the global political and economic landscape has undergone profound adjustments.
Among them, the economic rise of many countries and regions has promoted the diversification of international trade settlement currencies and foreign exchange reserve currencies. In this context, it is particularly necessary and reasonable for Saudi Arabia, as a political and economic power, to enter a diversified currency settlement system for crude oil trade in order to pursue a greater degree of independence.
Saudi Arabia is currently the largest buyer of oil. Saudi Arabia officially accepted the renminbi as the settlement currency for oil trade in May 2024, and joined the "mBridge" digital currency project (a replacement for SWIFT) initiated by China, Thailand and the United Arab Emirates in June.
As for the future status of crude oil trade, will it change? This is groundless. Although the rise of new energy sources has sparked speculation that the market will reduce its dependence on crude oil, from the perspective of energy substitution, coal will be the first to be replaced on a large scale, and the demand for crude oil will continue to grow for the foreseeable future.
Most agencies report that in the next two or three decades, or even longer, crude oil will remain the main source of energy for mankind and an important raw material for the chemical industry. Therefore, the importance of crude oil trade cannot be overlooked, and the significance of crude oil pricing power is even more important.
In the future, the use of the dollar in crude oil pricing or trade will undoubtedly be a fatal blow to the international status of the dollar.
However, we must recognize that this change will take time. Although Saudi Arabia and other oil-producing countries are willing to adopt diversified settlement methods, the current global crude oil trade is still dominated by the US dollar.
The dollar's position is difficult to shake in the short term
In fact, Saudi Arabia is in the early stages of seeking more currencies to settle its crude oil trade.
It is worth noting that although Saudi Arabia is the world's most important exporter of crude oil, it is not the only oil producer. Therefore, the US dollar will remain the main settlement currency for a long time to come. Although we do not rule out a possible trend towards de-dollarization, the decline in the share of dollar settlements will be a slow process and will not happen overnight.
In addition, a new "Made in Australia" investment research report will be released soon. This report is based on the investment research team's comprehensive research and research on the Australian federal budget and the Australian manufacturing industry, and provides an in-depth analysis of the main areas of Australian manufacturing design, including new energy, mining, high-end technology, etc., and the report will analyze in detail the development direction and future opportunities of these industries.
On July 3, Julius, co-founder and chief investment officer of Boman Group, will interpret the details of the manufacturing bill promoted by the Australian government online and discuss the investment inspiration brought by the bill.
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The Australian government is pushing for the manufacturing bill, how do the people benefit?
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July 3 1pm Australian time!
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