By Alexander Miller, consultant in energy markets – Eurasia Business News, June 17, 2024. Article n°1035.

Riyadh, capital of Saudi Arabia, 2024.

In 1974, amid an oil crisis and skyrocketing prices due to OPEC sanctions, the US and Saudi Arabia struck a deal. Under this agreement, Saudi Arabia agreed to sell its oil exclusively in US dollars in exchange for military aid, equipment, and protection from the US.

This ensured a steady flow of oil to the US and a market for its debt, while Saudi Arabia received security assurances and economic support.

The deal established the petrodollar system, where oil exporters like Saudi Arabia earned US dollars from oil sales which were then reinvested in the US economy and financial markets.

Read also : How to invest in gold

This arrangement bolstered the US dollar’s status as the global reserve currency and extended American economic and political influence worldwide.

However, after 50 years, Saudi Arabia has now decided not to renew this petrodollar agreement when it expired on June 9, 2024. This allows Saudi Arabia to sell oil in currencies other than just the US dollar, potentially weakening the dollar’s dominance.

Read also : Gold : Build Your Wealth and Freedom

In summary, the 1974 petrodollar deal committed Saudi Arabia to trading oil exclusively in US dollars in return for American military and economic support, establishing the dollar as the global oil currency for decades until its recent expiration.

Saudi Arabia joined the BRICS last January.

With Saudi Arabia no longer obligated to recycle its oil revenues into US Treasury bonds, there could be reduced demand for US debt instruments. This might weaken the US bond market, making it more expensive for the US government and businesses to borrow, potentially impacting the dollar’s strength.

Read also : The BRICS Bank wants to move away from US dollar

Our community already has nearly 130,000 members.

Notify me when a new article is published:

Follow us on Telegram, Facebook and Twitter

© Copyright 2024 – Eurasia Business News