by Derrick Broze, Activist Post:
Recent viral reports claim the United States and Saudi Arabia have ended their long-standing petrodollar agreement. Are these claims based in fact? And what do recent agreements between the Saudi Kingdom and China mean for the U.S. dollar?
On June 9th, 2024, a 50-year old agreement between the United States government and the Saudi kingdom expired, sparking viral claims about the end of the “petrodollar” and U.S. dollar dominance. The news has resulted in hundreds of blogs, articles, and news reports discussing the potential implications for the relationships between the two nations. This scrutiny comes right as a newly released 9/11 tape appears to show the Saudis were aware of plans to attack the U.S. at least two years before the September 11th attacks.
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However, on closer examination, the petrodollar situation is more nuanced, with the U.S. and Saudi Arabia continuing to partner while the Saudis prepare for new arrangements with China.
What Is The Petrodollar?
The term petrodollar is often used in several different ways, all of which relate to the U.S. dollar being the world’s dominant reserve currency. Most often, the petrodollar is mentioned in reference to oil being bought and sold using the USD.
The petrodollar also refers to agreements established between the U.S. and the (OPEC) during the 1970’s.The U.S. convinced the OPEC nations to invest their petrodollars into Western nations. Specifically, the U.S. convinced the Saudis to purchase billions of dollars in US debt in exchange for U.S. military equipment. In 2016, Bloomberg reported on the arrangement:
“The basic framework was strikingly simple. The U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending.”
This arrangement has been the standard between the two governments for the last 50 years. The changing of this agreement would have drastic implications, and this is why reports claiming the end of the petrodollar went viral.
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Is The Petrodollar Over?
India Today reported “Saudi Arabia ends 50-year petrodollar deal with US for multi-currency sales”, while The Federalist declared “The End Of The Petrodollar Is The End Of America’s Global Dominance”, and The Street claimed, “After 50 Years Death of the Petrodollar Signals End of U.S. Hegemony”. Even The Atlantic Council — often a mouthpiece for the Western Military Industrial Complex — jumped on the hype with a piece titled “What the end of petrodollars means”.
Unfortunately, it appears media outlets and internet pundits jumped the gun in their reporting. India Today corrected itself with the report, “Did Saudi Arabia really end petrodollar deal?”, referencing a blog post from Paul Donovan, the chief economist at UBS Global Wealth Management. In that post, titled “The dangers of confirming your beliefs”, Donovan says the viral claims are the latest example of “confirmation bias”.
Donovan acknowledges that the US and Saudi Arabia did establish a Joint Commission for economic cooperation in June 1974, including the aforementioned agreement for the Saudis to invest oil dollars in US Treasuries. Donovan also notes that oil has always traded in non-dollar currencies between nations around the world. Nations who allow their oil to be purchased in currencies other than US dollars include Venezuela and Iran.
“In January 2023, Saudi indicated it was happy to negotiate oil sales in other currencies. The possibility changes little for financial markets,” Donovan wrote.
He also warned that the viral stories may have originated from speculators in the cryptocurrency community who “desperately want to believe in the dollar’s demise”.
Donovan is not the only one attempting to stem the tide of actual fake news. The Economic Times also ran a piece titled “Petrodollar, it’s alive & flowing”. Even the corporate “fact checkers” at Politifact were surprisingly correct in their analysis that the claims of the death of the petrodollar are false.
Politifact spoke with David Wight, a visiting assistant history professor at the University of North Carolina at Greensboro, and author of Oil Money: Middle East Petrodollars and the Transformation of US Empire, 1967-1988.
“There was no formal agreement between the U.S. and Saudi governments that Saudi oil was contractually required to be sold in U.S. dollars,” Wight said.
One of the original sources for the claim of the end of the petrodollar appears to be the TipRanks financial advice blog hosted on Nasdaq.com In an June 11th post titled “U.S.-Saudi Petrodollar Pact Ends after 50 Years“, Paul Hoffman wrote, “The agreement between the U.S. and Saudi Arabia expired on June 9, 2024. This expiration has far-reaching implications, as it has the potential to disrupt the global financial order.”
The post has since been deleted and TipRanks ran a new piece offering a slight correction. In his update,”The Truth About the Petrodollar Pact“, Hoffman notes that the viral claims stem from his original report but does not admit he made an error.
“The flood of articles and social media posts claiming a longstanding ‘Petrodollar Pact’ between the U.S. and Saudi Arabia expired on June 9 (after 50 years) have unintentionally steered readers wrong,” Hoffman writes. Although he mentions his previous blog, he takes no responsibility for his role in “steering” readers wrong.
